However, it would be safer to follow general policies that are being followed even now. This means that one should pass on published information to shareholders on the Internet as it would be simpler and less expensive to send. This may include information about quarterly results, monthly turnover, changes of directors, appointment of new sales agents, general trends of markets at certain times, etc. The question would still remain as to how many shareholders would be competent enough to use this information and the passing on of information may result for the clients as an exercise of garbage in, garbage out.
5. Discuss the legal boundaries, including privacy issues. What exceptions if any exist to allow for the use of such data? If they do not exist, how would you counter the privacy advocates concerns?
Some experts believe that privacy concerns will ultimately reduce the growth of the Internet generally and…...
mlaReferences
Insider Trading" U.S. Securities and Exchange Commission. Retrieved at Accessed 15 October, 2005http://www.sec.gov/answers/insider.htm .
Is Government needed to watch online markets?" (11 November, 2002) Harvard Business
School. Retrieved at Accessed 15 October, 2005http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci864459,00.html .
Ivancevich, Susan; Jones, Lucian. C; Keaveney, Thomas. (December, 2002) "Don't Run the Risk" Journal of Accountancy. Retrieved at Accessed 15 October, 2005http://www.aicpa.org/pubs/jofa/dec2002/ivance.htm .
Further complicating the issue is that the definition of insider trading differs from one jurisdiction to the next. Given the increasing globalization of business, it seems unreasonable that we can continue to exist in a world with a poorly-defined and highly variable definition of insider trading.
The everyday investor, certainly, cannot invest with any confidence under the present circumstance. Efficient market theory demands that information be perfect, but it is difficult to guarantee that given the vast number of stocks trading on our stock exchanges today.
Whatever the solution, it should be tailored with specific objectives in mind. These objectives should take into consideration what stock markets should be. The original intent was to provide a means for companies to raise capital, and that is still a critical function today. However, they are also the places where people, everyday citizens, have their life savings stored. That makes stock markets a critical component…...
And the ability to know when to sell shares made the executives careless in their management, as they would know when they could "cut their losses."
Critics of insider trading laws would contend that the problem with Enron and WorldCom was insufficient oversight of these corporation's accounting procedures, not insider trading. The criminal behavior was not the fact that key executives knew when to buy and sell their shares, but their manipulation of company profits. Even many sophisticated investors were duped. And finally, the credit crisis of 2007 shows how no human being can perfectly predict market behavior, and is often duped by misleading indicators. Inside information is no guarantee of financial largess.
Legally, insider trading can be difficult to prove -- it must be demonstrated that the person sold their stock in an irregular fashion based upon non-public information he or she demonstrably possessed prior to the "fire sale" of…...
mlaReference
Boatright, John. (2009).Ethics and the conduct of business. 6th edition. Prentice Hall.
Even if he hints around in a non-direct way that his friends should sell their stock without coming out and saying it, he may be guilty of insider trading because the information on the merger has not yet been made known to the public.
This is unethical and what the corporate officer should steer the conversation in a different direction and if his friends insist on continuing to ask questions he should firmly, but politely tell them he is not allowed to discuss personal company information with them.
Likewise, an employee has a certain amount of fiduciary responsibility if he knows that there are fraudulent practices happening at the corporation. If the employee knows that there is insider trading or if he knows that the accounting practices the corporation is using are dishonest, then he has an obligation to report what he knows. Some employees, especially if they do not hold…...
mlaBibliography
Hoffman, Drew, "Martha Stewart's Insider Trading Case: A Practical Application Rule of 2.1," The Georgetown Journal of Legal Ethics 20, no. 3, (2007): 707-717.
James, Randy, "A Brief History of Insider Trading," Time, November 9, 2009. (accessed August 9, 2010).http://www.time.com/time/business/article/0,8599,1936562,00.html
Jennings, Marianne, "The Lessons from Galleon Hedge Fund and the Insider Trading Ring," Corporate Finance Review 14, no. 5, (2010): 43-46.
Khan, Walayet A. And Asjeet S. Lamba, "The Effectiveness of Legal Sanctions in Curtailing
Although permitting access to key corporate information by all employees could generate an insider trading nightmare (Fishman & Hagerty 110).
Possible solutions to the conflict
One question that everyone is asking is; how can this conflict be resolved? A palpable, simple, and stout approach would be returning the choice of insider trading regulation to individual firms. It is difficult to make out an externality that would validate putting this decision into the hand of a regulator. The most reasonable story that can be imagined is that board directors might disregard what is excellent for stakeholders and do just what fits the insiders. If this story was not found to be reasonable then firms could just be allowed to decide how to weigh any costs from daunting investment through unfavourable selection alongside any gains of using prediction markets to advance corporate information and coordination efficiency. This resolution, however coercing, seems politically infeasible…...
mlaReferences
Brandenburger, a. & B. Polak. "When managers cover their posteriors: Making the Hanson, R. "Decision markets." IEEE Intelligent Systems 14(3) (1999):16 -- 19.
Hatter, a. And E. Trapasso. Managers say the majority of information obtained for their work is useless, Accenture survey finds. 2007. 11 March, 2010. .
Huddart, S.J., et al. Pre-announcement of insiders' trades. 28 June, 2004. 11 March, 2010.
Insider Trading
On June 4, 2003, the Securities Exchange Commission announced that it was pursuing charges against investor Martha Stewart and stock broker Peter Bacanovic for securities fraud. The fraud occurred on December 27, 2001 when Stewart sold stock in ImClone Systems, after receiving an unlawful tip from Bacanovic, who at the time was working for Merrill Lynch. The SEC also accused the two of attempting to cover up the insider actions, and of making false statements regarding the ImClone trades to SEC investigators (SEC, 2003). Stephen Cutler, the SEC director of enforcement said in the SEC's press release about the charges that "It is fundamentally unfair for someone to have an edge on the market just because she has a stockbroker who is willing to break the rules and give her an illegal tip. It's worse still when the individual engaging in the insider trading is the Chairman and CEO…...
mlaWorks Cited:
AP. (2004). Martha Stewart convicted on all four counts. Fox News. Retrieved April 13, 2013 from http://www.foxnews.com/story/0,2933,113417,00.html
Heminway, J. (2003). Save Martha Stewart? Observations about equal justice in U.S. insider trading regulations. Texas Journal of Women and the Law. Vol. 12 (247).
Moohr, G. (2006). What the Martha Stewart case tells us about the white collar crime. Houston Law Review. Vol. 43 (2006).
Podgor, E. (2005). Jose Padilla and Martha Stewart: Who should be charged with criminal conduct? Penn State Law Review. Vol. 109 (Spring 2005).
The rules as they are presently enforced only require elected Members and "…about 2,900 of the highest-paid congressional aides to disclose information once a year on their finances" (including gains from trading stocks), Mullins and colleagues point out. hat is wrong with that fact is that all aides, not just top aides, should be held accountable for investments they make, in particular those investments made by companies that are in any way connected to legislation that the aides' bosses are working with.
Taking it one step farther, all Members of Congress and all their aides -- top legislative assistants and the underlings of those top echelon staffers -- should be not only be required to disclose their personal finances, but they all should be banned from using any insider information in order to profit. hen they get back into private life, there still could be restrictions on what investments they make.…...
mlaWorks Cited
Mullins, Brody, McGinty, Tom, and Zweig, Jason. "Congressional Staffers Gain From Trading
In Stocks." The Wall Street Journal. (2010).
The Wall Street Journal. "Capitol Hill's Stock Trading: What the Academic Research
Concludes." (2010).
In other words, trading based on private information might benefit investors, as it stimulates a quicker absorption of new information into the markets, making them more efficient.
It is clear that insider trading continues despite vigorous enforcement of the existing regulations. This is because of the difficulties in detecting and prosecuting it. Further regulations will only add unnecessary complexity to market participants and eventually bind the already limited resources of enforcement agencies, which could be used more usefully. (Letters to the editor, 2007)
This novel (and presumably accurate) information will be beneficial because, these economists argue, markets are most efficient when there is the highest possible amount of information in circulation. The majority of economists, however, believe that insider trading is detrimental to the most efficient functioning of the marketplace -- as well as being detrimental to the most ethical functioning of the market.
Analysis and Discussion
Money, we are frequently reminded, is…...
mlaReferences
Fishe, R. & . Robe, M. (2004). The Impact of Illegal Insider Trading in Dealer and Specialist Markets: Evidence from a Natural Experiment. Journal of Financial Economics 71(3): 461-88.
Harris, L. (2003). Trading and exchanges. Oxford: Oxford University Press.
Henning, P. (2011). Why insider trading is wrong. http://dealbook.nytimes.com/2011/04/11/why-is-insider-trading-wrong/ .
Jones, T. (1991). Ethical Decision Making by Individuals in Organizations: An Issue-Contingent Model. Academy of Management Review 16(2): 231-248.
Insider Trading
All of the individuals were engaged in insider trading. They all obtained their knowledge by way of an insider, in this case a member of the Board of Directors. Any trading based on knowledge acquired by an insider, regardless of the degrees of separation is considered to be insider trading. Thus, the ex-husband clearly knew of his ex-wife's position. He passed the information along to his dentist, who may or may not have known the source of the information. Certainly, the dentist's broker would have had pretty good reason to question what the source of the information was, knowing that this sort of information is not just randomly acquired.
All of the parties are culpable, though the degree might vary. The broker, Green, has a high level of culpability as an industry professional. Green would have known that such knowledge is not easy to come by and there was significant…...
mlaReferences
No author (2009) Raj Rajaratnam and insider trading. Seven Pillars Institute. Retrieved April 29, 2016 from http://sevenpillarsinstitute.org/case-studies/raj-rajaratnam-and-insider-trading-2
SEC.gov (2004). SEC charges Martha Stewart, broker Peter Bacanovic, with illegal insider trading. SEC.gov. Retrieved April 29, 2016 from https://www.sec.gov/news/press/2003-69.htm
Wealth, Power and Insider Trading on Wall Street
In today's increasingly internationalized worldwide economic system, defined by the expansion of multinational corporate conglomerates into foreign shores, the necessity for effective and efficient financial regulation to prevent criminal conduct covered by the catchall term "insider trading" has never been greater. Whereas autonomous countries once maintained clear authority over businesses which were built on their shores, through levying taxes, enforcing fiscal regulations, and instituting a lawful system of commerce, today the most successful companies are those with the wherewithal to transfer their operations abroad. Global financial management requires a comprehensive comprehension of foreign exchange and currency markets, derivatives securities, international financial debt and equity markets, international portfolio investments and the global market for real assets. Due to the fact that "financial markets and intermediaries today are globally linked through a vast international telecommunications network," with this continual process resulting in "the trading of…...
mlaReferences
Domhoff, G.W., (2010). Who rules America? Challenges to corporate dominance (6th ed.). New
York, NY: McGraw-Hill
Harrison, B.C., & Dye, T.R., (2011) Power and society: An introduction to the social sciences
(12 th ed.). Boston MA: Wadsworth
Speculating has become such a common practice in the stock market that it is an essential element of a proper stock market. It is doubtful that the stock market values would be anywhere near its current value if not for speculation.
Goldman Sachs Investigation
The Goldman Sachs investigation inquires into whether traders at a number of hedge funds and trading firms, improperly gained nonpublic information from Goldman Sachs (who gained the information from industry informants) about pending health-care, technology and other merger deals.
In the Goldman Sachs situation, certain traders benefited from privileged information of impending mergers by buying stock on those mergers before the merger was officially announced.
Thus, they were able to acquire a promising stock at a lower price than they would have otherwise. They profit by selling the stock after the merger announcement induces other traders to buy the stock and push the stock price up.
According to Werhane, the…...
mlaBibliography
James B. Stewart, Why Practice Insider Trading? Just Watch Warren Buffet Instead. Wall Street Journal Online. May 5, 2011.
Susan Pulliam, Michael Rothfeld, Jenny Strasburg and Gregory Zuckerman, U.S. In Vast Insider Trading Probe. Wall Street Journal Online. November 20, 2010. http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html?mod=googlenews_wsj
Patricia Werhane, the Ethics of Insider Trading.
Ashby Jones, Galleon Insider Trading Probe Fingers Former McKinsey Head. Wall Street Journal. March 1, 2011. http://blogs.wsj.com/law/2011/03/01/galleon-insider-trading-probe-fingers-former-mckinsey-head/
They are definitely a group that is picked for their passion for government affairs and who keep abreast of economic trends that affect the country.
Also, it is not necessarily the case that one who has insider knowledge will necessarily use it. One legislative aide remarked that he bought his shares at 12:50 P.M. On a date well after it was widely reported in the media.
It is extremely important that the Government create regulations to address insider trading. However, it may prove futile to prevent insider trading only, as the real danger of insider knowledge is that it might be passed on to larger groups of investors associated with congressional staff. Considering this, it may be necessary to create a new non-partisan agency to investigate the dealings and associations of congressional staff.
Partly because of the recent financial meltdown and the Government's self-interested response to it, citizen anger and distrust for…...
mlaBibliography
Capitol Hill's Stock Trading: What the Academic Research Concludes, OCTOBER 11, 2010. Wall Street Journal.
BRODY MULLINS, TOM MCGINTY and JASON ZWEIG, Congressional Staffers Gain From Trading in Stocks, OCTOBER 11, 2010. Wall Street Journal.
BRODY MULLINS, TOM MCGINTY and JASON ZWEIG, Congressional Staffers Gain From Trading in Stocks, OCTOBER 11, 2010. Wall Street Journal.
Capitol Hill's Stock Trading: What the Academic Research Concludes, OCTOBER 11, 2010. Wall Street Journal.
Goffer made over $300,000 from the illegal deal. As the case expanded, 13 others were also charged. Altogether, they had acquired approximately $40 million or more in profit during the years 2006-2009 (Krantz). And the list could go on and on.
Conclusion - How Does Illegal Insider Trading Affect the Market and Economy?
Unfair advantage. Violation of transparency. Disruptive of a properly functioning market. Investors no longer invest. It begins with the first one and ends with the last. Trading in the market, whether by a professional or an amateur is based on skill and luck. One investor can perform better in the market because he or she learns how to acquire more skill in analyzing equities. But, if one person has an advantage such as inside corporate information no one else has, and he uses it to trade, he now has an unfair advantage (Heakal).
Transparency is now violated in the…...
mlaWorks Cited
Heakal, R. "Defining Illegal Insider Trading." n.d. Forbes Investopedia . 18 December 2009 .
Hoffman, D. "Martha Stewart's Insider Trading Case." 1 July 2007. allbusiness.com. 18 December 2009 .
Krantz, M. "On warpath, SEC charges 11 with illegal insider trading." 15 July 2009. usatoday.com. 18 December 2009 .
ProCon.org. "Should Insider Trading by Congress be Allowed?" 11 August 2009. ProCon.org. 18 December 2009 .
(Johnson, "Impact of Day Trading," 2000) and the effects on the irresponsible individual could be devastating if he or she didn't "jump" at the right time. After losing everything while day trading, one unstable man "shot and killed nine people in Atlanta in a two-day spree. Just two weeks after the shooting, the North American Securities Administrators Association released a report stating that seven out of ten" of all day traders lost everything."
But what about the overall effect markets? Some analysts concede that while day traders added volatility, a small dose of volatility in a sluggish market environment can prove a positive ingredient. Volatility might be difficult to stomach, but "volatility is the lifeblood of the markets. If prices don't change, trades don't happen. If trades don't happen, stocks are superfluous. ithout stocks, new business would not get funded, new fortunes would not be made, and new technologies would…...
mlaWork Cited
Finance / Program Trading. (2004) Excerpt from the New York Times, Dec. 15, 1987. Also excerpted from the Association for Computing Machinery (ACM) Risks Forum, Forum on Risks to the Public in Computers and Related Systems. Retrieved 3 Dec 2004. http://mt.sopris.net/mpc/finance/program.trading.html
Forex. (January 19, 2004) Forum, Forum on Risks to the Public in Computers and Related Systems. Retrieved www.forex.com
Stock trading: The ultimate handbook. (2004) Daytrader.com. Retrieved 3 Dec 2004. http://day-trader-coach.com/
Johnson, Cory. (2000) "Trillion Dollar Bet." NOVA. PBS. Retrieved 3 Dec 2004. http://www.pbs.org/wgbh/nova/stockmarket/online2.html
UK's Membership of EU and its Impact on Insider Trading
The European Union has recently introduced criminal sanctions in all its member countries in cases of market manipulation and insider trading. The new regulations are quite strict and are essential in reforming the financial markets. There are two directives Market Abuse and Criminal Sanctions [footnoteRef:1]and MFID [footnoteRef:2] have been introduced recently by EU in their pursuit to eliminate market manipulation and insider trading. [1: Criminal sanctions include fines up to £5million with a limit of the minimum amount of all the profits that are made through insider trading. ] [2: MFID stands for Markets in Financial Instruments Directive, this directive was introduced to protect insider trading dealings]
The criminal sanctions already exist in UK laws, however these sanctions are meant to have a greater impact on those member countries where leniency have been obtained in cases o insider trading and the punishment…...
Potential Consequences of Breaching Fiduciary Duty in a Business Setting
Fiduciary duty is a legal obligation imposed on individuals who have a special relationship of trust and confidence with another party, such as corporate directors, officers, and agents. This duty requires them to act in the best interests of the party they represent, exercising a high degree of care and loyalty. Breaching this duty can have severe consequences, both legal and financial.
Legal Consequences
Lawsuits: Breaching fiduciary duty can give rise to various lawsuits, including breach of contract, fraud, negligence, and misappropriation of assets. The affected party, such as the company or....
Trader Awareness in Future and Option Trading: Insights from Literature Reviews
Literature reviews on trader awareness in future and option trading offer valuable insights into the challenges and opportunities faced by traders in these markets. Here are some key findings and implications:
1. Importance of Financial Literacy and Understanding:
Studies indicate that low levels of financial literacy among traders contribute to poor trading decisions and increased risks. Literature reviews emphasize the need for traders to possess a thorough understanding of futures and options markets, including their risks and rewards. (Reference: [1])
2. Challenges of Information Overload and Bias:
The availability of vast amounts of information....
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