business

1. INSIDER TRADING AND
ITS IMPLICATIONS
A University of the
People Group
Presentation by:
• Abu
• Obaji
• Rahman
• Saho
• April L. White
Pugh
• Sewe

2. OVERVIEW
What is insider trading? This presentation will highlight the
following implications for insider trading
Legal
Ethical
Socio-Economical

3. WHAT IS INSIDER TRADING?
• Insider trading refers to transactions in a company’s securities, such as stocks or options, by
corporate insiders or their associates based on information originating within the firm that, if released
publicly, would alter the pricing of such securities. (Dologopoloy, n.d.)
• Corporate insiders are individuals who have privileges access to the corporation’s internal affairs due
to their employment with the firm (as executives, directors, or sometimes rank-and-file employees)
or their preferential access to the corporation’s internal affairs (as major shareholders, consultants,
accountants, lawyers, and so on. (Dologopoloy, n.d.)
• Sec affirms that illegal insider trading happens when a security is purchased or sold in violation of
fiduciary responsibility or other trust and confidence relationships while in possession of meaningful
nonpublic information. Insider trading offenses can involve “spilling” such information. (Sec
Enforcement Actions-Insider Trading Cases, 2019).

4. INSIDER TRADING: LEGAL IMPLICATIONS
• When the material statistics or details are still private, Insider trading is illegitimate, and this kind of insider trading arrives with a tough
implication (Ganti, 2021). According to Ganti, (2021) Material private statistic is any statistic that could significantly impact a shareholder's
decision to purchase or sell the security that has not been provided to the public. This form of insider trading is illegitimate and comes with
serious punishment including both possible fines and jail time (Ganti, 2021).
• Insider trading, nevertheless, can be legitimate providing it is in obedience to the rules set forth by the SEC.
• The question of legitimacy comes from the SEC's attempt to keep an equitable marketplace. A person who has access to insider statistics would
have an unjust edge over other shareholders, who do not have equal opportunity to the statistics and could possibly make bigger, unjust profits
than their fellow shareholders (Ganti, 2021).
• Bearing in mind of the case mentioned, the individual that we know has understanding of a merger which is yet to occur which implies
information is private as only a hand full of the people knows about it and founders of the organizations are going to benefit immensely from it
which implies the statistics is material. Understanding of the same is not illegitimate or does not account for insider trading unless and until any
step is taken with regard to it.

5. INSIDER TRADING: ETHICAL
IMPLICATIONS Fairness Breached
• All market participants do not have an equal opportunity to exploit the information used to
execute insider trades (Wenzel, n.d.) due, in part, to failure of a cost/benefit test, depriving
citizens of a peculiar kind of benefit that requires the cooperation of many people in
maintaining a credible securities market (Struder, 2009).
• Can cause investors without insider trading information to feel powerless and no longer
wish to participate in exchanges, which can interrupt the flow of financial markets (Wenzel,
n.d.).
• Shortchanges investors without nonpublic information of receiving the full value for their
securities; thereby undermining confidence in the financial system and making it difficult for
companies to raise capital (Sebastian, 2022).

6. INSIDER TRADING: SOCIO-ECONOMIC
IMPLICATIONS
• In economic terms, insider trading refers to trading by parties who are more knowledgeable
than their trading partners. In other words, insider trading encompasses any trades in which
information is unequal, whether in securities or not, in which one of the parties possesses better
information. (Calton and Fischel, 1983).
• Insider trading may improve the business’s worth or diminish the value. This is dependent on
the structure of the production function. The parameters in the production function can either
boost or diminish form value. (Ausubel, 1990; Calton and Fishel, 1983; Leland,1992; and
Manove,1989)
• Insider trading improves the efficiency of securities markets by bringing the current market price
closer to the future post-disclosure price. In other words, even if the transactions are
anonymous, insiders’ activities communicate future price trends to others and cause the present
stock price to reflect significant information sooner. (Dologopoloy, n.d).

7. FINAL THOUGHTS

8. REFERENCES
• Ausubel, L.: 1990, 'Insider Trading in a Rational Expectations Economy', The American Economic Review 80, 1022-1041.
• Carlton, D. and D. Fischel: 1983, 'The Regulation of Insider Trading', Stanford Law Review 35, 322-376.
• Hooper, C. (n.d.). Who is harmed by insider trading? Econlib. Retrieved March 17, 2022,
from https://www.econlib.org/library/Columns/y2015/Hooperharmed.html
• Leland, H., 1992: 'Insider Trading: Should It Be Prohibited', Journal of Political Economy 100, 859-887.
• Manove, M.: 1989, The Harm from Insider Trading and Informed Speculation', Quarterly Journal of Economics 104, 823-846.
• Sec enforcement actions- Insider trading cases. (2019, July 15). U.S. Securities and Exchange Commission. Retrieved March 17, 2022,
from https://www.sec.gov/spotlight/insidertrading/cases.shtml
• Studler, A. 2009. The Moral Problem in Insider Trading. Legal Studies and Business Ethics Papers | Wharton Faculty
Research. https://repository.upenn.edu/cgi/viewcontent.cgi?article=1056&context=lgst_papers
• Reference
• Ganti, A., (2021, December 15). Insider trading. Investopedia. Retrieved from https://www.investopedia.com/terms/i/insidertrading.asp

9. REFERENCES
• Sebastian, A. (2022, January 31). Arguments for and Against Insider Trading. Investopedia.
https://www.investopedia.com/articles/markets-economy/092216/why-insider-trading-bad-
financial-markets.asp
• Wenzel, S. (n.d.). Insider Trading: What Would Rawls Do? Seven Pillars Institute.
https://sevenpillarsinstitute.org/case-studies/insider-trading-what-would-rawls-
do/#:~:text=Typically%2C%20insider%20trading%20is%20considered,used%20to%20exec
ute%20insider%20trades.