In the past, many traders reported getting into significant losses due to insider trading. Insider trading is the illegal trading on the stock exchange market to one’s own advantage after having access to confidential information about the same trade.
Before it came to the limelight and the government laid strong principles against it, many companies used insider trading to benefit. Insider trading, by all means, is a breach of fiduciary duty since the company trades the stock knowing very well that people out there will bear a lot of losses to their advantage. Companies should therefore ensure that they do something to stop the insider buying stocks.
How can companies avoid insider trading?
1. Restrict any risks in the trade
In most cases, confidential information is accessible to employees, the board, or the people who spend most of the time in your company. These are the same people who will use the same information to trade. Therefore, you must restrict your employees from taking part in buying and selling your company’s stock. It will help you stay away from insider trading.
2. Have an in-house guard
Let somebody be on the lookout for you. Having somebody oversee what your employees are doing will give you a tip when something is about to go wrong. You could also involve a third-party to assess your employees’ trading and ensure that the company’s trades are not on the list.
3. Educate your employees on insider trading
Don’t let the situation get any worse for your employees’ lack of information. Educate your employees on what insider trading is, why it is illegal, and the damage it would cause to the company. In most cases, when a company is involved in insider trading, it has to pay all the traders who lost their money to the trade, pay a massive fine to the government, and others face the risk of being closed down. The company could also train on the stock investment portfolios and how to make them grow.
4. Investigate insider trading
Don’t wait till the government is on your case. Take time to investigate what is happening in your company. If there is a rumor that there is a possible insider trading, work on it and solve it before you get to the wrong side of the law.
5. Automate your processes
The evolution of technology has helped the stock industry significantly. The availability of Insider Trading Management Systems assists the companies to stay off the trade. The software notifies the company when there is a possibility of insider trading, and they work on it before it is too late.
Why does a company need to uphold integrity and honesty?
When insider trading seems like the enemy of the people, integrity and honesty also contribute much to a company’s well-being. Investors will not only look at whether you have been in any insider trading but will look at how honest the company is. Most of the time, those companies that have high levels of integrity and honesty to their clients always do better. A client doesn’t just need you to sell to them, but they require a company that demonstrates honesty and integrity to work together.
Advantages of integrity and honesty
- Your business gains a competitive edge over the rest of the companies
- It makes the decision-making process easier and faster since everything is based on the truth. Lies require a thread of them all. You lie today, and you will have to lie again
- It will save your face when you are in a crisis. The best thing is that when you uphold the company’s values, the public will not quickly tarnish your name when you get in a mess. They will give you another chance
- It is less expensive. It will be better to tell the truth from the word go other than living in the lie. It will catch up with you one day, and it won’t be easy. If you lie that your company is doing well financially, you will find yourself going to get loans to prove that to clients
- It gives you positive and favorable publicity
Information is passed within a concise time frame. When your publicity is positive, many will want to involve themselves in your business. The vice versa is true. If it is negative, then that’s the beginning of your business failing.