Insider Trading Ethical Issues

Insider trading is when one person has access to information that’s unavailable to the public and will likely have an impact on stock prices. For example, employees might know that their company is going bankrupt before the general public and sell all their stock before it becomes worthless. People who buy the stock will be deceived into thinking its worth more than it really is. In fact, it’s also insider trading for the employees to encourage family and friends to sell their stock using such “inside information.”

Insider trading involves difficult moral issues. It’s not clear exactly when employees can buy or sell stock from their own companies; it’s not entirely clear how much information a company should “disclose to stockholders about

They want to limit the number of insiders and improve their ability to monitor any questionable activity. They want to limit the likelihood that anyone will "leak" the information and they want to track the actual trades made by those designated as insiders. The company's senior management are insiders. So are some of the financial analysts. The top sales people usually also are insiders, although a regional sales manager who only sees his or her own region's results may not be one. The individuals in Investor Relations and/or Public Relations who prepare the public announcements also are insiders.

If the company is developing a new product that could be a big seller, the key people in the Research & Development team would also be considered insiders, provided the information they have is material, as defined above. Publicly traded organizations have clear procedures for notifying those individuals deemed insiders and explaining the rules, limitations and potential penalties to them. Other individuals who are not employees, but with whom the company needs to share material information, are also insiders. This list could include brokers, bankers, lawyers,