Insider trading is a criminal offence under the CMSA 2007. Upon his or her conviction under either sections 188(2) or (3), the insider shall be punished to imprisonment for a term not exceeding 10 years and to a fine not less than RM1,000,000.00 (section 188(4) CMSA 2007)
Insider trading refers to the buying or selling of stocks by someone who has access to non-public, material information about a company. This practice is illegal because it undermines the fairness and integrity of the financial markets.
It erodes trust in the fairness of financial markets. When insiders use privileged information to gain an advantage in trading, it undermines the level playing field that is crucial for the proper functioning of stock markets. This can deter investors and reduce market efficiency. They give access to non-public information an unfair advantage over other market participants. This allows them to profit at the expense of uninformed investors, distorting the true value of securities and leading to market inefficiencies. Furthermore, it can create mistrust by investors in the financial system as if it has been rigged where investors may not participate, leading to decreased liquidity and reduced investment activity.
Insider trading can distort the allocation of capital by diverting investment to companies based not on their fundamentals but on insider information. This misallocation of resources can hinder economic growth and reduce the overall efficiency of the economy.
Overall, the danger of insider trading lies in its potential to undermine the fairness, efficiency, and integrity of financial markets, as well as erode investor confidence and distort capital allocation. As such, stringent regulatory measures are necessary to deter and punish insider trading and uphold the integrity of the financial system.
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