25 Apr What is the Stock Act?
The Stock Act was passed into law in 2012, but what is it anyway? The act prohibits insider trading by congress and other employees. This means they can’t use the non-public information for their profit. Having said that, it also puts restrictions on the president, just in case, he has such access to any non-public information. The Act lays down guidelines for the Congress members to follow in terms of Stocks and bonds. The law doesn’t exempt any member from legal prosecution just in case there was a violation however the regulations can be a little different than the local public.
What is the Stock Act?
Stock Act was passed by Barack Obama on April 4, 2012. The main purpose of the law was to regulate and discourage Insider trading. The law prohibits the use of non-public information for any individual profit. This applies to Congress as well as the government employees. The Stop Trading on Congressional Knowledge (STOCK) Act applies to every member of congress and violation will lead to serious consequences. It also puts restrictions on President, Vice-president, and other executive-level employees who might have any access to non-public information. The act plays a central role in combating Insider trading.
What is Insider trading?
The definition of Insider trading, if put in the simplest words would be buying and selling a company’s stock by a person who has access to any sort of non-public information. Until and unless, the information is public, it’s prohibited. This exclusive access to the non-public information can help influence the company’s stock at an unimaginable extent. It plays a central role in investment as it gives the investor a unique advantage to manipulate the circumstances in his/her favor. Though there is an exception to corporate Insiders to some extent who can trade stocks of their company.
Why is it illegal?
The definition of legality depends. Corporate trading is an activity that can be justified to some levels, but the question of being legal is obvious. An insider has access to information that has not yet been public. This gives him an advantage in influencing the stock values. It’s is considered unfair to the other traders who don’t have such information and lag behind. This access helps him to earn more profit in the market and thus makes him run ahead. Insider trading has been there for a long time but it’s only recently that it has been banned.
The US Congress didn’t ban Insider trading until 1934 when it passed its law, but recently Obama administration passed the STOCK Act and signed it into the law in 2012. This prohibits congress as well as other government employees to use non-public information for their benefits. Apart from that, it also puts ethical restrictions on the President, Vice-President, and other executive-level employees of the government. The artificial capacity of the insider to manipulate the Stocks has been the prime reason to prohibit Insider trading and with the US passing the law, many countries have also followed the suit.