What is really wrong with insider trading?

Opoku, Kwasi

What is really wrong with insider trading?

Master Thesis

2014-07-30

Publisher

University of Cape Town

Department

Department of Commercial Law

Faculty

Faculty of Law

Abstract

Investments in a national economy are essential to stimulate economic growth and development, which in turn improves the living standards of its citizens. The stock market offers greater opportunities for investment by companies and international investors. Much has changed in securities trading with the advancement of technology and so with the ways fraud occurs on the market, ripping off assets of companies and ultimately investors. Corporate crimes are committed with the help of insiders who may be a director, employee or an officer of the company. Well functioning financial markets, proper criminal justice system and well-designed institutions, as well as regulatory systems facilitates investments and economic development. The interrelationships between insider trading, investments and the overall economic activity in the corporate environment is a major concern and of interest to policy makers, economists, academics, businessmen and the public at large. Insider traders gain advantage of non-public information obtained from various sources within the management of the company to trade and make abnormal profits, which seem to be difficult to abate with all the laws in place. The paper examines some of the intricacies of insider trading. It is argued against the backdrop of the two schools of thought of prohibition or allowing insider trading in public listed companies, the extent to which insider trading regulation in South Africa has been effective in reducing private information trading.

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