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BUS 5111 Group 011D Activity (3).pptx
- 1. Case Study – Regulatory Rules Applying to Insider Trading Project Group Activity-0011D Course: BUS 5111: Financial Management Instructor: Dr. Bhavesh Kumar Rathod Presented By: Md. Azgor Ali, Sefanit Kiros Hagos, Stephanie Mari Owen, Zoe Tokaryk, Florence Zingwe October 26, 2022
- 2. Roles Objective- Sefanit Kiros Hagos Insider Trading Defined- Sefanit Kiros Hagos Legal implications- Stephanie Marie Owen Ethical implication- Md. Azgor Ali Economic-social implications and How to curb insider trading - Zoe Tokaryk Conclusion - Florence Zingwe References - Florence Zingwe Organization, distribution of tasks, create Google Ppt and spreadsheet- Md. Azgor Ali Editing and Formating - Sefanit Kiros Hagos
- 3. Objective Address a case of insider trading in In view of regulatory rules focusing on: Legal Implications Ethical Implications Economic – Social Implications & How to Curb Insider Trading (Battar, 2017)
- 4. Insider Trading refers to trading of company’s securities by someone with significant access to the company’s material and nonpublic information. In US, Insider trading is regulated by Security Exchange Commission. Legal Insider Trading ● Acquired information is disclosed & transactions are registered with SEC E.g: CEO buys shares from his company & Information is disclosed to SEC Illegal Insider Trading Misuse of access to privileged information to gain personal benefit. Unfair manipulation of information to benefit from it E.g: CEO selling share ahead of news of company’s bankruptcy Insider Trading?
- 5. Legal Implications According to the information presented by Ganti (2022), insider trading occurs when someone uses knowledge not available to the public to make a stock purchase or sale for personal gain. In the case study presented, one learns there will be a corporate merger that will greatly benefit stockholders. Using this knowledge to purchase additional stock would be an instance of insider trading and be a direct violation of the federal regulations set forth by the Securities and Exchange Commission. Further, any employees of the two companies who have this knowledge, or their families, associates, etc. that use this information to bolster their personal stock in either company will be in direct violation as well. The SEC states that those found guilty of insider trading can face time in prison up to 20 years and fines 25,000,000 depending on the level of violation (2013 insider trading policy)
- 6. Ethical Implications Stock marketplace is governed by a social contract between many buyers and investors on the idea of fairness and ethical trading. Unethical practice: Undermines investor confidence in the stock exchange market Sets unfair competition ground between those with insider information and those without Results in a war of rights Risk of misery, loss, adverse effect, harm, or psychological or other harm to any person (player/researcher/bystander) or participant group Privacy issues or problems ( publicity, identifiable statistics, statistics security troubles) Conflict of interest
- 7. Socio and Economic Implications of Insider Trading and How to curb insider trading Insider trading reduces investor returns by negatively affecting market liquidity and raising transaction costs. Additionally, because so many individuals have a stake in the financial markets—roughly half of American families own stocks directly or indirectly—most Americans are harmed by this activity. Furthermore, Insider trading when caught can also make the public believe the system is possibly rigged. The public is forced to pay extra for the issuance of stocks due to insider trading. A bigger investment is unavoidable if investors learn that bonds are being traded. Lastly, insider trading has the potential to undermine the confidence of the public. How to Curb Insider Trading? Insight from (Five best practices to prevent insider trading, 2022) 1. Restrict risky trades- This is when restrictions are put on specific time frames when the earning reports come out. 2. Appoint an in house “watchdog”- by mandating statements, and proper 3. Teach your staff about what insider trading is , the implications of insider trading, and how to report it 4. Conduct investigations legally if you believe insider trading is happening 5. Utilize technology in the workplace to ensure proper channels are being monitored.
- 8. Conclusion Insider trading has Legal, Ethical, Socio- Economic implications. SEC has rules in place that traders should conform their compliance. SEC holds everyone accountable for insider and securities fraud If a decision maker knows someone with privileged information about a future merger between two companies and such information could benefit the decision maker unfairly, the decision maker should Never engage with the person with privileged information to gain access to information that will influence the stock buying or selling decision. If such information is acquired, it is illegal, and SEC considers it as fraud.
- 9. References 2013 insider trading policy. (n.d.). SEC. https://www.sec.gov/Archives/edgar/data/25743/000138713113000737 Battar S. (2017, April 7). Insider trading regulation in India [image]. Legal India. Retrieved October 15,2022, from Insider Trading Regulation in India | Legal India | Legal Helpline - Law News, Articles & Legal Tips Angel, J. J., & McCabe, D. M. (2018). Insider Trading 2.0? The Ethics of Information Sales. Journal of Business Ethics, 147(4), 747-760. https://www.coursehero.com/u/file/39716590/Insider-Tradingppt/ Battar S. (2017, April 7). Insider trading regulation in India [image]. Legal India. Retrieved October 15,2022, from Insider Trading Regulation in India | Legal India | Legal Helpline - Law News, Articles & Legal Tips Cornell Law School. (n.d.). Insider trading. Legal Information Institute. Retrieved October 15, 2022, from https://www.law.cornell.edu/wex/insider_trading Ganti, A. (2022, March 7). What is insider trading, and when is it legal? Investopedia. Retrieved October 15, 2022, from https://www.investopedia.com/terms/i/insidertrading.asp Kenton, W. (2022, April 18). Insider information definition. Investopedia. Retrieved October 22, 2022, from https://www.investopedia.com/terms/i/insiderinformation.asp Law Teacher. (2021, August 31).Insider Trading and Business Ethics. Law Teacher. Retrieved from https://www.lawteacher.net/free- law-essays/business-law/insider-trading-and-business-ethics-business-law-essay.php
Editor's Notes
- This presentation aims to address a case of insider trading where, a decision maker knows someone with information about a future merger between two companies. The companies’ union will influence the industry market dynamics and stockowners will benefit once the news is announced to the public. Reference Battar S. (2017, April 7). Insider trading regulation in India [image]. Legal India. Retrieved October 15,2022, from Insider Trading Regulation in India | Legal India | Legal Helpline - Law News, Articles & Legal Tips
- Insider trading is trading of company’s securities by someone with significant access to the company’s confidential and nonpublic information. To give fair ground for all traders, corporations are required to report trading made by their officers, directors, or others with access to privileged confidential non-public information, to the Security Exchange Commission- SEC (Cornell Law School, n.d.). SEC is mandated to set fairground for everyone to trade on the stock exchange market. Insider trading is legal if it conforms to rules set forth by the SEC and it is reported in a timely manner (Ganti, 2022). For instance, directors must disclose their stake or transactions to SEC in time. However, there are instances where traders abuse and manipulate their access to privileged information to work for their personal benefit, by either selling or buying their stock, ahead of the public, and without disclosing such to the SEC. This form of trading is illegal and will result in potential fines and, or jail time (Ganti, 2022). For example, an investor with a stock from a particular company gets non-public information from a friend associated with the company and learns that the company is facing bankruptcy, but this information is not disclosed to public. Based on this, the investor sells his stock and benefits from it. This will be considered illegal insider trading and both the investor, and the friend will face stern consequence. SEC considers insider trading as fraud that is punishable by imprisonment, hefty fine or both (Kenton, 2022). Reference Cornell Law School. (n.d.). Insider trading. Legal Information Institute. Retrieved October 15, 2022, from https://www.law.cornell.edu/wex/insider_trading Ganti, A. (2022, March 7). What is insider trading, and when is it legal? Investopedia. Retrieved October 15, 2022, from https://www.investopedia.com/terms/i/insidertrading.asp Kenton, W. (2022, April 18). Insider information definition. Investopedia. Retrieved October 22, 2022, from https://www.investopedia.com/terms/i/insiderinformation.asp
- According to the information presented by Ganti (2022), insider trading occurs when someone uses knowledge not available to the public to make a stock purchase or sale for personal gain.
- Insider buying and selling have earned a dreadful call in the latest years because folks who interact in insider trading are thought to be absolute without ethical values (Lawteacher, 2021). However, now not all folks that interact in insider trading are unethical; research has shown that some insider buying and selling is beneficial to the investment society and organizations (Lawteacher, 2021). The real aspect is to detach those illegally harmed or aided using insider trading (Lawteacher, 2021). Insider buying and selling on personal, other than its affiliation with fraud or violation of fiduciary responsibility, entails accomplishing financial investments primarily based on information others do not recognize approximately (Lawteacher, 2021). Such movements must be considered ethically immoral since they affect others unfairly. The reality that some people, or to mention, insiders, have facts that others don’t have, therefore, can be an awesome downside to the relaxation of the stakeholders because they cannot make use of this in all likelihood treasured statistics. If the other stakeholders knew this data, they'll have probable acted differently and loved the identical advantage as the insiders (Lawteacher, 2021). Moreover, while someone knows private statistics about a company, they tend to become greedy and choose to maintain the records to themselves and throw caution into the wind, which may cause overlook sensibility and rationality which is, after all the first of the cardinal virtues, and moral cost. Reference: Angel, J. J., & McCabe, D. M. (2018). Insider Trading 2.0? The Ethics of Information Sales. Journal of Business Ethics, 147(4), 747-760. https://www.coursehero.com/u/file/39716590/Insider-Tradingppt/ LawTeacher. (2021 August 31), Insider Trading and Business Ethics. LawTeacher. Retrieved from https://www.lawteacher.net/free-law-essays/business-law/insider-trading-and-business-ethics-business-law-essay.php
- According to Akhilesh Ganti “insider trading is the buying or selling of a publicly traded company's stock by someone who has non-public, material information about that stock” (Ganti, 2022). Insider trading can be performed by anyone and not just the employees of a company, whoever is involved in the communication chain of the non-public material information can be implicated. Insider trading is only legal when company insiders report their trades to SEC in a timely manner (Ganti, 2022).A good example of insider trading is suppose someone learns about nonpublic material information from a family member at a family function while making small talk and then goes ahead and shares it with a friend innocently while catching up, if the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted (Ganti, 2022). Insider trading is not fair to everyone else who is not in the know of the non-public information used by others to make the trades. There are several socio economic implications as well as ethical implications to insider trading. The SEC has rules in place that traders should conform to in order to be in compliance. Some of these rules include company insiders reporting their trades in a timely manner as well as the implementation of the Securities Exchange Act 1934. This act has three different forms in which directors and majority shareholders must disclose their transactions, ownership and transfer of shares. The SEC holds everyone accountable for insider and securities fraud. A good example is Martha Stewart a prominent director and celebrity who faced the legal implications and penalties for insider trading. It is everyone’s duty to minimize insider trading by reporting any cases they may know of.