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Hidden Wealth Secrets: Why Do Insiders' Trading Often Go Undetected?
Insider trading refers to the behavior of trading in the stock market based on major non-public information. Although such conduct is explicitly prohibited in many countries, many insider transactions often occur beyond the sight of regulators. This not only brings a loss of confidence to market investors, but also raises important questions about market fairness.
Most people believe that investors who possess non-public information have an unfair competitive advantage and thus may receive higher benefits than ordinary investors.
Legal regulations on insider trading vary significantly between countries. Taking the United States as an example, insider trading is a prohibited behavior according to Section 10(b) of the Securities Exchange Act of 1934. However, the extent to which these laws are implemented varies from state to state, leaving many violations unpunished. The U.S. Securities and Exchange Commission (SEC) handles an average of more than 50 insider trading cases each year, but many cases are ultimately settled out of court.
The judge once pointed out that when insiders release non-public information, they must be driven by improper purposes in order to be held accountable.
In addition, the identification of insiders is also very complicated. According to some definitions of the law, the scope of insiders is not limited to company executives, but may also include anyone who trades based on non-public information. For example, if an executive informs a friend of upcoming profits and lets the latter complete the transaction, the friend may also be punished for breaking the law.
With the rapid development of the Internet, some darknet platforms have also begun to provide trading of inside information, which further increases the difficulty of legal enforcement. In addition, these platforms sometimes switch to Bitcoin for transactions to shield the traceability of fund flows.
The discussion on insider trading has never stopped in academia. Some scholars believe that prohibiting insider trading hinders market transparency, thereby affecting economic growth.
During some deliberations, some scholars have suggested that the legalization of insider trading may promote market efficiency, because insiders often hold the most authentic information and can bring it into the market faster. Even Nobel Prize-winning economist Milton Friedman once expressed the hope that there would be more insider trading, not less, because it would incentivize those with information to voluntarily disclose it to the public.
However, there are clear differences in the views of law, economists and sociologists on this issue. On the one hand, many people worry that insider trading will exacerbate social distrust. On the other hand, some people argue that this is a voluntary transaction that should not be restricted by law. This view also exists in many markets, such as the real estate market, where the party with more information is legitimate.
Many commentators have suggested that insider trading is actually an act in which the victim is absent, because no party is forced to trade.
In some European countries, such as the United Kingdom and Germany, legal controls on internal transactions are relatively strict. Market laws in these countries not only require legal liability for communications involving insiders but also impose certain regulations on all transactions between insiders and recipients. This can better protect the fairness and transparency of the market. In contrast, in the United States, although the supervision of the securities market is generally strict, legal loopholes still exist.
As the global market becomes increasingly interconnected, effectively combating insider trading has become an urgent issue for governments around the world to solve. Through cooperation and information sharing, illegal activities can be tracked and investigated more effectively. Although laws prohibiting insider trading appear to be well established around the world, in practice the binding force of the law is often questioned. How to protect market fairness without affecting legal transactions has become a question worth thinking about.
