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Company Law Assignment PDF

   

Added on  2021-02-19

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COMPANY LAW ASSIGNMENT
Company Law Assignment PDF_1

TABLE OF CONTENTSINSIDER TRADING.......................................................................................................................1Origination and brief....................................................................................................................1Impact of Insider trading on Market ...........................................................................................2Pricing of Securities.....................................................................................................................4Allocation of Capital investments and Security prices................................................................5Aiding the Economy....................................................................................................................7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9
Company Law Assignment PDF_2

INSIDER TRADINGOrigination and briefAn organisation's growth will be unaffected if there is no insider trading as it breakscompany's internal information to outside market. Many experts and professionals are in supportfor declaring insider trading as unlawful. Where other experts are of the view that marketefficiency is improved by insider trading. It also speeds up correct pricing of company securitiesthereby enhancing capital investment allocation and to minimise volatility ion security prices.Also it is considered an efficient and justifiable approach to remunerate managers for retainingunearthed inside information. Insider trading refers to selling or buying stock of publicly traded company by personhaving non public important material information related to securities of company. Legality orillegality of insider trading is dependant upon when the trade is made by insider. It is generallyunlawful when information related to securities is not yet made public. Material informationrefers to information which can substantially influence the decision of investor related to buyingor selling of securities (Agrawal and Cooper, 2015). Where non public information meansinformation which is legally not yet available to public. Debate over legality is made over theattempt of exchange board of maintaining fair marketplace. A person having access over insidertrading may have unfair edge on other investors in comparison with other not having the sameaccess. These people can make big profits than the fellow investors.Governing rules of insider trading have the complexity and significantly vary ovecountries. Enforcement also varies from country to country. Any person aware of informationwhich is not public and is trading upon that information may held guilty of crime. Trade byparticular insiders like employees are permitted till they do not rely on important informationwhich is not made public. South Africa had recently joined list of growing countries who have enacted insidertrading laws in last decade for first time in history and for toughening existing provisions &measures designed for controlling practice of financial markets. Policy makers and legislationsare of strong opinion that proper and efficient functioning of financial market are undermined byinsider trading. For having control very insider trading and guiding the internal transaction ofsecurities Insider Trading Act, 1998 (Act 135 of 1998) has been repealed by Securities ServicesAct, 2004(Act 36 of 2004) as of February 2005. Act was assented by president on 2 December1
Company Law Assignment PDF_3

1998 and than made available for general information. Act contained provisions for preventingperson having material inside information about securities and financial instruments to deal intheses financial instrument and securities. For providing civil and criminal law penalties relatedto such dealings, for empowering Financial Service Board for investigating in matter of suchdealings. For instituting proceedings related to and for administering evidence of claims as well asdistribution related to payment received for such proceedings. Securities Services Act containsprovision related to insider trading under section 73 of the act. The section contains provisionrelated to persons who should be guilty for insider trading and exception for transaction that donot attract any liability (Aitken, Cumming and Zhan, 2015). It defines insider as directors,employees or shareholder of issues of securities that are listed over regulated market or personshaving access over such information through virtue of office, employment or profession. Insideinformation if mad public can significantly influence values or price of securities listed overregulated market. The laws and provisions are enacted by African government for ensuring thatfinancial market are not affected by inside traders. Impact of Insider trading on Market Some of the economists supports insider trading idea that it is beneficial for markets andbe promoted but majority of them accept that overall impact of insider trading is negative.Primary argument is about giving direct unfair advantage to individuals having insideinformation. This is damaging integrity of market as system and can drive many participantsaway from stock markets. In financial markets there exists risk of insider trading. Second mostsignificant problem after manipulation in share prices is insider trading that is affecting stockexchanges. Ten to fifteen percent of investigations relates to insider trading account which arecarried out by Securities Regulators. It is spreading highly in companies as it is very profitable for insiders and partiesinvolved in trading. Established ways are not much effective for having stop over this practiceand it is not easy to prove even when suspicion about insider trading practices are found. It isdifficult to detect insider trading because of it very nature. Surveys and statistical findings onlygive indicative information about insider trading practice which may or likely to occur infinancial markets (Ali and Hirshleifer, 2017). Authorities also suggests that cases related to biginsider tradings can be detected through computerized surveillance system. 2
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