Insider Trading Arguments

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The problem with punishing those involved with insider trading is being able to prove the conviction. It is hard to determine what is proprietary research and what is insider information. Although there are some clear examples of insider trading where there is proof in emails of disclosing inside information or documentation of plans to trade based on certain private information, there is usually no distinct answer to whether it was research or inside information. For example, if a group of people visit every Home Depot in the area every day to talk to managers, count customer traffic, interview customers in the parking lot, and observe the daily activities, they could come to the conclusion that sales are continually increasing on a month-to-month…show more content…
The main arguments against it include making the market unfair to those outside of the firm, the potential for many investors to leave the market based on their perceived disadvantage, and the rightful duty to punish all those involved with scamming others. Although reasonable, these arguments are not necessarily correct. Insider trading actually benefits the economy as a whole by making stock prices more in equilibrium to their true value, it helps minimize potential losses to individual investors who want to buy, and the immense amount of resources is not worth trying to prove something that cannot fully be enforced. Maybe there should be some type of balance between legal and illegal insider trading. By making it completely legal, enforcing insiders to report or disclose that they are insiders may help the unfair and negative connotation insider trading is associated with. This would make both sides more transparent during transactions and be able to see how insiders are acting in the market. In every area of life, something is going to have the advantage in some way. There is no way to avoid that. Ultimately the stock market depends on how investors will act to the information that is available to them. This information can be given through public announcements or can be observed through insiders’ transactions. Either way, information needs to get to the market and insider trading is one way to achieve that quickly. Whether it is illegal or not, insider trading is going to exist in the market whether it be by means of inaction or even unintentionally. For those who do have access to insider information, they should ethically and morally abide by the existing confidentially agreements associated with the firm they are involved with but that is a more civil, individual matter – not a criminal
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