'Insider trading regulation': to be or not to be?

Adetoun, Adedurotiivii Omowunmi

'Insider trading regulation': to be or not to be?

Thesis / Dissertation

2010

Publisher

University of Cape Town

Department

School For Advanced Legal Studies

Faculty

Faculty of Law

Abstract

Insider trading may be defined as the act of trading in company securities by persons often referred to as insiders who by virtue of their relationship to the company, possess some information, not available to the public, but material to the securities concerned. For instance, insider trading occurs where a director knows that a company is in a bad financial state and sells his shares in it knowing that in a few days, a cut in the dividend payment will be made public. Likewise, the director will be an insider trader if on being informed before it was generally made public that the company has discovered oil on its own land, he buys more shares in the company with the hope of an increase in their market value as soon as the information is made public. There are two schools of thought with strong and divergent views on the effect of insider trading generally and particularly as it affects the stock market and the investing public. The proponents of the first school of thought encourage trading on insider information for its many advantages. According to them, the stock market generally feeds and grows on free flow of information. Disallowing insider trading would mean hampering the flow of trade. Furthermore, they have argued that insider trading is fundamental to capitalism because it pushes prices in the right direction, increases the number of transactions and provides the only real recompense for entrepreneurs. In addition, they are of the opinion that long-term investors stand a chance to benefit immensely from the act.

Keywords

trading regulations

Reference:

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Masters

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