Question

Ethics CaseInsider Trading: Have I Got a Stock Tip for You!

1.  Discuss whether it would be unethical to buy a stock based on some information you found in the trash that had been thrown away by mistake.

2.  Suppose you are the printer who has been given the job of preparing the official announcement of the FDA report. Can you use that information for personal gain? Why or why not?

3.  Some argue that insider trading brings information to the market more quickly and thus is morally acceptable on the grounds of efficiency. Do you agree with that argument? Why or why not?

Answer 1

1. Trading based on some random information available from trash is both unethical and unprofessional in nature. The purpose of trading is to invest in financial instruments that after careful investigation the investor believes is a good investment. If an investor buys a stock based on some information he got from a chit in dustbin, then this is no longer trading but is gambling as:

A. He does not have any assurity the information is correct

B. He does not know if this is insider information and if it is, trading based on this information is illegal

2. FDA information is confidential is nature and can have huge market impact once it comes out. Thus when the job of printing confidential FDA information is given to me, an agreement would already be signed in which it is mentioned that any information obtained is confidential in nature and no one is allowed to share or act upon this information. Thus if I act on this information, then that is a breach of the service contract signed which can be taken to court and can lead to severe consequences like jail, fines etc.

3.Insider trading brings information to only selective participants and not to all participants. Thus insider trading is being partial in nature and making it disadvantages for oyher market participants. Thus here few market participants are making gains at the expense of few others who do not have this particular information. This is unethical as its equivalent to fooling the participants who do not have some information. This affects the market efficiency in the market place. Thus it is wrong to say that 'insider trading brings information to market more easily and is morally acceptable '.