Ethics of Insider Trading

Topics: Stock, Stock market, Insider trading Pages: 1 (252 words) Published: March 17, 2013
Ethical of insider trading
It is unethical to engage in the insider trading no matter how the share price of a company is –increase or decrease in the future. The traders- directors, managers, or employees- must have a fiduciary responsibility to the organization they are trading in. The fiduciary has an obligation to carry out their responsibility in good faith and honestry, with integrity and loyalty to the interests of the organization. Therefore, their disclosure of inside information to people outside the organization intentionally betrays their organization’s trust. It is equally unethical to buy shares in ABC Pharmaceutical on the inside information or to buy the dilapidated Seven-Eleven because in both cases a person uses inside information to gain advantage for himself no matter how he can get information- purposefully getting information from inside traders or incidentally overhearing a conversation between the insider and someone else. On the ground of utilitarian or some of other brand of consequentialist, insider trading is morally wrong because of its unfairness among investors, harm to market efficiency, undermining the confidence in the capital marketm and the alleged damaage to the insider’s counterpart. In addition, another reason against the insider trading is the violation of fiduciary relationship, which forces employees to act in the company’s best interests. The act of insider trading could have a negative effect on long-term owner value in that shareholders could lose faith in the organization, fail to maximize long-term owner value and violate the principle of distributive justice.
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