The Investment Committee must guard against insider trading. What are the harmful effects of insider trading ?

Insiders receive an unfair edge, which causes unjust market circumstances. Investors lose faith in the integrity and fairness of the financial markets. Stock price manipulation can cause potential harm to investors without access to confidential information. Insider trading violates trust and fiduciary duty, leading to serious legal implications. The victims are often everyday investors and the economy. It distorts price discovery by allowing securities prices to reflect private information rather than true market fundamentals. Insider trading can expose institutions to legal penalties, regulatory sanctions, and reputational damage, adversely affecting their credibility. In the long run, it weakens market integrity, promotes unethical behavior, and hampers the orderly development of capital markets. Hence, preventing insider trading is essential to protect stakeholders and maintain trust in the financial system.