Question

ETHICS PROBLEM  The Securities Exchange Act of 1934 limits, but does not prohibit, corporate insiders from trading in their own firm’s shares. What ethical issues might arise when a corporate insider wants to buy or sell shares in the firm where he or she works?

Answer 1

Insider trading refers to buying and selling of a company stock, securities, bonds or stock options by persons who have access to privy information about the company's activities especially information which has the capacity to influence the price of the company's stock on the exchange. The securities and exchange act of 1934, attempts to ensure that no individual is discriminated against or put that a disadvantage as compared to another when investing in a company. When the stocks of a company are traded buy a director, manager employee of the company on the basis of material and confidential information which may not be available to the general public they calls the other traders in the same stock to be at a disadvantage while availing special benefit and advantages for themselves. At times this may also result in substantial harm being caused to other individuals not having the specific information. When insider trading is interesting not for the benefit of the company others involved but to profit personally from the trading by misusing the confidential information it results in unethical practices. There are various means of insider trading which may be illegal and unethical. It is not necessary that a person having access to confidential non public Information themselves indulged in trading of the stocks but me instead trade the material information likely to impact the company stocks in the near future to certain individuals who may benefit from such information by indulging in the trading. It is the job of the securities and exchange Commission to ensure that every shareholder receives similar and equal information while making a choice to invest in a certain company. Insider trading creates discrimination making the choice unequal, thereby vitiating the environment while causing loss of trust among other investors operating within the exchange. It is essential that insider trading be better monitored and control through clear identification of the types of trading which are illegal while allowing for legal trading in certain cases where the people working for the company have the right to invest in a company as a reward for the efforts and also in cases where such activities in digestion for the benefit of the company itself and its shareholders to provide strength to the company financially or in times of crisis to save the company from dissolution. It is not always that insider information may be used in an illegal manner to cause harm or discrimination but can also result in gains for the company and all shareholders. also all material and confidential information may not necessarily be traded a personal benefit but maybe at times divulged unknowingly during an innocent conversation and be overheard my other passive strangers who may use it for their benefit.

When a corporate inside wants to buy or sell shares in the firm way he or she works the need to ensure that it is ethical by making the decision for a long-term investment on the basis of faith in the future performance and growth of the organisation rather than due to access to material and confidential information which could provide short term gains from large impact on the stock value in the short term.