Blog 5- Wall Street (1987)

Although Wall Street is a film and has therefore been made for drama and to entertain the audiences, it is a perfect example of how insider trading works. Charlie Sheen, who plays Bud Fox, begins the film by sharing the smallest piece of information about the company his father works for, however this information has not been made public and he therefore has given away insider information, which is illegal. Bud Fox then gets the job with the company he wants as long as he gets important insider information that would benefit them, in the end he made an awful lot of money from trading inside information. Even though this is a film I believe that it shows in depth what insider trading can do to those involved and affected by it, Buds own father suffers because of his insider trading.

. What exactly is insider trading? Insider trading is the use of confidential information that is not yet in the public domain which allows the person an advantage, whether that be buying or selling shares before the share prices react to the news.

 Does this actually happen? As shocking as it is, yes it does happen, having inside information that has not yet hit the public domain means that you have an advantage as you are trading in a strong form efficiency, you can make decisions on the stock market before information comes out that could affect the share price of your investment this makes it very appealing to those of us with questionable morals.. An example of this can be seen by the CEO of investment bank Keefe, Bruyette and Woods, where James McDermott gave information about a bank industry merger that was not public knowledge to his mistress, who was able to make decisions and purchase and sell shares based on this information about the merger that the market and therefore share prices had not yet reacted to.

This is sadly not the only case in recent years that shows insider trading, but what can be done about it? The Governments across the globe and regulators monitor trading activity especially before and after important announcements such as mergers or quarterly and end of year finance reveals, they look for any suspicious activity such as the selling of large amount of stocks or buying of large amount of stocks. Companies are also trying to prevent insider trading and most have measured in place to prevent this, insider trading can damage reputations of the company. Some measures could be to prevent those working within the company from buying or selling shares during certain periods, particularly around the end of the financial year results. Ensuring employees are educated in what insider trading is and how it happens can help to prevent it from occurring.

In the end, Bud Fox got his comeuppance and served time in prison just like James McDermott did, this shows that actually you can be caught and was it al worth it in the end? I can answer that for definite no it was not worth it.