Insider Trading Regulations in Developing Nations

This assignment delves into the complex issue of insider trading regulation within developing countries. It examines the existing regulatory frameworks, their effectiveness, and the unique challenges faced by these nations. The paper analyzes relevant literature, case studies, and legal perspectives to propose strategies for achieving a robust and enforceable regime against insider trading in emerging markets.

Running head: BUSINESS ETHICS
Business ethics
Name of the student
Name of the university
Author note

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Executive summary
The aim of this report is to discuss about the potential implications of sharing confidential
information on investors, employees and trading organizations. The report had also discussed
about the aftermath of the case of Raju Rajaratnam in the stock trading market. In addition, this
report will also discuss the steps to be followed by the investors in order to prevent the fraud.
The report concluded that, rajaratnam had indulged in huge fraudulent activities by having
collected the access of confidential information. It also concluded that the conviction of
rajaratnam will not have huge impact on the trading practices being followed by the investors
and trading firms.

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Table of Contents
Introduction......................................................................................................................................3
Trend of information gathering techniques in stock trading...........................................................3
Measures to prevent the implication of inside trading.....................................................................4
By the investors...........................................................................................................................4
By the regulators..........................................................................................................................5
By the companies.........................................................................................................................5
Implications of sharing confidential data........................................................................................6
For the employees........................................................................................................................6
For the investors..........................................................................................................................7
For the trading firms....................................................................................................................8
Influence in decision-making process.............................................................................................9
Aftermath of the case of Rajaratnam...............................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

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Introduction
In the current business scenario, trading in the stock market is growing in a rapid pace. In
addition, in the developed countries such as United States, this trend is much more and involves
various large institutions having expertise in trading of different stocks. Stock trading has
emerged as one of the most potential and profitable venture for enhancing the wealth for the
individuals as well as for the business organizations (Chen, Choi and Hong 2013). However,
with the increase in the trend of stock trading, various cases related to fraud are being
originating. Fraud and scam in the stock trading involves huge amount of money and thus, the
effect is more than any other form of fraud . Due to this reason, the government and the trading
firm are introducing different regulations and legislations in order to reduce the chance of being
mislead (Kim and Sohn 2012). Various stringent laws and legislations are being initiated by the
government of different countries to initiate harsh punishment if being accused and proved.
However, in the last few years, few cases regarding to the fraud in the stock trading are
being emerged. One of the prominent cases is the case of Raju Rajaratnam of Galleon group.
This case involved fraud of multimillion dollar with some of the leading organizations. The case
was being proved and Raju Rajaratnam is being given 11 years of imprisonment (Raghavan
2013). However, though he was imprisoned for his fraud case, there are still insider trading is
happening in the stock market. Thus, the risk of being tricked by the investors is still there.
This report will discuss about aftermath of the case of Raju Rajaratnam in the stock
trading market. In addition, this report will also discuss the steps to be followed by the investors
in order to prevent the fraud. Moreover, the implications of sharing the confidential data will be
evaluated in this report.
Trend of information gathering techniques in stock trading
The case of Rajaratnam came as a huge shock for the entire stock market industry and the
amount being involved in the fraud is huge which negatively affected the stock market.
However, it should also be considered that the fraud being committed by Rajaratnam is not new
and it will not end with him. This is due to the reason that, the stock market specialists operates
in this market based on certain criterions. However, these criterions can only be accessed from

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having some sort of confidential data. In addition, with the increase in the trading firm in the
stock market, the rate of the competition among the competing players is much more than ever
(Bauwens and Giot 2013). Thus, having the access of some sort of confidential data helps them
in gaining competitive advantages in the market. Therefore, though it is unethical to have the
access of the confidential data, but the market scenario is influencing the trading organizations in
having the access of these data.
Measures to prevent the implication of inside trading
By the investors
 One of the key measures should be taken by the investors is effectively and ethically
dealing the trading officials. This due to the reason that, creating impression of being
interested in accessing confidential data will motivate the trading officials to get in to
insider trading. Thus, from the very first stage it is recommended for the investors that
they should refrain from any such activities (Coffee 2013).
 Crosschecking of the gathered information is required for the investors. They should
make sure that the information being provided by the trading firm to them is being
available in the public forum. This will help them to identify any fraud or insider trading
in their transaction.
 It is the responsibility of the investors to adhere with the security and other rules and
regulations regarding the stock trading. This is due to the reason that, there are various
legislations being in the stock market, which should be known to all the related
stakeholders. Moreover, adhering with the relevant legislations will help the investors in
identifying any fraud in the activities of the trading firm (Cox, Hillman and Langevoort
2016). It will also prevent them from being prosecuted by the government officials due to
the reason that, in case of proven fraud, investors will also be held liable for the misdeeds
of their trading firm.
 Investors should always be careful about making public the confidential data that they
have with regarding their past or present employer (Ogiela and Ogiela 2012). This is due
to the reason that, publicizing the confidential data about the employer will also be
treated as the breach in security policy.

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By the regulators
 The government and other regulatory bodies also have the responsibilities in preventing
the inside trading in the stock market. One of the key measures that being taken by the
government is monitoring the trading activity in the market. Regular surveillance and
effective determination of the trend analysis of the stock valuation of various companies
will help to identify any huge differences in the market (Kim 2012).
 There are numerous complaints being made to the regulatory bodies by the investors
having incurred huge loss in the market. These complaints can act as potential leads for
the regulatory bodies to concentrate their investigation process on a particular area. In
addition, this will help them in determining the unusual trading practices being involved
in the market.
 Whistleblowers are one of the key sources of gaining market fraud for the regulatory
bodies. This is due to the reason that, whistleblowers are the past or present employees in
any organizations and thus they may have the knowledge about the fraudulent activities
being involved by their employers in the market (Miceli, Near and Dworkin 2013). To
motivate the whistleblowers in coming forward to disclose the fraudulent activities,
incentives of 10 to 30 percent are being provided to them.
By the companies
 Companies also have the responsibility of preventing the fraudulent activities in the stock
trading. Thus, they also initiate various policies in order to prevent these activities
(Beneish, Press and Vargus 2012). Various organizations have the blackout period for
their executives to refrain them from buying the share of the company due to their access
with the confidential data of the particular organization.
 In some organizations, executives are being allowed to buy their shares of their own
organization. However, they are barred from having transaction at the time of earnings
announcements or any type of organizational activities, which may have impact on the
trading of stock (Fisher 2015).
 Various organizations employ legal officials to look after the legal affairs regarding the
stock trading. This is due to the reason that, company officials will not have the clear idea
about the various regulations as well as they may indulge in conflicts of interest. Thus,
employment of the legal officials will help to prevent these types of activities.

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 Employees are being given training about the various rules and regulations in the trading
of stocks. They are being trained about the access of the confidential data and the extent
to which they are allowed to publicize the information regarding their organization
(Jehanzeb and Bashir 2013). In addition, they are also being trained about the possible
implications or consequences that they will face in case of any misrepresentation of the
confidential data.
Implications of sharing confidential data
Sharing of confidential data will have implications or consequences for the employees as
well for other associated stakeholders. However, for the different stakeholders, the effect of the
implications will be different. The following sections will discuss about the potential
implications of sharing confidential data on different stakeholders.
For the employees
 The primary effect of sharing of confidential data will be on the employees. This is due to
the reason that, employees ranging from the lower level to the upper level managers will
have the access of various confidential data more effectively than any other outsiders
(Hannah and Robertson 2015). Thus, the chance or probability of breaching the
confidentiality will be more from the side of the employees. Thus, in that case, the key
implication for them will be the termination. Majority of the employee contracts have the
clause for breach of confidentiality. Thus, the employee will be terminated on an
immediate basis upon proven.
 Employees may face legal notices from their employer and may have to incur huge
penalties if proven guilty. This is due to the reason that, in case of the breach of
confidential information, the employer will probably sue the accused with legal notices
(Morrow 2012). Thus, if the lawsuit is being proven and if the justice goes against the
employees, then he may have to incur a huge penalty. In the case of monetary damage
being served by the employer due to the reason of the breach of confidential data by the
employee, the employee has to pay the price of loss as penalty. Thus, he will also face
monetary consequences.

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 Other than the monetary implications, employees may have to face he criminal charges
due to the reason that, breaching of confidential data is similar to the theft of the
intellectual property of the organization (Acemoglu and Akcigit 2012). Thus, the
employee can be accused in the charge of theft. The law regarding theft and breach of
confidentiality of information is different in various countries. However, criminal
proceedings will be there against the employee in the case of the charge of theft. It may
lead to paying a good amount of penalty as well as having sentenced imprisonment for
years.
 With having served the legal lawsuits, incurring a huge monetary loss and serving
imprisonment. The social reputation and goodwill of the employee will get negatively
affected. Moreover, the chance for him to get selected and appointed in other
organizations is much lower. This is due to the reason that the tarnished social mage of
the employee will be transmitted among the majority of the organization. Thus, no other
organizations will show interest in hiring him due to his past background. Hence, the
future of the employee will also get negatively affected.
 If the confidential data is being leaked by the employee in the organization and if it led to
huge financial fraud in the market, like the one with the galleon in the stock market, then
the consequences will be more stringent for the accused. This is due to the reason that, in
the case of the occurrence of financial fraud in the market because of the leakage of the
confidential data, then the accused will be prosecuted by the regulatory bodies also
(Abbasi et al. 2012). In that case, he will be charged with more cases against him, which
may lead him to having more term of imprisonment as well as penalty.
For the investors
 Investors whether intentionally or unintentionally indulged in the fraudulent activities
will have to face the consequences. This is due to the reason that, it is the responsibility
of the investors also to check and adhere with all the relevant legislations before being
operated in the stock market (Beatty, Liao and Yu 2013). It is also being assumed that,
the fraudulent activities by the trading firm are known to the investors due to the reason
that it is the responsibility of the investors to check and monitor the activities of their
trading firm. Thus, they also have to face the legal and criminal consequences (Pillai, Kar
and Shah 2014).

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 Apart from the negative implications, investors will also some sort of positive and
favorable impact in the initial stage due to the sharing of the confidential data. This is due
to the reason that, sharing of the confidential information will help the investors in having
the knowledge of the probable change in the business scenario prior to their investment
(Bhattacharya 2014). Thus, they will invest their capital accordingly. Though it is of
having undue advantage but still it will give profit for the investors.
 Social risk is also applicable for the investors also in the case of revelation of the
confidential data. This is due to the reason that, in the case of sharing of the confidential
data and if being accused, the social risk will also be implied for the investors (Johnson
and Covello 2012). In the case of the accusation, the regulatory authorities will also
prosecute the investors. Thus, the social goodwill and reputation of the investor will be at
stake.
 In the case of the insider trading, the investors will also find it difficult in have their
trading partner in the future. This is due to the reason that, if the name of the investors
gets revealed in any fraudulent activities, then no other trading partner will show interest
in trading with them in fear of loss of goodwill in the market. Thus, the investors will
face economical loss also in the case of sharing of confidential data.
 The regulatory authorities in the case of the accusations will take back the profit made by
investors with the help of the confidential data back (Bewaji 2012). In addition, the
investors will have to pay a hefty amount as penalty. Thus, it will cause a huge
economical loss for them.
For the trading firms
 In the case of using any confidential data for insider trading, the trading will be adversely
affected upon revealed. Their trading license may be taken back and may be made black
listed and thus, the business potential of them will come to a hold. Similar case had been
happened with the Galleon. In this case, with the arrest and accusation of Rajaratnam, the
trading firm of him got dissolved. Thus, the trading firm indulged in sharing of
confidential information will face survival issue in the case of revelation.
 If the business of the trading firm is not being closed even after the sharing of
confidential data, then also they will face survival issues in operating in the existing
market (Ahmad, Bosua and Scheepers 2014). This is due to the reason that, no investors

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will be interested in collaborating with a trading firm, which is having background of
sharing confidential data.
 In the case of sharing of confidential data, the trading firm will gain huge profits in the
short term. However, in the long run, they will lose their competitive advantages in the
market (Wagner III and Hollenbeck 2014). This is due to the reason that, the information
that they will share with their investors will be treated or assumed as confidential data,
even though it is authentic. Thus, the competitiveness and trustworthiness of the trading
organization will get affected.
Influence in decision-making process
Sharing of confidential data will obviously effect my decision making process in trading
with a particular stock. This is due to the reason that, if it is being known to me that the access of
information that i have with me is private and confidential, then it will negatively motivate me in
trading with the particular stock. However, it is true that in most of the cases, investors having
confidential data with them will most likely to trade with that stock for gaining advantages.
However, for me, the long-term situation will be more influencing factor. Thus, I have to
determine the implications of insider trading in future and accordingly indulge in trading.
Aftermath of the case of Rajaratnam
As discussed earlier, the investigation and conviction of Rajaratnam had given a huge
blow to the existing scenario in the trading market. The rate at which the trading firms were
garnered confidential data will be reduced due to this case. However, the growing
competitiveness in the trading market will also reduce the influence of the rajaratnam’s case
gradually. This is due to the reason that, trading firms will have to garner some sort of
information that will be accessible to any other to have the competitive advantages over their
competitors (Tavakoli, McMillan and McKnight 2012). In addition, the investors prior to their
investment in a particular stock will obviously seek to have some sort of information, which will
help them to have positive return from the market. Thus, on one hand, the trading firm will
reduce their confidential data accumulation due to the secret investigation by the regulatory
authorities. However, on the other hand, the expectation of the customers will act as driving
force in generating and sharing confidential data.

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Thus, it will be difficult to conclude that with the conviction of rajaratnam, the trend of
collecting confidential information will come to end. This is due to the reason that, the more
confidential data will be provided by the trading firms to their customers, the more will be their
market attractiveness and competitive advantages in the market. Thus, in view of the basic
marketing principles, it can be said that the case of rajaratnam will have some impact on the
exiting trend of collecting confidential data, but it will not completely deter the fund managers
from sharing confidential data.
In the case of investors also, there will be very less impact of the case of rajaratnam on
them due to the reason that, they also tries to gain more profit from trading. Majority of the
investors in the trade market invest huge amount for stock trading and thus they are more
aggressive in enhancing their profit margin. This factor acts as driving force for them to indulge
in insider trading. Thus, it is impossible to stoop the trend of collecting confidential data by
investors in the stock market.
Conclusion
Thus, it can be concluded that, rajaratnam had indulged in huge fraudulent activities by
having collected the access of various confidential information. This report discussed about the
potential implications of sharing confidential data for the employees, investors and trading firms.
In addition, the driving forces for all the stakeholders in indulging in the insider trading have also
been discussed. This report concludes that the conviction of rajaratnam will not have huge
impact on the trading practices being followed by the investors and trading firms. Thus, the
existing trading practices in the trading market will continue to prevail, until another fraud case
will come to light.

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