Read the following discussion and give your response:

Define insider trading and give a specific example that has been in the news.

Insider trading can be both legal and illegal. Legal insider trading is when insiders trade the stock of their own company and report these trades to the Securities Exchange Commission (SEC). Illegal insider trading occurs when trades are made by people with non-public, inside information about the stock. Providing someone with inside information about a stock or “tipping” is also an illegal form of insider trading.

R. Foster Winans is a journalist who wrote the very influential “Heard on the Street” column. People relied on his advice to make plays in the market. He succumbed to temptation and leaked some of the tips from his reporting sources to his stockbroker who made trades on his behalf. He was convicted of insider trading in 1985.

Now discuss how insider trading negates equity and effectiveness and fairness in markets. Use pages 253 to the top of page 256 as a guide for this section of the assignment.

According to our text, people will only participate in the markets if they perceive them to be fair. Insider trading negates equity and fairness in markets but creating an uneven playing field. When traders are provided with information and tips illegally from inside sources, they are unfairly provided with a buying advantage in the market artificially affection the stock prices.

COLLAPSE

Insider trading takes place when someone with knowledge that public traders wouldn't know and it is used to make money off of the common stock or securities that a business sells. An insider trading example from the past is Martha Stuart. Most recently the SEC has charged four members of Barclays with insider trading. The four people made $750,000 in profits but have agreed to pay $1.6 million to settle the charges. With the settlement they don't have to acknowledge guilt.

Insider trading creates havoc because people will begin to believe the system is rigged and that they can't make money in that type of system and they will then pull their money and do something else with it. When money is pulled out of the market then it can become unstable and cause issues for other people in the market who may not feel the sameway. Investors want to be able to invest their money and get a return on that investment but they don't want to sustain losses that are beyond their control. Everyone wins and everyone losses from time to time in the market but when the investors believe that certain people are getting more than the rest because of unethical behavior they will tend to move away from that environment. Markets are set up to be fair with regulation and enforcement but a normal investor has to do a lot more work than a professional because of the amount of research that must take place to make smart investments. When someone is using their knowledge to take advantage of the system they should be punished in some capacity. What we see lately is a system in which the guilty pay a small fine and never admits to any wrong doing, they just go on doing the something again until they get caught.

Answer rating: 100% (QA)

I thought you did a very good job explaining how insider tr... View the full answer