Mature democracies are extremely tough in dealing with the evil of insider trading in their stock exchanges these days and try every method to check this reprehensible practice in order to boost the confidence of ordinary investors by ensuring transparency and a level-playing field for all the stakeholders.
While strict laws were already on the statute-book, the US Senate on 22nd March, 2012 approved yet another legislation to strengthen the relevant provisions by forbidding lawmakers from buying stocks based on information they gather while performing their duties.
The bill was approved after several weeks of discussions by a vote of 96-3, paving the way for President Barack Obama to sign it into law. The House, it may be mentioned, had already approved this bill last month by a vote of 417-2. The bill does not only forbid elected officials but also Congress and White House staff from buying the stocks if they have inside information.
Elected officials would now be required to report any purchases they make on the stock exchange of more than $1,000 within 90 days. The US President, who had called for such a law during his State of the Union address earlier this year, welcomed the legislation, calling it "a good first step" and vowed to sign it into law.
He also added that "in the months ahead, Congress should do even more to help fight the destructive influence of money in politics and rebuild the trust between Washington and the American people." House Majority Leader who is a Republican said that the bill was "a product of the bipartisan efforts in the House and the Senate and will help restore the public trust in their elected officials."
The reasons for adopting such a tough legislation against insider trading in the US and a similar thinking in other countries are not difficult to understand. Simply put, such steps reflect the overall attitude of their citizens towards the influential class sitting in legislative bodies or working in high places in investment houses, banks etc. The perception is growing that while such people are exploiting the system to enrich themselves due to inside information, ordinary people are suffering due to their unethical antics.
The level of frustration and embitterment has particularly gone up several notches after the severe recession and large-scale unemployment which has reduced the standards of living of ordinary people in these countries in the last few years. Coming back to the new American bill, it is clear that the Obama administration has pushed lawmakers to act on the issue at a time when opinion polls show that an overwhelming majority of Americans are not sufficiently convinced about the efficacy of the present laws on the subject and want very harsh legislative measures to check the menace.
The fact that lawmakers on their own have chosen to bind their own class to a particular set of morality and exposed themselves to the application of criminal offences speaks a great deal about the merits and maturity of a truly democratic system. It does not mean that the curse of insider trading will be eliminated totally but another barrier has certainly been erected to discourage the "would be" transgressors.The situation is, of course, much worse in Pakistan where there is a widespread apprehension of inside trading in the shares market and also a belief that no offender can be taken to task if he has the right connections.
The manipulation of the market by a selected group of people associated with the capital market and having close relationship with the influential class in Islamabad is one reason why ordinary households are now avoiding investment in the stock exchange. Their lack of confidence has not only hindered the development of the capital market and discouraged the listing of new companies but has also forced the ordinary investors to look for other avenues of investment, which are relatively much less productive. There is, therefore, a dire need to re-channelise these resources to the shares market in order to accelerate industrialisation of the economy and make people partners in the development effort.
Such an objective could partly be achieved if Pakistani authorities have the capacity and the will to eliminate the scourge of insider trading and the investors are sufficiently convinced about the existence of proper legislation and indiscriminate implementation of the relevant laws. We can only hope that learning from the experience in Washington, the relevant quarters in Islamabad would also be impelled to think on similar lines to boost the confidence of ordinary investors by ensuring a level-playing field to all the players in the shares market.