Jun 6, 2020 By : Athul Rajeev, Venteskraft.
Insider trading is the sale of the stock or other assets of a business (e.g. stock options or bonds) by persons. Connected to the company with direct access to non-public knowledge about the company which not commonly available to the general public. It is essentially in a nutshell the trading of an enterprise or corporation’s stocks or securities by a person or persons with knowledge or information about the enterprise that is not public knowledge. The insider trading was legal in most cases. However, when content non-public knowledge is accessed and used to have an benefit or advantage, the activity is illegal.
Insider trading can be illegal or legal depending on when the insider makes the trade. It’s illegal when the material information is still non-public trading while having special knowledge is unfair to other investors who don’t have access to such knowledge. Accordingly, illicit insider trading includes tipping others when you have some kind of non-public knowledge.
Insider trading is legal until the confidential information is made public, and the insider has no unfair advantage over other investors at the time. However, the SEC also demands that all insiders reveal all their transactions. Since insiders have an insight into their company’s workings, it may be wise for an investor to look at these reports to see how insiders trad their stock legally.
The following unpublished information can be considered as price sensitive:
1) Financial results of the company
2) Intended declaration of dividend
3) Issue of hares by way of public rights, bonus, etc
4) Any major expansion plans or execution of new projects
5) Mergers and takeovers
6) Disposal of the whole or substantially the whole of the undertaking
7) Any other details which may affect the Company’s earnings
8) Any changes in policies, plans or operations of the company
Connected persons include the following
1) Director of the Company
2) Person occupying the role of Officer or Employee of the Company
3) Person holding a role involving a professional or commercial relationship between himself and the Company and who may reasonably be presumed to have access to confidential price-sensitive information relating to the Company.
WHY INSIDER TRADING
Insider-trading should be sought:
- Benefit the company unethically purchasing and selling its shares by hiding price-sensitive details.
- Gain the individuals who engage in this unethical practice
WHY CONTROL INSIDER TRADING
The basic purpose of insider trading protection is to protect investors. Other related objectives include safeguarding the company’s interest and reputation, maintaining confidence in stock exchange operations, and maintaining public confidence in the entire financial system.
There’s nothing morally wrong with this kind of trading. Where’s the force or fraud involved in consensual conversation. Insider trading is a government scheme to control corporate speech and to benefit a small number of insiders and financial players. One obviously corrupt exemption is the congressional one. Legislators and other government agents can trade on their inside knowledge without penalty.
