Article

De-Criminalizing Insider Trading

by Jamieson McMillan-Palla

Insider trading happens much more than we think it does and often is more illegal than legal. Insider trading is "purchasing or selling a security while in possession of material, non-public information concerning that security, where the information is obtained from a breach of fiduciary duty, or a duty arising from a relationship of trust or confidence" (SEClaw.com, 2021). If someone trades stock in the company they own then it is considered legal insider trading. It becomes illegal when the information they possess that is not common knowledge to the public becomes the basis of that trading. The problem concerning its legality is how fine the line is between illegal and legal insider trading. If it is not reported to teh SEC, stock holders could claim they just got lucky selling before it went down. All insider trading should not be de-criminalized because it would destroy the competitive nature of our markets. If there were no punishments for sharing non-public information with their friends and family members, then the families with members in management positions at public companies would have an extremely unfair advantage compare to others. If there were no limit to insider trading, there would be nothing limiting who can have information that sensitive and that detrimental to the balance of our market operations. CNBC calls it "A crime with no victims" (Source, 2014). This however is not true. The victims in the case of insider trading are those who are negatively impacted by any adverse trading conditions caused by the trades themselves. For example. If a pharmaceutical company gets word a denial for one of their drugs is coming, their stock will suffer when that information goes public. Due to this, members of management start talking and agreeing on dropping a sizeable chunk of their stock to maximize their personal profits. They then go home and tell their family members and whoever they want that they should drop the stock because when the report is finalized the stock will plummet. Now, there are a much larger group all planning to dump their stock at the same time. This, if backed with enough capital, could cause the stock drop to be much more significant, meaning they make the money and get out safe while the common stockholder takes a loss greater than they should have. NowThis World (2015) states that the market as a whole is also the victim of insider trading. The fairness and stability that the market operates on is harmed when a few are using unfair advantages to make more money. People without access to that information would never be able to beat those that do, which would create a gap of knowledge and money between those in management or corporate insider positions and the majority who are not. 

Sources:

NowThis World. (2015, August 3). What Is Insider Trading And Why Is It Illegal? [Video]. YouTube.https://www.youtube.com/watch?v=2BtawLeS5fM&ab_channel=NowThisWorld (Links to an external site.) 

SEClaw.com. (2021, November 28). Insider Trading - The Legal and Illegal. Retrieved December 2, 2021, from https://www.seclaw.com/insider-trading/ (Links to an external site.) 

Source, C. U. S. (2014, June 18). It's time to legalize insider trading. CNBC. Retrieved December 3, 2021, from https://www.cnbc.com/2014/06/17/its-time-to-legalize-insider-tradingwall-streetcommentary.html


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