20 Apr Overview of the law of Insider trading
There have been various laws to regulate the trading but due to various complications, either they never saw the light or were never implemented as it was supposed to be. The history goes as far as 1934 when the first law was passed, but the recent developments have been appreciable especially by the Obama administration that took radical steps to combat Insider trading. With the passing and signing of the STOCK law into the legislation, it allowed for a whole new dimension in the trading market.
What is Insider trading?
Insider trading is regarded as an unfair means to gain an advantage in trading. It uses the information that is non-public and helps to gain the advantage. This information is very crucial in influencing stock prices. Having said that, there can be a difference between legal Insider trading and illegal Insider trading. The legal trading involves corporates and employees of a company trading equities.
Insider trading Act
The Insider trading act is known as Stop Trading on Congressional Knowledge (STOCK) act. The act was brought in by the Obama administration in 2012 to combat Insider trading within the Congress. It doesn’t exempt anybody from the law and also puts ethical obligation son the vice-president as well as the President. The laws make it illegal to share non-public information that has the capacity and power to influence stock prices. Though the rules in the United States are strict, this can be different in a country like Japan but as the United States tries to hold its grip on the market, it can be expected that other countries will follow the suit.
Will the insider trading information be expanded?
The legal definition of Insider trading is a broad one that allows it the flexibility to be expanded. As situations may arise in the future, the current laws of Insider trading seem to be flexible enough. Though there is a variation on how the law applies to the congress which can be attributed to a legal loophole that is currently there, in general, the law is strict in its application and doesn’t spare anyone.
Falling for it:
Dealing in securities can be complicated but one needs to be sure that the information that they are receiving doesn’t violate any agreement. In case of a doubt whether the information is public or not, it’s better to consult authorities. Trading under legal boundaries is beneficial in the long run.
The STOCK Act is severe in its application that doesn’t even spare the top-level executive employees. Though the law can be misinterpreted due to some legal loopholes in some situations, it is one of the well-thought-out legal regulations. However, as the US government is tightening its hold on the market and the need to regulate the activities arise, the Stock act is likely to go through changes when the market fluctuations make the Act smooth in the future.
The Stock act prohibits the trading of non-public information for personal profits. However, there is a difference as to what constitutes illegal and legal Insider trading, and based on that, the law applies.