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Insider Trading Insider trading is a phenomenon of the modern business which unfortunately may occur in the very big world wide recognize companies and even more, it can lead to their collapse. The example of what insider trading can lead to and what can happen to the huge corporation, a world leader is the case of Enron. The main principle of the business is that all players are in equal conditions. The society had to work out certain rules of the big game which is called business. The cooperation may survive if it is fair and open. The business environment presupposes that all the participants have the equal possibilities and follow the same rules.
Business is the basis of the country and the main engine of its development. This is the reason the powers are extremely interested in developing the fair business relations. When we speak on the information we may state that it is the main tool of the companys development. If we assume that all the parties have the same entrepreneur skills, follow the same laws, pay the same taxes, use the same infrastructure, the only one thing which may benefit one of the party is the information. The question of the insider trading is the question of the business ethics. When the insider trader makes illegal profit on the information on the companys assets he is acting unfairly first of all regarding the company and other shareholders.
The executives and the shareholders may be successful only if the company is successful itself. The success of the executive is the component of the companys success and can not exist outside the corporative interests. The Enron scandal was a real shock for both American business and the world community. It is worth to note that such phenomena as insider trading may happen only with the big corporations. The bankruptcies of such companies undermine the national economies, trust of investors to stock market and lead to other irreversible negative consequences. The insiders break the main law of the market, i.
e. the equal access to the data. This is the worst harm that insiders bring to the business environment. There are no laws prohibiting the insider trading directly in the USA 1. The insider trading may cause very negative consequence in the form of the investors mistrust and this factor may seriously spoil the investment activity. The insider trading became serious concern for the US authorities.
US Security and Exchange commission adopted the Final Rule: Selective Disclosure and Insider Trading. 2 According to Commission some issuers make the selective disclosure of material information before making full disclosure of the information to public. Some employees who have such preliminary information are able to make profit by using the information. Such actions may lead to the loss of the confidence to American market. Sometimes investors do not understand the processes that are going on with the capital market. The deviations of the market can not be explained by the analytical means. The illegal insiders may bring a lot of losses to the company because their trading activity may contradict to the corporative objectives.
When the insider makes the transaction illegally he does not care of the companys interest that opposes his mission in the company. The transaction by the insider does not mean his physical participation in the trading procedure but just the releasing the information he obtained while doing his official duties in the company. Insider trading is very interesting phenomenon. It may cause unpredictable consequence. If say, the insider raise the price at the stock exchange anonymously then the stock exchange reacts immediately by raising the price thus benefiting the issuer. The company gets the powerful tool to conduct its business.
The insider trading activity may include the planned sales. It is up to the companys decision whether to release the information prior to the official announcement or not. One thing may be stated definitely. Both legal and illegal types of the insider trading activity bring more negative consequences than positive ones. The main problems of Enron started when the top management worked out the revolutionary approach of encouraging the employees of the company.
The human resources policy of Enron based on the involvement of its employees into stock exchange rush might be one of the reasons of the Enron's crisis. The employees of Enron realized that money may be earned by the stock exchange operations and the main tool of such operation is the confidential companys information. The employees came to the office first of all for hunting the information useful for their stock exchange activities. At the same time such disclosure may bring more negative consequences that the positive ones to the company. The consequence of the Enron crisis is enormous. It spread outside the USA and touched many countries and corporations.
This is the evidence that the rules and regulations should be fair in the closely integrated world market. Enron cut 1, 100 jobs at its London energy trading centre, leaving just 250 staff. 3 The Enron scandal brought down Arthur Andersen, which had been one of the profession's five giant firms. The shocking rapidity of Enron's decline had made people question the reliability of financial reporting services and return to economic fundamentals in their investing decisions. This dramatic decrease in investor confidence has punished other companies employing tactics similar to Enron's. 4 The story of Enron shows that the ethics is the core of business. The case of Enron proved that even such giants as Enron are vulnerable to unauthorized use of the companys information and what is more important, the world marked is highly dependent upon such companies as Enron. The scandals with such companies shock the world market especially in such sectors as natural gas and oil.
The scandal with Enron has indicated also that companies influencing the national security as Enron did should be accountable to a certain extend to the government. Citation Wikipedia US Security and Exchange commission BBC NEWS Oliver Bell and Andrew Reider Bibliography Wikipedia, available at web retrieved 8. 12. 2205 US Security and Exchange commission adopted the Final Rule: Selective Disclosure and Insider Trading, available at web retrieved 8. 12. 2205 BBC NEWS, Enron Crisis Claims 1, 100 UK Jobs, , available at web retrieved 8. 12. 2205 Oliver Bell and Andrew Reider, The Enron Inquisition, available at web retrieved 8. 12. 2205
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Research essay sample on Insider Trading Negative Consequences