Papadopoulos Georgios Group 29
Response paper to ‘The Economics of Insider Trading: A Free Market Perspective’
This article (Smith and Block, 2016) discusses the regulations of the Security and Exchange Commission (SEC) and the impact of them on the insider trading. It maintains that not only it is not a crime but also decreases the risk for investors and in some ways, everyone is harmed by the process of the market. Additionally, the authors state that due to the rapid of the contemporary trading markets, the regulations of SEC reduces the speed of transmission of information to those who are on a higher rank.
From a practical business perspective, insider trading is generally a negative expression and immoral, thus the arguments the authors provide have to be questioned. Insider trading is illegal and whoever does that should be considered a criminal. In addition, many people are harmed by the evolution of the market but we cannot say that all of them gain from it. For example, if there is an inside information from a manager of some company, this information will benefit only for the elite and not for the regular investors. Subsequently, the insider trading steals the investors who do not have nonpublic information of receiving full values for their securities. Furthermore, the authors argued that the regulations of SEC decrease the speed of transmission of information to superiors. That is inaccurate because the SEC was created to limit frauds or manipulations and to secure better financial transparency and accuracy. As a result, the SEC does not reduce the speed of information but monitor them. Lastly, insider trading could be legal only if the insider trader submits the information electronically to the SEC, thus this information will not be private anymore and can affect the stock price either by the positive or negative way.
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