Insider trading

Insider trading in financial securities occurs when an employee of a company decides to buy shares from the company that s/he works for. Two laws demonize the action, i.e., the insider trading sanctions act of 1984 and the 1988 act on trading and securities exchange, provided that the person who undertakes the insider trading must pay a fine that surpasses three times the profits that he gains from the trade (Mohsin, 2020). Though the laws were prerequisites for ethics in the work organization, it was hard to prosecute individuals since employees can hide under the names of their friends and buy shares in the company thereof. It is prudent to note that insider trading will only be profitable if the prices move and when the insiders are allowed to trade, they will change with such a zeal that marketing and improve the company. When doing the inside trading, the employee will use the accurate information they have, such as cutting costs, seeking new products, and so many other acts that will profit the insider traders and have tremendous benefits to the company itself. The firm’s security holders depend on insider trading for exponential growth, and when the trading from inside is legalized, firms will perform better. Insider trading should be trading because it allows accurate information to flow during the transactions, and information is the main asset for trade (Rowe, 2021). The argument against it is that it promotes unfairness because the information will not be shared; equally, its legalization must come along with restrictions to be fair and beneficial to organizations other than private individuals.

References

Mohsin, K. (2020). Insider Trading in India in Comparison With USA. Available at SSRN 3687905.

Rowe, J. (2021). Insider Trading: Has Society Handcuffed Market Efficiency without Cause?. Available at SSRN 3828960.