Insider Trading
Name:
Instructor:
Course:
Date:
Ethics: Insider Trading
There are strong opinions both in support and against legalization of insider trading. From one perspective, insider trading is seen as an efficient economic means that serve both the interest of shareholders and promotes economic growth. On the other side, insider trading is seen as an inherently immoral practice that thrives on theft of information and information advantage (Ma and Sun 1998). There are different theoretical frameworks to explain these differing views.
From the utilitarian perspective, an action is morally good if it yields the greatest good to the greatest number of people. Economist who prescribes to this theory argues that insider trading is both ethical and legal (McGee, 2009). According to this perspective, insider trading creates economic efficiencies that benefit the larger population. The tenets of the utilitarian perspective are that an action is good if its benefits to the people outweighs its disadvantages. From that perspective, proponents of the legalization of insider trading contends that the practice harms no one, aids in the movement of capital and information and ensures that the correct value of the stock is reflected in the stock prices.
The main opposition to insider trading is on the basis of unfairness (Ma and Sun 1998). Insider trading is based on unequal access to information. Further still, the information facilitating insider trading is stolen. The fact that some people, the selected few, can steal information and use it at other people’s disadvantage erodes confidence in stocks trade. From the utilitarian perspective, eroding confidence in stock markets leads to great harm to the majority in the long run. Looking at it from the Categorical imperative perspective, the quicker access to information leads to market efficiencies, but it only benefits the privileged view. However, since the stockholder fetches a good price at the end process, the practice may still be ethical according to the categorical imperative perspective. The basis for judging an ethical act according to Kant is its motive. Since the motive of selling a stock is to fetch the best price, then insider trading is good to the stockholder.
References
Ma Y & Sun H (1998) Where Should the Line be Drawn on Insider Trading Ethics? Journal of Business Ethics Vol. 17, pp. 67-75
McGee, R.W. (2009) Analyzing Insider Trading from the Perspective of utilitarian Ethics and Rights Theory. Journal of Business Ethics Retrieved on Sept. 18, 2014
