The Arguments of Desjardins and Mccall and a Study of Insider Trading

Introduction

Generation of profits is the sole driving force that motivates every investor to engage in any business. Without profits, business would not be a business. The company would close down if it’s running at a loss. Some companies, while trying to maintain profit making, have utilized insider trading to their advantage. Ethically, insider trading should be an ethical practice, but more often, some business individuals have used it to the disadvantage of their competitors, business partners, and customers. From such a practice, it has become common and highly plausible view that engaging in insider trading is unethical. In his work, DesJardins and McCall have discussed three arguments supporting the issue that insider trading is unethical. This paper seeks to explore insider trading by looking at the arguments presented by (DesJardins and McCall, 2014).

From a superficial analysis, insider information is unethical if used legally without letting it harm other business parties. Moreover, insider information should only be used to guide a company on how it should carry itself as well as the kind of support it should give its stakeholders in business. Thus, it can be said that insider trading is the sole property of the firm and they have all the rights to use it at their disposal. However, inside information may be used maliciously by the firm to make profits that they do not deserve at a particular time in business. According to Bainbridge (2013), inside information may be utilized by the firm top management to benefit them and thus, expose the firm to several dangers that may even lead to the closure of the business. In doing so, the persons utilizing the inside information to their advantage do not care about the repercussions of their actions to the firm. For instance, they can buy firm stock to hoard the stock as they wait time to sell the stock when the prices double.

Thevenot (2012) argues that insider trading hides information from the public. Subsequently, the practice becomes unfair to the security traders since the traders would just buy stock without prior knowledge of the expected trends in the market. The impacts resulting from the insider trading becomes negative to both small investors and the markets. When insider trading is done illegally, it is done such that there is no fair play involved and also, there is no fair demand and supply of the stocks; all these are detrimental to the functioning of a strong and a healthy capital market. Economically, insider trading could very fatal. It weakens the trust and faith of investors, who runs at a loss in business, in the investing system. Moreover, if unchecked, insider trading keeps off people from investing in the capital market. All these arise due to lack of information by the outsiders, and they are thus fairly disadvantaged in the marketplace.

However, the above argument has some objections. In however much the public or the investors are disadvantaged, the insider information solely belongs to the firm. It is the company that has done the necessary research and found out the information regarding the business trend or the likely business changes expected shortly. In some companies, the employees are compelled to sign contracts with the employees such that they have no right to give out the company information to the outsiders. It is the role of the investor to carry out a research and find out the trends such that before engaging in any business, he or she has prior knowledge about the business they want to transact with a business firm. As an investor, one should be cautious so as to avoid getting into a quagmire of insider trading scams. Taking precautions will ensure that the investor does not invest in a company or business they have never heard of even if they get a tip-off.

As earlier noted, inside information rightfully belongs to the business firm. According to research done by Gillespie and Hurley, a business firm has all the rights of using them while doing business. However, sometimes, the company executive and other employees may use the inside information for their benefit without permission by the company or the business firm. For instance, they can give a tip-off to an outsider to buy security stock on their behalf, especially if the security stock prices are low and there is an expected rise in price. In this case, the employee is using the company information accessible to him or her for private trading benefits. Contrary to being an employee, the persons using inside information for their benefits may have acquaintances inside the company, and they may be getting information by way of such sources. Therefore, in this case, the use of these inside information makes the public and the business partners prone to losses, and unfair business inequality since this is something unethical (Gillespie and Hurley 2013).

However, the use of inside information without permission could be a business strategy. This is because as an investor, one can do research on the market trend, and the use of inside information without permission could be a way of doing a market research. In this case, the investor could be right since while contemplating whether to put money in the stock market, they learn the most out of the market. Investment experts do a lot of market research; discuss opinions, tips, and advice e-books.

The nature of insider trading makes it an illegal practice. It is a dishonest and a scamming activity that benefits one partner and the other one faces the risk of making losses. One cannot be a business partner and goes ahead to lure another business partner into engaging in a non-profitable business. These will automatically lead to mistrust and hostile relationships between the partners. Subsequently, business repercussions such as loss will result.

However, it is the role of each business partner to be careful while engaging in any business relationship. There should be strategies on how to run the business such that the two partners would be liable for any losses incurred. These would help eliminate blame games and consequently mistrust. Moreover, the two partners should build a strong relationship with set rules that would ensure that none of them is selfish over the gains of the other. In summary, the insider trading would be eliminated.

Conclusively, insider trading is both beneficial and detrimental to business. However, inside information can be utilized by an individual without any malicious driving force. In such a case, none of the persons involved, the person benefiting from inside information and that who is negatively affected, is to blame. According to Coffee (2013), utilization of inside information should only be done to prevent losses to the firm, but using them make others make losses should be treated as an offense in business.