Ethics of Insider Trading

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Abstract Insider trading is defined as "insiders trading on shares of a company for which they have privileged 'material' information not available to the 'public', and for which they seek to gain pecuniary or other benefits" . Past literature has provided numerous studies discussing the application of ethics to insider trading and to what extend one can consider such a practise as moral or immoral. Engelen and Liedekerke make a clear distinction between insider trading and market manipulation that they define as where private information is used in order to make a share value shift from its fundamental value and therefore implies market inefficiency. Under their definition insider trading, on the other hand, can hardly be qualified as immoral and increase market efficiency. The discussion about insider trading therefore leads to the much wider issue of morality Vs legality. Morality refers to the broad general principles which define what is to be regarded as right or wrong. Law on the other hand sets out a code defining how people are required to behave. One should therefore not confuse what a business is legally allowed or not allowed to do with what would be morally right or wrong. The aim of this study is to discuss the relation Morality/Legality applied to the issue of insider trading. Basing our arguments on past literature, we will first analyse the vision of insider trading as immoral and in the second part, we will focus on ideas defending it as illegal but not immoral before applying the arguments to the Sabena Dowd case study. Insider trading : immoral bahaviour. The first and most obvious argument that one may find to describe insider trading as immoral is the one of unfairness. Indeed, this is one of the arguments most used in the non-consequentionalists' approach (MENDELSON 1969, SCHOTLAND 1991).Non-consequalist mainly base their arguments on

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