-nsider Trading - What Every Business Minded Youth Should Know
A Research Work By Ogundimu Samuel Olajide
Sources In Footnotes
In the business world, at one time or another, the term Linsider trading" comes to the shore in the investing world, people have been sent to jail, heavily fined and businesses liquidated due to the term. Insider trading is not always illegal as people erroneously belief, it depends on the facts and circumstances at hand, and also, it's legality or illegality varies from countries to countries. Some of the newbies in the business community may not be familiar with the term, and in order not to fall a victim, it will be better to be acquainted with the term.
What is Insider Trading? - According to Bennett Coleman & Co (2018) insider trading is seen as a malpractice wherein trade of a company's securities is undertaken by people who by virtue of their work have access to the otherwise non public information which can be crucial for making investment decisions
To simply break this down in layman's term - insider trading happens when an insider in a company e.g. Important employees or executives in a company who have access to some strategic or important information which may affect the future of that company, uses that important info for trading in the company's stocks or securities ( a stock means the capital raised by a company through selling of shares, it is also the total number of shares owned by a single individual - securities means the proof of ownership of stocks, and other investment properties - shares are interest measured by a sum of money, in other words, when a person has an interest in a company, and wants to be a part of it's management, he pays some sum of money to further the purpose of running that company, hence if the company makes some profit, the erson also profits, if the company makes some loss, it also affects the person.. A share makes a person share in the responsibility of a company - comprehende?)
Nsider trading is an unfair practice , it happens when an insider buys or sells security due to the information he has about the security which every other shareholder did not have, let's create a scenario.
_ The CEO of a company leaks a secret about how his company is encountering some losses to his friend who happens to be a substantial shareholding in the company. The CEO's friend quickyl acts upon this info and sells all his shares before the information is made public to other shareholders.-
- another example
- a government employee acts upon his knowledge about a new law to be passed which will benefir a sugar exporting firm and buys that firm shares before the new law becomes public knowledge.-
What this scenario is telling us is that, it doesn't have to be the person directly involved, if the info is passed on to someone else, and the person acts on that info, it will amount to insider trading. A company did not meet is sale expectation and lost money during that period, a key employee of that company grabs that information and warns his friend who is a shareholder in that company about this incidents, that friend quickly sell off all his shares before the company discloses it's loss to the public, that is insider trading.
In recent times, new concepts of insider trading is present. This happens when an organized crime ring infiltrates a company and systematically gain access to and exploits important info by using computer viruses or recording devices to get the company's data, they might be found guilty of insider trading.
Insider trading was not considered illegal at the beginning of the 20th century; in fact, it was once described as the "benefits of being an executive" in the 1920s, key employees were heavily abusing their positions, hence it brought about sanctions, due to public opinions. In decades later, Insider trading was banned with serious penalties been imposed on those who engage in it's practice.
Insiders who trade based on undisclosed info are caught even though they try to hide their tracks, this makes us wonder, how are they caught? - key employees are required to report their trades according to law, if traces of unusual profits or transactions are noticed, it is been investigated. Also, there is a school of investing that tracks insiders. If there are reasons to believe that an insider is engaging in illegal trading, such insider will be investigated by the school.
Like earlier stated, not all insider trading is illegal, insider trading will be legal where the information has been disclosed to the public before the insider buys or sells securities. Some economists, such as Henry Manne, have argued that insider trading should be allowed and could, in fact, benefits markets, others believe that illegal insider trading raises the cost of capital for companies that issue securities.
There are a lot of penalties for insider trading, after the stock market crash of 1929, the U.S congress enacted the Securities and Exchange Act of 1934 which directly addresses insider trading. The European Union and the United kingdom also imposes civil penalties under the UK's Financial Conduct Authority, the Criminal Justice Act, 1993.
Penalties for insider trading ranges from civil fines to fciminal punishments in order to dissuade insiders from trading at the expense of other shareholders.
Insider trading has brought a lot of people and businesses to its knees and also to it's glory. We will be concluding this research with one of this cases-
- Martha Stewart - the shares of imClone company took a loss when it was found out that it's new cancer drug was rejected by the regulation board. After the loss, it was noticed that the family of the CEO, Samuel Waskal was unaffected. After receiving notice of the drug's rejection by the CEO, martha stewart sold her shares in the company stock when the shares were trading for $50, and the stock started trading for $10 in the following months. She was forced to resign as CEO of her own company, and the CEO Samuel Waskal was sentenced to more than 7 years in prison and fined $4.3 million in 2003.
As researched and written by Ogundimu Samuel Olajide
- the third research paper- you can read "artificial intelligence and extra sensory perception on my FB page.