Insider Trading Regulation

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Economics (general) By: Please log in to see tutor details
Subject: Economics » Economics (general)
Last updated: 10/05/2018
Tags: company, insider trading

'Insider Trading Rregulation': To Be Or Not To Be

Insider trading may be defined as the act of trading in company securities by persons often referred to as insiders, who by virtue of their relationship to the company, possess some information, not available to the public, but material to the securities concerned.

There are two schools of thought with strong and divergent views on the effect of insider trading generally, and particularly as it affects the stock market and the investing public. The proponents of the first school of thought encourage trading on insider information for its many advantages. According to them, the stock market generally feeds and grows on free flow of information. Disallowing insider trading would mean hampering the flow of trade. Furthermore, they have argued that insider trading is fundamental to capitalism because it pushes prices in the right direction, increases the number of transactions and provides the only real recompense for entrepreneurs.

The other school of thought vehemently advocates the outright prohibition of insider trading. Members of this school readily point to its negative effects. In fact, it seems to be the majority view that insider trading has done more harm than good and should be prohibited. This view is premised on the belief that insider trading threatens the securities market.

Regardless of the negative effects of insider trading as adjudged by its promoters, I believe that the benefits that flow from the act are not only meritorious but also highly commendable. Therefore, its prohibition initially through the general principle of common law and equity, and now by the various legislative instruments is void of fairness and equity. I frown at the legislation uncompromising prohibition of insider trading at the expense of its positive effects on investors, the corporation and the society in general.

This is a working paper. The main article paper will be published when concluded.

Omowunmi Adedurotimi University Law Tutor (South West London)

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