...Insider Trading: Should it be abolished?
Insider trading is defined as “ trading whilst in possession of non-public information and if known to the public, may lead to a substantial movement in a security’s price” . In Australia it is prohibited by insider trading regulation (IT regulations) in the Corporations Law (CL) 1991 , though it was initially established from recommendations made by the Rae committee in 1974 on the mining company scandals . The latest law changed one single section to 20 wide and complex sections, causing critique of Australia IT regulations . Henry G Manne argued that IT regulations should be abolished supported by three basic economic arguments. This essay will examine the pro and contra of each argument and shows that IT regulations have spoiled the notion of fairness at the expense of efficiency, despite the objective of any securities markets regulation to promote both aspects .
1. Insider trading could compensate corporate entrepreneurs .
Pro and Contra
This argument is supported by Carlton and Fischel who argued that the IT regulations are the same with setting government regulation of terms and conditions of employment; similar to restrict salary bonuses, stock options, vacation leave, and the others which can motivate management for their entrepreneurial skills . However their assumptions ignore the difference between the volatile share price and a certain...
Two decades after first making its big screen appearance in 1983, Trading Places has proven to be a timeless comedy and can make even the most cynical person crack a smile. The film has all the aspects of a great film which include, award winning actors/actress, screen play, directing, and an interesting storyline. Trading Places is truly one of the greatest comedies ever produced and is sure to bring big laughs for first time viewers, but has received some mixed reviews over time. One such critic, Dennis Schwartz, states his opinion saying, “director John Landis indulgently directs this preposterous lighthearted one-joke comedy that channels the well-worn theme used by The Three Stooges and "The Prince and the Pauper" of hereditary vs. environment” (Schwartz). Dennis then goes on to say, “Though it has some comic moments, they soon give way to tedium as it loses its screwball comedy format. As a satire on capitalism or genetics, it has surprisingly little bite despite pretending to say something about the business world and the social classes. It should appeal mostly to those clinging to the simple-minded populist notion that they can skewer the elites in a general way, as it modestly scales its aspired low heights with slick but witless dialogue and fails to register any moral complexities.” Also, he gives a brief overview of the movie and cast as well as saying, “The popular film, crassly appealing to the crowd's basest...
...company learn information that will dramatically change the future. If one of these people buys or sells stock based on this information, then it creates a type of conundrum called insider trading.
Insider trading is making stock market transactions based on undisclosed, important information. This occurs when individuals buy stock to gain profits or sell stock to avoid losses when they receive confidential information. These “insiders” are usually a corporation’s’ management, owners, attorneys, accountants, etc. For example, if a management team meets privately to discuss massive layoffs that will be occurring in the next week, and then one of the managers sell its stock to avoid losses, this individual has practiced insider trading. Similarly, if a scientist of a publicly traded pharmaceutical company privately discovers the cure for Ebola, and proceeds to purchase a large amount of stock in the company before announcing the cure, that would be considered insider trading.
The idea of ethics is primarily based on two key components: fairness and transparency. First, profiting or avoiding losing money because of possessing superior knowledge is unfair in every sense of the word. The stock market is no longer on an even playing field for the shareholders (McGee, 2008). Secondly, insider trading relies on a person intentionally acting before information is made public. This is a form of hiding...
...High Frequency? Or Insider Trading?
Dow Intraday Trading May 9th 2010
High frequency trading has reached a point in which its legality needs to be called in to question. These traders hurt markets and other investors while forcing large investors to move into dark pools. High frequency traders also have an unfair advantage when it comes to trading.
The above picture shows the most infamous trading crash caused by high frequency traders known to date. The Dow Jones Industrial average fell 600 points, and then continued to rise back up to its former levels fifteen minutes later. A drop like this is a clear sign of how unstable the markets can become when high frequency traders are in the mix of the markets.
Another scary incident caused by high frequency traders was the near collapse of Knight Capital, a major brokerage firm. In a matter of minutes a high frequency trading glitch caused the firm to lose approximately 400 million dollars. The collapse of a major firm like this would be awful for the markets; it would take away liquidity and stability. High frequency traders have caused flash crashes of both markets and firms on multiple occasions; they are clearly bad for the markets.
Many large investors have also been forced to invest in what are known as dark pools. Dark pools are barely regulated, adding to the temptation of insider trading and other...
...400 years ago that "knowledge is power,"
(Nickels &,McHugh 2011) “Insider trading is an unethical activity in which insiders use private company information to further their own fortunes or those of their families or friends”. Pg.101
Insider trading is a term that includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.
(Agnello & Donnelley 1975) Stated if every member of a community has unlimited access to the resources of the community, then the community's resources soon will be used up unless they happen to be available in infinite supply. The system of private ownership of assets, by contrast, effectively can use the price system to ration the assets in such a way as to preserve them properly and to benefit all members of the community. pg. 521
The Insider Trading Debate
Arthur Levitt stated in 1998 that more Americans were investing in the stock market than ever before and Americans had almost twice as much money invested in the stock market as in commercial banks.
The illegal version of insider trading most of us think of; is the type of insider...
...company to be deemed ethical the hierarchy of management needs to be ethical. Every company has their own moral responsibility codes what they follow. Each corporation has a different purpose for the policy. A definition of ethical behavior can be describe as what the director’s duty is, what their perception on conflict of interest are, outlines post service restrictions, the responsible way of using authority, what is acceptable compensation and reimbursement, acceptable circumstances of giving and receiving a gift, keeping financial information in the company, and possible punishment for not upholding the ethical policy. SAC Capitals is a hedge fund group founded by Steven A. Cohenin 1992. SAC Capitals has been investigated for insider trading since 2008. The people in charge of these investment companies need to respect the private information and not use it to their own advantage. Common courtesy is called in which is an example of ethical practices. However asking people to play the rules aren’t the most realistic thing to do, but harsher punishment can make up for that.
Business Ethics are business society’s ideas about what actions are right and what actions are wrong. With that being said every business have different ethical standard. And these standards should not be confused with rules and regulation, because if rules are broken then consequences can be faced from a monitoring agency. If an ethical standard is broken then depending on what was...
...6.0 Current Issues of Algorithmic Trading
6.1 High Frequency Trading
High Frequency Trading (HFT), a fully computer driven platform for trading. A news has unveiled the high-speed trading system nowadays makes up about 6% of trades on the Bursa derivatives market. The former Citigroup vice president said that the ultra high frequency trading (HFT) would be a competitive tool once it is fully introduced and executed in equity market. In 2011, Bursa commented the expectation of growth in HFT as new trading trend which is practised by the elites, the hedge fund traders. This trading system is now widely demanded by the rest of the market in the world.
HFT is a sophisticated electronic based trading technology where the trading speed could be as quick as milliseconds or microseconds. It simply means that the investors could buy and sell the shares in super fast speed with low margin but high frequency in order to earn gains. It is a common trading technological tool used in European and US markets which are about 50 to 70%. Whereas, it is 30 to 40% covers the Asian markets notably in Japan, Hong Kong, Australia, and Singapore.
Perez, a HFT book author said that HFT involves dealing with with very little margins of liquid instruments to generate money. He also claimed that a typical HFT trader is not interested in...
Impact on other market users
Possible market abuse
Turning from the venue of block order trades to a high-frequency trading spot of smaller and medium size orders, dark pools are now being questioned for their initial purpose and if their presence is lowering the market quality.
Dark pool trading occurs when the client is submitting an order or a buy without stating his side, nor the size and price of the share. Therefore, he makes an anonymous bit or ask. The pre-trade information opacity leads to easier trading with less liquid stock and moderate prices. In general there are five types of ownership structures of dark pools. (UBB TechWeb, 2011)
• Broker-dealers owned dark pools
• Exchanges owned dark pools
• Consortium owned dark pools
• Independent dark pools
• International dark pools
Overall, dark pool trading volume has been increasing steadily over the past decade. This is supported by technology innovations and changes in regulations stimulation competition. On the other side trading volume on ordinary exchanges had face a decline and reacted by creating their own dark pools and crossing networks. In December 2010 the trading in off-exchange venues reveals the highest-percentage of 13.3 per cent of the total volumes of all US exchanges. European markets have undergone a sharp rise in 2010, up to 4.18%. (See figure 1)....