It comes as no surprise that insider trading can often be carried out by those with the advantage of direct access to the “insider” information. Congress members, for example, may have an unfair advantage when it comes to trading, especially in the context of their own politics or the performance of their own company. So should insider trading be legalised?
Investors And Insider Trading
Investors rely on the regular, public disclosure of information from the companies they invest in. If certain persons, especially congress members, have the ability to make decisions based on privileged information that is not made available to other investors, the integrity of the entire market could be affected.
When one person has an unfair advantage by using inside information, it could cause an imbalance of power between first-time traders, institutional investors and special interest groups. There is also a potential for any disadvantageous trades made over the basis of privileged information to essentially ‘steal’ money from the rest of the market.
A Closer Look at the Bill
The bill to ban stock buybacks has been introduced by two lawmakers, Reps. Rashida Tlaib of Michigan and Mark Pocan of Wisconsin. The bill, aptly named the “Millionaire’s Bonus Elimination Act,” would end corporate stock buybacks, prohibiting companies from repurchasing their own stocks, thus focusing their resources instead on fund their wages and benefits, research and development, and infrastructure improvements.
Various companies have engaged in massive stock buybacks during the last two decades, helping to drive inequality in America by further enriching senior executives, CEOs and other executives through the use of share repurchases. On the flip side, wages for workers have remained stagnant as stock buybacks have become increasingly popular, meaning the efforts to close the wage gap and raise the minimum wage have failed.
Should Insider Trading Be Legalised?
Insider trading should not be legalised due to the imbalances of power and the potential for unfair practices. It has long been viewed as a form of corruption, which creates an environment of distrust between investors, especially those who are not “in the know.” Lawmakers should be working on a system of accountability and transparency that would eliminate any discrepancies in the law and ensure that everyone is playing by the same rules. This would be a better option than attempting to legalise a practice that could potentially cause financial harm to the market. If we want to get away from the existing systems of power and privilege, then eliminating insider trading is an important step.
Ultimately, this bill will answer the question many have had for decades: Should insider trading be legalised? It’s clear that criminalizing insider trading would not only put an end to the control certain powerful people have, but would also keep the markets fair and equitable. It is certainly one of the quickest ways to achieve greater equality and better market conditions.
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