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Insider Trading

Introduction

Insider trading refers to transaction of the securities of a company, like options or stocks. This transaction is carried out by insiders or their associates, based on information that arises within the company. Once publicly disclosed, it impact the prices of the company's securities (Jagolinzer, Larcker, and Taylor, pp.1250). Corporate insiders refers to the employers of a firm who have the privilege and authority to access “inside” information, using it to their own advantages and long-term gains. A common view regarding insider trading is that it is an unethical or illegal trading; however, this is not the case in reality. Though not all the types of insider trading amay be legal, some types of it are (McGee, pp.65). Our society has witnessed several illegal and unethical forms of insider trading; due to which, this negative perecption has always been associated with insider trading.

This paper aims to demonstrate different aspects of insider trading in order to draw upon the conclusion of various misuses of inside information for trading and demonstrates and understanding about the positive consequences and terms of the practice at large.

Discussion

Insider Trading and Regulatory Authority

According to Ms. Thompsen, Enforcement Director of Securities and Exchange Commission, insider trades has continued to be the enforcement priority, as it historically accounts for seven to twelve percent of the lawsuits bring up by the Security and Exchange Commission every year. Although insider trading is prioritized, it is also indicated that bringing cases of insider trading gives rise to several difficulties including that apprehensive trading that is really complex (Burke & Jarkowski, p.17). Nevertheless, Ms Thomsen pointed out that since the year 2001, the commission has brought three hundred actions against six hundred people and entities due to insider trading violations. As a result, millions of dollars have been frozen by the commission in illegitimate trading proceeds. Thus, it indicates that illegal insider trading has been on the verge, regardless of the regulations applied by legislative bodies and companies. Actions of regulatory authiorities will definitely provoke further investigations and explorations in the area of inside trades. Companies have to re-evaluate their policies, supervisory control, and procedures in order to identify what is lacking, and must apply pre-emptive remedial measures if these issues linger on (Burke & Jarkowski, p.18).

Various Legal Acts involve different provisions that guide companies how they should be undertaking inside trades. An example may be the section 15(f) of Exchange Act or section 204A of Advisers Act. According to these provisions, a company's “information wall” must involve measures that seek to protect the company's information from a possible exploitation. These measures must include fundamentals such as employee trading observations, inter-departmental communications supervision, and a proprietary dealing review if the company is in control of private information. Documentation of the company must involve clear and comprehensive compliance policies and procedures, and employee must be trained and educated regarding insider trading aspects (Burke & Jarkowski, p.18-19). These measures can help companies in avoiding illegal insider trading, which ...