Ethics of insider trading

[ahnuld]

A few of my friends are going off to do i-banking this summer and we got into the discussion of insider trading. Seems like it would be pretty easy to do on a small scale, though we wont be doing it anyways. But what are the moral reasons for not doing it? Who is getting hurt? The best I could come up with was the investors who sell to you not knowing as much as you do because of your ill-got information. But isnt that the same thing as doing more research than someone else? There have to be some issues here im overlooking...

[Evan]

[ QUOTE ]
But isnt that the same thing as doing more research than someone else?

[/ QUOTE ]
Wtf man, are you kidding?

Would you consider stealing a copy of a test the night before the same thing as studying more than someone else?

[ahnuld]

obviously I get the difference, but im saying the moral justifications for not doing it are not apparent to me. You always have an edge, so why does it being a fair edge make it moral vs having an insiders edge. Id need more than just based on fairplay, I need to see someone getting hurt.

[hawk59]

The 'hurt' would most likely be very diffuse, ie if someone makes a $1 from insider trading that might mean 1000 people lose a tenth of a cent. Anyone being morally outraged is probably being a little self-righteous. But if you are looking out for yourself then you have to realize that doing illegal things means you can lose everything if you get caught. I have no idea how likely you are to get caught, probably depends on the type of situation you are trading in.

[Evan]

[ QUOTE ]
obviously I get the difference, but im saying the moral justifications for not doing it are not apparent to me. You always have an edge, so why does it being a fair edge make it moral vs having an insiders edge. Id need more than just based on fairplay, I need to see someone getting hurt.

[/ QUOTE ]
Is this really about insider trading? This seems more like a psych question about morality.

Let's assume there's no curve, would stealing that test be immoral?

[midas]

ahnuld:

This is why you are stealing $$$ out of shareholders pockets because if the information that is not public is disclosed the price would be X$$$ higher. Thus you have an unfair advantage over the seller.

BTW, the SEC does not take these offenses lighly. They routinely bust i-banking analysts who try to get away with this. There are also safeguards in place to prevent this like only have a brockerage account where you work and filling out extensive pre-employment forms that can be cross-referenced. When you take one of these jobs Big Brother (SEC) is watching.

Did you know that you can be convicted of a felony insider trading case even if you never if fact realized a profit? You can!!

It's just not worth the risk - ask Martha Stewart!!

[ahnuld]

I definitely agree Midas. I know the risks, and actually read Inside Out by Dennis Levine who was the first guy to fall in the Michael Milken scandals, good book. I will not be doing this as it isnt worth it and its pretty obvious when you are doing it. Im strickly discussing this is in an ethics way. It is a morality question.

So the people who suffer are those who sell and dont benefit due to the inside info you have?

[NajdorfDefense]

While it's illegal, it is more of an ethical grey area. Insider info is not 'risk-free' you're still subject to firm and market risk. If you buy a stock and 30 and are happy to sell it at 60, you shouldn't care why someone bot it, as you'll never know anyway.

[chisness]

I thought I read MDs have to sign off on personal trades if you work for an i-bank. Can anyone verify that?

[edtost]

there is a decently-sized camp of financial economist-types who argue that insider trading is not only ok, but is actually beneficial to markets. unfortunately, all of the profs at my school seem to be in the other group, so i don't have anything specific to cite.