Ethics and Stock Trading

Anyone with a background in finance knows about insider trading and the fact that it's illegal.  Most Americans have at least heard the phrase and know it's not legal but may not fully understand what it is.  Wikipedia defines insider trading as:  The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.  Therefore, in theory, no one who is exposed to insider information of publicly traded stock is to act on that information until it is made public to all to take advantage of.  This is theory, because it's so difficult to clearly define the lines of where this starts and stops and how to enforce whether an individual is trading on public/private information.  It comes down to ethics/morals and the type of person each of us are.

Most Americans can never do insider trading because they don't have access to the type of information needed to allow it to happen.  However, we've all seen movies like Wallstreet that make this the plot and seems like a high profile activity amongst the elite.  However, although all movies glorify scenerios and create plots with few people affected, insider trading affects a much larger community than corporate and finance professionals.  On initial glance, I never thought of Congress being so highly influential on insider trading and acting upon it.  However, a recent friend of mine mentioned a news segment that explained the opportunities to politicians, as well as many 'coincidental' trading activities.  See the full 60 Minutes segment and report
Congress Insider Trading.

'as a politician, if you are questioning

how your investments are affected

instead of how the bill will affect

the country & Americans, then your motives are

wrong and you have the wrong intensions'. 

After reading about it, on the 60 Minutes website, they had a follow-up article that described how the Securities and Exchange Commission (SEC) Rules may actually prevent this under Rule 10b-5 (see full article Congress is covered under Rule 10b-5).  Rule 10b-5 helps define the types of trades a person can do based on the type of information known at the time.  The full rule can be seen at Rule 10b-5.

Again, to most people, these rules and language seems foreign.  However, to us financial professionals who have worked with these rules and understand the importance with compliance of them, they shift thinking to a broader level of 'exposure' and responsibility to anyone who is exposed to insider information on publicly traded companies.  Should Congress be held to the same standards as any investment professional? - absolutely!  Unfortunately, there are investment professionals getting charged with crimes often related to insider trading and there is no reason why any other individual should not be held to the same standards. 

All corporate officers are forced to comply with these regulations and are well aware of them as well because they are adviced by their legal councel and financial professionals.  It's a no-brainer to those of us in the industry.  Anyone who has taken any type of security licensing knows that these regulations are drilled into our heads and these rules cannot be overlooked because of the amount of material we are tested on while pursuing our licenses.  Therefore, it's with little question and sympathy for those that are charged with such crimes that they weren't aware of these regulations. 

What's fair is fair and all people should be held to the same standards.  Sometimes those levels of 'standards' are blurred, but as one of the former congressmen stated in the 60 minutes segment, 'as a politician, if you are questioning how your investments are affected instead of how the bill will affect the country & Americans, then your motives are wrong and you have the wrong intensions'.