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Ethical Arguments Surrounding Insider Trading

1517 Words7 Pages

Introduction Insider trading is a term that is teeming with negative connotations and surrounded by controversy. I mean, who can forget the scandal of Martha Stewart the homemaking hoaxer? Insider trading can be legal or illegal depending on the circumstances. However, my focus is not to discuss the legalities of insider trading. My aim in this essay is to define the concept of insider trading, discuss how it is regulated, describe the notion of business ethics, discuss how these principles apply to the concept of insider trading, outline ethical arguments surrounding insider trading and ultimately prove that the offence of insider trading is highly unethical. What is insider trading? According to section 78 of the Financial Markets Act …show more content…

The use of privileged internal information to attain personal gain or to circumvent a loss while disadvantaging other market participants is legally reprehensible. Therefore, it is important that there are regulations in place to ensure that insider trading does not occur, and when it does, that the insiders are appropriately punished for their actions. Another important purpose of insider trading regulations is to enhance investor confidence in South Africa’s financial market and to improve the efficient and effective functioning thereof. The Financial Markets Act (FMA) repealed the Securities Services Act (SSA) and now governs the regulation of market abuse known as insider trading as well as the criminal and civil liabilities associated therewith. The offence of insider trading is outlined in terms of section 78 of the FMA. There are five insider trading offences listed under section 78 of the FMA. First, when the insider dealt in securities for their own account while being in possession of privileged internal information. Second, if the insider dealt in securities on behalf of a third party while being in possession of inside information. Third, if the insider disclosed any of the inside information they were in possession of to a third party. Fourth, if the insider encouraged or discouraged a third party to deal in securities with knowledge of the fact that the trades were based on inside information. Fifth, offenders …show more content…

When insider trading takes place, investors are likely to lose faith in our economy and pull their investments. Loss of foreign investments would negatively affect the entire country, as our economy would suffer significantly. When professionals do not maneuver in the financial markets in a law-abiding way, foreign investors are likely to become uneasy. Corruption will cause foreign investors to lose faith and withdraw their investments from our country, thus preventing much-needed economic growth in South Africa. One of the most important aspects of the corporate sector is that there is a level playing field for all. Insider trading erodes the level playing field. It allows a select few to benefit greatly while others do not. Insider trading allows individuals to take advantage of information that is unavailable to the public to turn a profit. This tactic is not fair to the average investor or shareholder who does not have inside information and uses only publicly available information to make decisions about how to select investments that may be

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