Assessment 2-Case synthesis: Morgan Stanley
1. Basic empirical facts of the problem
Financial industry, the most scrutinized sector, has generated a heated debate regarding ethical and legal issues on illicit gain obtained by utilizing loopholes. Due to the characteristic that a large amount of material and nonpublic information is contained in daily trade, it common that interest-motivated insiders may make use of it to conduct insider trading. Insider trading is defined as trading of securities in possession of relevant material, nonpublic information, in breach of fiduciary duty (U.S. SEC, 2013). In 2013, Hong Kong was struck with an astonishing insider trading case committed by Du Jun, the former Morgan Stanley managing director, who …show more content…
Causes
2.1 Breach of fiduciary duty
As a fiduciary, an insider is obliged to maintain the nonpublic information confidential and capitalizing on such information is considered as the breach of his fiduciary duty. Du broke his duties and committed crime of insider trading by means of purchasing CRH shares utilizing the privileged access to acquire information contained in the email aforementioned. Besides, he betrayed the trust from his colleagues and investors who sold shares to him and showed little inclination to act in accordance with his fiduciary duty.
2.2 Deficiency in staffing compliance department
Compliance department failed to impose substantial control on insider trading including regular supervision, timely detection and resolution, which gives rise to internal limitations of preventing insider trading. In this case, Du claimed that he sought trading approvals from compliance department, which even allowed inside brokers to assist him in accomplishing share acquisition. Even worse , evidence indicated that few verification actions on information source were taken by compliance officials. This lack of responsibilities breeds the Du’s chance of conducting insider …show more content…
Emperically, statistics showed that the return for insider trading is 8.92% with the delayed disclosures, compared with 4.12% return with the immediate disclosure (Etebari, Tourani-Rad & Gillbert, 2004). This is because timely announcement shortens the time for public to acquire inside information, which is only valuable before being issued. Thus, government should order companies to disclose inside information within a short period like US . Even so, some arguments doubt the effectiveness because insiders still have sufficient time before announcement. Nevertheless, adequate time is essential for accurate disclosure and control on information release is efficacious and recommended together with other actions like “blackout period”
1. Basic empirical facts of the problem
Financial industry, the most scrutinized sector, has generated a heated debate regarding ethical and legal issues on illicit gain obtained by utilizing loopholes. Due to the characteristic that a large amount of material and nonpublic information is contained in daily trade, it common that interest-motivated insiders may make use of it to conduct insider trading. Insider trading is defined as trading of securities in possession of relevant material, nonpublic information, in breach of fiduciary duty (U.S. SEC, 2013). In 2013, Hong Kong was struck with an astonishing insider trading case committed by Du Jun, the former Morgan Stanley managing director, who …show more content…
Causes
2.1 Breach of fiduciary duty
As a fiduciary, an insider is obliged to maintain the nonpublic information confidential and capitalizing on such information is considered as the breach of his fiduciary duty. Du broke his duties and committed crime of insider trading by means of purchasing CRH shares utilizing the privileged access to acquire information contained in the email aforementioned. Besides, he betrayed the trust from his colleagues and investors who sold shares to him and showed little inclination to act in accordance with his fiduciary duty.
2.2 Deficiency in staffing compliance department
Compliance department failed to impose substantial control on insider trading including regular supervision, timely detection and resolution, which gives rise to internal limitations of preventing insider trading. In this case, Du claimed that he sought trading approvals from compliance department, which even allowed inside brokers to assist him in accomplishing share acquisition. Even worse , evidence indicated that few verification actions on information source were taken by compliance officials. This lack of responsibilities breeds the Du’s chance of conducting insider …show more content…
Emperically, statistics showed that the return for insider trading is 8.92% with the delayed disclosures, compared with 4.12% return with the immediate disclosure (Etebari, Tourani-Rad & Gillbert, 2004). This is because timely announcement shortens the time for public to acquire inside information, which is only valuable before being issued. Thus, government should order companies to disclose inside information within a short period like US . Even so, some arguments doubt the effectiveness because insiders still have sufficient time before announcement. Nevertheless, adequate time is essential for accurate disclosure and control on information release is efficacious and recommended together with other actions like “blackout period”