Question

Explain insider trading - do you think insider trading prohibitions are anticompetitive and restrict business initiative? [Use R v Rivkin to highlight your explanation and use other cases and legislation where relevant.

Answer 1

Insider trading is a serious offense which not just that some people are benefitting at the expense of a large number of investor but the major reason is it erodes the confidence of fair and impartial market system. Insider trading can completely dismantle the belief that markets are being regulated properly and retail investors will avoid that and we have often seen that when something like this happens a large number of retail investors avoid equity and because of the savings and investment relationship the cost goes up. Insider trading is when someone in the senior management has access to some non-public information and which can significantly affect the stock price of the company is either using himself or is sharing with someone who is benefitting from that information. Rivkin was an Australian stockbroker who Australian securities exchange commission found guilty of insider trading because of his trading in the Quantas and Impulse airlines prior to their merger. Insider trading is wrong because one person is benefiting by obtaining a price sensitive information in an unethical way and this will erode the confidence of investors from the market that is why regulators in every market are very much concerned with such behavior of traders and it is treated as serious offense in any jurisdiction.