Insider Training - Facts, news and Regulations

  • By: Admin
  • Date: December 14, 2009
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Insider Trading, the term defines the act of trading of company stock or other securities by individuals with potential access to non-public information about the company. In most countries this kind of trading by company insiders is most common and is legal provided it adheres to all legal sanctions and does not take undue advantage of non-public information about the company. Any such transactions need to be brought to the notice of the regulator or publicly disclosed within few days of the trade. The term insider trading is more often referred in the context of illegal trade happening by way of disclosure of non-public information to outsiders for personal gain. Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.

Case in Hand

The case of Raj Rajaratnam, the billionnaire head of Galleon Group - a hedge fund company in New York, who has been arrested on charges of illegal trading. The FBI probe post the arrest has led to the testimony by a WallStreet lawyer and a former attorney of alleged dissimination of confidential information with regards to major mergers and acquisitions. Both have them have pleaded guilty and have disclosed receiving huge kickbacks for having done this. There have been series of arrests involving close business partners and old friends of Rajaratnam who are alledged to have been hand in glove in this scheme amounting to a staggering 20 million dollar of illegal profits.

Regulations - How SEC protects investors and maintains market integrity

  • Securities Act of 1933: has two basic objectives as follows - require that investors receive financial and other significant information concerning securities being offered for public sale and prohibit deceit, misrepresentations, and other fraud in the sale of securities.
  • Securities Exchange Act of 1934: The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self regulatory organizations (SROs).
  • Trust Indenture Act of 1939: This Act applies to debt securities such as bonds, debentures, and notes that are offered for public sale.
  • Investment Company Act of 1940: This Act regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public.
  • Investment Advisers Act of 1940: This law regulates investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors.
  • Sarbanes-Oxley Act of 2002: The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession.



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