A recent item in the The Ethicist (New York Times Sunday Magazine, 1/22/06) resulted in a flurry of postings about why insider trading is wrong. See, e.g., Thom Lambert, Correcting “The Ethicist” on Insider Trading.
It has never been entirely clear why insider trading is illegal. The insider does not cause the outsider to trade at just the wrong time. The insider simply takes advantage of the fact that an outsider is always there to take the other side of the trade.
So the courts have resorted to theories based on the duty owed by the insider either to the corporation and its stockholders or to the source of the information not to use the information for personal gain. The problem is that if the corporation or the source gives permission to use the information, there would seem to be no reason for insider trading to be illegal. Yet no one has been so bold as to test the theory.
One might also argue under the fraud on the market theory that outsiders rely on the accuracy of the market. But that argument proves too much. It suggests that outsiders should be able to recover whenever insiders fail to correct the market.
There is another possibility. Most investors are well diversified. They do not care whether the market price is somewhat high or somewhat low when they trade as long as insiders do not use the opportunity to trade. As far as a diversified investor is concerned, you win some, and you lose some, but only the average matters. If insiders can trade at will when they know the price is wrong, the math no longer works, and there is no safety in numbers for outsiders.
So here is the theory: Insider trading is illegal because publicly traded companies and their directors, officers, and agents have effectively made a deal with outsiders (the market) not to take advantage of the situation when they know prices are wrong. Why? Because the most important reason for being a publicly traded company is not that you once raised a pile of money from an IPO, but rather that you might want to go back to the market for more, or pay your help with options, or just cash out some day. To sort of paraphrase Ed Koch and Ryan O'Neal: When you are publicly traded you never need to ask how you are doing.
There is another basic problem with allowing insider trading. Allowing insider trading fosters increased misalignment of incentives among corporations and their managers. It would create incentives to make managerial decisions with a view to the extent to which the choices could influence the ability to realize value through insider trading.
Posted by: Royce Barondes | February 16, 2006 at 10:12 PM
I still can't understand why insider trading is illegal, it's a really common practice among some companies.
Posted by: Viagra Online Without Prescription | August 05, 2010 at 02:07 PM
What a good post.I really can't help myself but have to leave a comment.The outstanding blog that provides much knowledge for readers to learn from.It really have largely expanded my horizon. Many thanks!
Posted by: air jordan | October 28, 2010 at 05:54 AM
Would you provide a tutorial on HDRI on your blog? That will be useful to the people who share the same difficulty in work like me.
Posted by: air yeezys | October 30, 2010 at 02:24 AM
Thank you for sharing your stuff on blog. It is doubtless that we have similar interests. Something are very helpful to me.
Posted by: air jordans | October 30, 2010 at 02:47 AM
You are eternal beings, you are God force.You are our god!
Posted by: cheap nike shox | November 03, 2010 at 03:46 AM
If you doubt yourself, then indeed you stand on shaky ground.
Posted by: Air Jordan shoes | November 03, 2010 at 03:56 AM
I agree with you . In it something is. Now all became clear, I thank for the help and I hope to see more such articles.
Posted by: coach outlet | November 05, 2010 at 02:36 AM
Firstly,thanks for your share of your experience and happy.so I hope you could do better and keep show it in your blog.I like this blog,and may often attention it.
Posted by: air jordans | November 06, 2010 at 03:37 AM
That love, not time, heals all wounds?
Posted by: air yeezys | November 12, 2010 at 10:45 PM
Dapoxetine-HCL
1 post-1 author-Last post:14 Jul
Buy-Priligy-Dapoxetine
3 posts
Popular Pills Online Network. Online pharmacy with Rx medications. Worldwide shipping by EMS and AirMail. No prescription needed.
Buy Dapoxetine Priligy
Dapoxetine (INN, brand name Priligy) is a short-acting selective serotonin reuptake inhibitor (SSRI) marketed for the treatment of premature ejaculation in ...
Dapoxetine-Purchase
Dapoxetina
Dapoxetine Priligy
Posted by: Appamuntekmum | November 18, 2010 at 07:20 AM
mai yifu zai taobao wang shang mian mai hen fangbian, hen shihui keyi tiaodao ziji xihuan de kuanshi.
Posted by: Louis Vuitton Bags | November 23, 2010 at 08:53 PM
Just wanted to give you a shout from the valley of the sun, great information. Much appreciated.
Posted by: nfl authentic | December 07, 2010 at 03:35 AM
No man learns but by pain or shame.The lesson sinks into his mind
Posted by: Shox R4 | January 13, 2011 at 01:55 AM
This is very common among us here in our country. At least, now I know it is already an illegal act. Thanks for the post.
Posted by: cash advance direct lender | January 13, 2011 at 03:42 AM
Or is he cool, calm, and calculating? Does he radiate irrational self-confidence and exude a certainty of excellence that this world has never seen?
Posted by: Jordans shoes | January 25, 2011 at 09:00 PM
LO LO LO LO.....OUR CANON IN D....HANGS OUT EVERYDAY....
Posted by: Air Jordans | January 29, 2011 at 01:03 AM
Persistence makes SUCCESS and self-confidence creates WONDER
Posted by: new jordans | March 07, 2011 at 03:07 AM
Thank you for sharing your stuff on blog. It is doubtless that we have similar interests. Something is very helpful to me.
Posted by: Louis Vuitton Bags | March 11, 2011 at 01:54 AM
Numbers of websites and retail stores are selling this jersey display case. some websites recommended retail stores for your ease from where you can purchase this case.How To Build Jersey Display CaseTo make your own jersey display case follow these stepsFirst of all measure the width and length of jersey in fashion and order you want to display in the case.Secondly you have chosen the material for your case. This could be birch, oak, cedar orwalnat.Now you cut the wood in the desired size but make sure that the corners are mitered to build the case. There must be two sides back, top and a bottom one.
Posted by: Ray ban Sungalsses | March 22, 2011 at 04:23 AM
Numbers of websites and retail stores are selling this jersey display case. some websites recommended retail stores for your ease from where you can purchase this case.How To Build Jersey Display CaseTo make your own jersey display case follow these stepsFirst of all measure the width and length of jersey in fashion and order you want to display in the case.Secondly you have chosen the material for your case. This could be birch, oak, cedar orwalnat.Now you cut the wood in the desired size but make sure that the corners are mitered to build the case. There must be two sides back, top and a bottom one.
Posted by: Ray ban Sungalsses | March 22, 2011 at 04:26 AM
Such a good writing, or by I saw for the first time. I'm quite happy, you are a good writer
Posted by: Air Yeezy | March 22, 2011 at 09:21 PM
hank you for the article, I saw after the enlightened, my idea like you, just not good at expression
Posted by: Nike Heels | March 22, 2011 at 09:24 PM
You can share some of your article, I'm like you write something, really very good! I will continue to focus on
Posted by: Air Max 24 7 | March 22, 2011 at 09:26 PM
Never done in the article comments, this is my first network comments, appreciate you sharing. Very good article
Posted by: Jeans Outlet | March 22, 2011 at 09:27 PM