Insider Trading (le délit d'initié)

Thèmes abordés

Insider trading, délit d'initié, Milton Friedman, stock, price, exchange, legalized, bonds, options

Résumé du document

Insider Trading: Should it be legalized or remain illegal?
It is important first and foremost to define the term insider trading. Insider trading is the trade of a corporation's stock or other securities likes bonds or stock options based on material information (information which would be likely to affect a stock's price or might influence investor's decisions) that is not available to the general public. It is prohibited in the United States by the Securities and Exchange Commission (SEC) because it is seen as unfair and because it apparently destroys investor confidence.

The 1976 recipient of the Nobel Memorial Prize in Economic Science, Milton Friedman (1912-2006) believed that insider trading should be legal and that we "want more insider trading, not less". He once said, "You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that".

Extraits

[...] Although I can easily understand why some people want to keep insider trading illegal (saying that using the asymmetry of information or unequal access to information in order to make a profit is anti-market and anti ethical), I think that the legalization of insider trading could have prevented scandals such as Enron. Had it been legal, people would have known what was happening in these companies and they would have traded the information on the market (in exchange of money). As a result, the stock market would have reflected the problems earlier than it really did and less people would have been in trouble. [...]

[...] In conclusion, I think that legal insider trading would be positive for the stock market. It would reduce the speculative aspect of the market, thus improving the market's efficiency. The prices of the shares would reflect the correct level of price according to the available information. The market would also be less volatile. Serious, knowledgeable investors would be in control and inexperienced free riders and noise traders (‘'idiot traders'') would have very little influence over the market. Furthermore, legalized insider trading would lead to high transparency in the company's innovations, products and shares on the market because the information about their financial situation and their efficiency would be available to the general public. [...]

[...] I think that insider trading benefits investors by introducing new information into the market and stimulating a quicker absorption of this information into it. This makes the market more efficient and reduces uncertainty in the end. In fact, legal insider trading would improve the flow of information on the market and insiders having some knowledge of companies' deficiencies would make these deficiencies known to the general public (this was clearly not the case in the Enron scandal). Also, the fact that an insider has an intimate knowledge of the company's financial health and performances can be useful on the market in order to assess the true value of the share. [...]

[...] For example, the seller of a house might know that it's constructed on a frequently flooded area but he will not say it to the buyer in order not to diminish his profit. If this is allowed and legal in those business sectors, then why shouldn't people be able to make money off of knowledge they have on the stock market? This is another reason why I think insider trading should be legal. We have to keep in mind that insider trading is ‘'legal'' in some countries like Japan and that the Japanese markets are still doing fine. [...]

[...] Insider Trading: Should it be legalized or remain illegal? It is important first and foremost to define the term insider trading. Insider trading is the trade of a corporation's stock or other securities likes bonds or stock options based on material information (information which would be likely to affect a stock's price[1] or might influence investor's decisions) that is not available to the general public. It is prohibited in the United States by the Securities and Exchange Commission (SEC) because it is seen as unfair and because it apparently destroys investor confidence. [...]