Can insider trading be legal

Obtaining the material information by way of a breach of duty or confidence is the key to the violation, but after decades of court rulings, it is almost impossible for a court to find that a duty was NOT breached in an insider trading case. Other examples are more of a stretch — the employee of the financial printer of the public company, or the truck driver for a financial publication have all been accused of insider trading, and with the SEC demanding penalties of three times the profit while ignoring losses from the same trading the downside is significant.

The legal version is when corporate insiders, officers, directors, employees and large shareholders, buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC.

Many investors and traders use this information to identify companies with investment potential, the theory being, if the insiders are buying the stock, they must know more about their company than everyone else, so it is a good idea to buy the stock. Reports of transactions by insiders are filed with the SEC on Forms 3, 4 and 5, and the SEC has an excellent overview of these forms and the requirements for filing of same.

Most of the internet based financial quote sites have information for each particular security. Visit Yahoo Finance and select a security, then select the menu choice for Insider Transactions.

Here is the insider trading page for Citigroup for an example. The insider trading definition that we are concerned about is the buying or selling of a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Examples of insider trading cases that have been brought by the SEC are cases against:. In recent years, the SEC and the Courts have expanded this further, and insider trading can now include trading by the random man in the street if the SEC believes that he obtained the information from someone who should not have the information.

In my opinion, this has all gone too far, and the SEC needs to be reigned in on the expansion of insider trading liability. The theory behind the prohibition is that it undermines investor confidence in the fairness and integrity of the securities markets. The SEC adopted new Rules 10b and 10b to resolve two insider trading issues where the courts have disagreed. The rule also sets forth several affirmative defenses or exceptions to liability.

Dirks v. SEC proved a pivotal U. Supreme Court decision regarding this type of insider trading. Dirks also created the constructive insider rule, which treats individuals working with a corporation on a professional basis as insiders if they come into contact with non-public information.

The recent emergence of the misappropriation theory of insider trading has paved the way for passage of 17 CFR While proof of insider trading can be difficult, the SEC actively monitors trading, looking for suspicious activity. See United States v. The U. Supreme Court expounded on 10 b in a pair of cases. In , Tellabs, Inc. With Congress requiring sufficient facts from which "to draw a strong inference that the defendant acted with the required state of mind," the Supreme Court determined that a "strong inference" means a showing of "cogent and compelling evidence.

All the corporate officials including the higher management are restricted to disclose private information or spread rumours about the acquisition or sale of shares. Any activity in this regard will be declared null and void. The law subsequently provides for penal provisions on violation of any regulation as mentioned under Article 41 which states that any breach of the foregoing clauses, an individual subjected to insider trading will be imprisoned for a period of not less than 3 months and not more than 3 years and shall be liable for a fine ranging between AED , to AED 1 Million.

A specific breach of Article 38 will attract imprisonment for a period not more than 3 years and a fine not more than AED 1 Million. Abu Dhabi Securities Exchange ADX has banned the insider trading until the companies disclose the financial statements.

The concerned article states that the any employee or corporate official including the chairman and the board members who have access to insider information are prohibited either themselves or through others to trade in securities of the same company or any of its subsidiaries or sister companies, if they are listed on stock exchange, during a period of 15 days prior to disclosing the financial statements of the company until they are revealed.

Every securities market is required to maintain a record pertaining to securities trading transactions and must submit such report on daily basis to the Authority including the price and quantities of such securities and a number of transactions in total. Any corporate entity or issuer of security which is willing to trade its security must submit an application before the Authority, and such applications shall include a detailed report issued by the board members of the applicant.

It is the liability of the member, so the board of the applicant to confirm the accuracy of such information provided in the application submitted to the authority or the relevant securities market. The SCA law also restricts the public listed companies to change their ownership, unless specifically approved by the Authority, as such sanctions will be imposed considering the threats of insider trading and circulation of wrong information.

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