Introduction
Insider trading is a form of trade that involves parties who have the advantage of access to materials and information that is not available to the public. This form of trade has been regarded as unethical. This is because having information that is not known to others is an unfair advantage (Brenkert & Beauchamp, 2012). This paper discusses the moral problems associated with insider trading. It outlines the negative impacts that this practice has on trade and society as a whole.
Ethical Issues of Insider Trading
When parties with inside information participate against those without, there is a probability that inadequate market research is done. Despite the level of research that the outside party does, the level of information remains unequal. This discourages potential investors from participating and affects the market size. Investor confidence is a major factor in business growth because it determines the efficiency of the market. There is a high probability that when a market is influenced by insider trade, the knowledge influences decisions. This ensures that the market is very variable. Variable markets are unstable and may not be reliable in the long term (Saylor, n.d).
Trade involves competition in which the best player gains. Perfect competition cannot be experienced in insider trading, and this slows down the business world. This is because market research and analysis will not be adopted in a growing business. It is a form of shortcut that encourages unfair competition. Using a firm’s information and material for personal gain is like stealing. This is because the materials and information belong to the company. The beneficiary of these should be the company through the person, and not the person through the company. This is unlawful, according to the legislators (Brenkert & Beauchamp, 2012).
Viewed from the disadvantaged party’s point of view, insider trading is wrong. No one would want to be in a situation where he or she is less privileged. Therefore, it should not be applied if the general public finds it unacceptable. Trade involves the other person’s free consent. If that is not the general public’s opinion, then it is exploitation. People cannot trade with parties who have inside information out of their own free will. In most cases, people trade because they do not have a choice (Brenkert & Beauchamp, 2012).
Capitalists argue that there should be justice in the distribution of gains. This should be based on how much an individual has given to society. Possessing inside information is not similar to contributing a lot to society, yet it places the person in a better position. This means that insider trading is unjust and only benefits some individuals. On the other hand, this practice is not acceptable based on the assumption that one should share benefits according to the needs of the people. It does not necessarily mean that those with inside information have more needs than the rest of the public. It simply favors them (Salbu, 1992).
Conclusion
Trade has the power that affects the way in which society and people operate. Decisions should be ethical and considerate of others. The personal gain should not be the driving force. In the case of insider trading, there is an unjust advantage that has affected society negatively. It has resulted in a lack of interest in trade for some people who have the potential to invest. It is morally wrong to exploit investors, as evident in cases where investors do not have a choice but to engage in this trade.
References
Brenkert, G. G. & Beauchamp, T. L. (2012). The Oxford handbook of business ethics. New York: Oxford University Press.
Salbu, S.R. (1992). A Critical Analysis of Misappropriation Theory in Insider Trading Cases. Business Ethics Quarterly. 2(4), 465-477.
Saylor, L. (n.d). Ethical Analysis of Insider Trading. Web.