Explication of Insider Trading Essay

Excerpt from Essay :

Wealth, Power and Insider Trading on Wall Street

In today's increasingly internationalized worldwide economic system, defined by the expansion of multinational corporate conglomerates into foreign shores, the necessity for effective and efficient financial regulation to prevent criminal conduct covered by the catchall term "insider trading" has never been greater. Whereas autonomous countries once maintained clear authority over businesses which were built on their shores, through levying taxes, enforcing fiscal regulations, and instituting a lawful system of commerce, today the most successful companies are those with the wherewithal to transfer their operations abroad. Global financial management requires a comprehensive comprehension of foreign exchange and currency markets, derivatives securities, international financial debt and equity markets, international portfolio investments and the global market for real assets. Due to the fact that "financial markets and intermediaries today are globally linked through a vast international telecommunications network," with this continual process resulting in "the trading of securities and the transfer of payments go on virtually around the clock," (Merton and Bodie, 1995), the field of global financial management has emerged to meet the needs of major multinational corporations. According to the United States Securities and Exchange Corporation (SEC), "illegal insider trading refers generally to buying or selling 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" (2001), although this term has come to describe a whole host of unethical activities in which information not accessible to the general public is used to take advantage of market conditions in the pursuit of profit.

One of the primary mandates of public policy makers within a democratic society is the conception and implementation of laws designed to prevent the undue consolidation of power by those who would use said authority to manipulate the system. Throughout American history laws have been enacted to regulate the growth of monopolistic corporations, to prevent corrupt party machines from dominating the political process, and to erode the growing power of paid lobbyists to influence Congressional action. The corrosive quality of unchecked power has always been anathema to the American ideal of equal opportunity, and the same instinctual desire to level the playing field that toppled the British monarchy still inspires policy makers to rein in entities, enterprises and organizations which threaten to amass a disproportionate degree of societal power. As reported by the SEC, criminal convictions for insider trading overwhelmingly involve "corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments & #8230; (and) government employees who learned of such information because of their employment by the government" (2001), a trend which speaks to the systemic abuse of power on which insider trading is most often predicated. While the industrial tycoons of yesteryear have succumbed to the "trustbusting" efforts of federal regulators, a return to the purely profit-driven capitalistic fervor that once derailed this country's economic system during the Great Recession has spawned a new generation of robber barons. The accelerated growth of the investment banking industry -- which has become irrevocably distorted by novel trends like high-frequency trading and mortgage-backed derivative packages -- has given rise to an elite class of billionaire bankers, members of the so-called "1%" of society which has accumulated a grossly unbalanced level of wealth and power. By tracing the insidious connection between unimaginable wealth and unrivaled power to the phenomenon of insider trading, it is possible to identify viable routes through which modern policy makers can implement truly effective Wall Street reform.

According to information compiled by the SEC, a total of 58 insider trading actions were brought against 131 individuals and entities in 2012, and during the last three years the SEC filed more insider trading actions -- a total of 168 -- than in any three-year period in the agency's history (2013). As the SEC states on the organization's website, "these insider trading actions were filed against nearly 400 individuals and entities with illicit profits or losses avoided totaling approximately $600 million & #8230; (and) many involved financial professionals, hedge fund managers, corporate insiders, and attorneys who unlawfully traded on material non-public information, undermining the level playing field that is fundamental to the integrity and fair functioning of the capital markets" (2013). In nearly every case of insider trading listed on the SEC website, those accused…

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