Tanner Bowen is a junior at the University of Pennsylvania studying business.
In popular culture, insider trading is a very prevalent topic with which we are all familiar. We’ve all seen movies or TV shows where a character is accused of insider trading, or you’ve used it as a punchline to a joke about your friend going to business school. The ironic fact of this all is that even though insider trading seems to be clear-cut in the minds of Americans, it is still a legally murky area.
Going back to the Securities and Exchange Act of 1934, it made sense to put prohibitions against fraudulent and deceptive trading practices after the Great Depression. In fact, capital markets work best whenever they are built upon the principles of trust and transparency. That is why Section 10(b) of the Exchange Act put in a rule (Rule 10b5-1) which outlawed the use of “any manipulative or deceptive device or contrivance” in trading securities. Okay –so far, still no mention of “insider trading.”