WHAT IS INSIDER TRADING?

Insider trading is a malpractice that involves the trading of a public company’s stock or other securities by individuals with access to non-public information about the company.  While a source of fascination and concern in capital markets around the world, it is a topic rarely discussed in Canada. Some suggest this is because insider trading does not happen to the same degree as it does in the United States. Others argue that insider trading does happen in Canada at comparable levels, but that the country’s more laisser-faire approach to white-collare crime allows the issue to fly under the radar.

A recent study revealed that American authorities prosecute twenty times more insider trading violations than their Canadian counterparts. Toronto Star journalist Tylor Hamilton reported that, outside our borders, international investors “consider Canada as an “enforcement-free zone” where people don’t just get away with white-collar crime but also profit dearly from it”.

Trading on the basis of inside information is illegal in Canada and the United States and in many other jurisdictions around the world, as it allows investors to gain an unfair advantage and swindle others by buying or selling stocks using non-public information that affects share prices when released. The economic benefit that one can achieve from insider trading is extensive. For example, John Felderhof, the former Bre-X Minerals chief geologist, was accused of using insider trading to gather an additional 83.9 million dollars of profit. While insider trading may appear to be a victimless crime, studies have shown that it has an enduring impact on economic growth as well as the public’s confidence in the integrity of the markets.

An officer of a publicly traded corporation should not use confidential information to trade to his or her advantage. Eugene Soltes

Associate Professor of Business, Harvard Business School

INSIDER TRADING PREVENTION AND EDUCATION
PROFESSIONAL DEVELOPMENT AT THE MOVIES
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