Who Does Price Sensitive Information Belong?

Introduction

Singapore law states that price sensitive information belongs to the company. However, the arguments made in "Property rights" push for the case that if this information does belong to the organization, then it is the organization's right to allow its employees the use of it for insider trading. Let us examine these arguments.

Issue 1: Who does price sensitive information belong?

The definition of price sensitive information is Information which, if made public, is likely to have a significant effect on the price of the company's securities. This may include information such as a launch of a new product, profits and losses of a company or any major new development in a company's business. For example, information that a newly launched product is not making a profit can significantly affect stock prices once this information is made public. Until this time, it is only known to those within the organisation.

The employees who create this price sensitive information are empowered by the finances and reputation of the company. Without this, they can't make decisions that create this information. For example, the CEO of a company can't go on a joint venture with another company to create a new product if he doesn't have the resources of the firm at his disposal. Furthermore, the employees themselves are the human resources of the company. Hence, it is the company that uses its resources to create the price sensitive information.

The employees could disagree and may argue that it was their skills and ability that allowed this price sensitive information to be created. Yet, an employment contract is already a contract between the employer and the employee to allow the use of an employee's skills and abilities for the benefit of the company in exchange for remuneration. The employee is already being rewarded for his work and claiming ownership of the information would thus be a breach of a contract.

Thus, let us take the position that price sensitive information is created by and belongs to the company. The company has the right to do what it wills with the information. So it is firm and not the employees who are the holders of this information. Let us apply our ethical tools to see if this law passes the ethical tests.

Deontology

Maxim: Information that is deemed to be price sensitive should belong to the creator and no one else.

Principle of Universality: Information is property. Property rights should be respected.

Principle of Humanity: Others abusing this information would mean that the creator of the information is used solely as a means to achieve an end (profit) for others.

Conclusion: It passes the test and is ethical.

Rule Utilitarian

Recurring Event: Employees are using price sensitive information from the company for themselves.

Thinking Hat: Government official

Desired outcomes: Protection of property rights

Rule of thumb: Price sensitive information should belong to the company.

Benefits Costs

Firms will be rewarded for their investment and the price sensitive information it creates

Firms will be motivated to innovate as a result.

Other stakeholders like stockholders, the public and government benefit from protection.

Employees may not be rewarded proportionally according to the contribution they put in.

Rule of thumb: Benefits outweigh costs. It is ethical

Issue 2: If price sensitive information belongs to the company, can employees use it with the firm's permission?

Any employee who gains a hold of price sensitive information and uses it without the firm's knowledge for his own personal profit is engaged in insider trading which is deemed to be illegal as is the case in Singapore. Now that we have concluded that is fair and ethical for the firm to actually own the information as its property, the article argues that insider trading should be legal if the firm allows it. Not allowing it to do so would be a contradiction on the use of property rights. Almost every business has property rights and they use this property rights to make money. Thus Singapore's position on property rights would mean that insider trading would be legal if the firm allowed it. Our group, however, is of the position that employees should not engage insider trading even if the firm allows it. The following paragraphs will look at the reasons why.

The article states that by using insider trading as an incentive, employees are encouraged to create more price sensitive information such as new deals and new products. Giving employees the choice to cash out on insider information would also save the firm from giving out cash bonuses thereby increasing profits. However, our group feels that the benefits given by these arguments aren't strong and are ethically wrong. If insider information becomes a monetary incentive, employees face a conflict of interest. Creating price sensitive information can earn those bonuses but that does not mean that this price sensitive information has to benefit the firm. Hence an employee may decide to rush into development of a product that he or she knows won't turn a profit if he knows he can sell this information to make money. While this earns him money, it is detrimental to the firm. Yet he is also expected to act in the best interest of the firm.

Using Deontology, we see that it is not ethical for the employee to carry out insider trading.

Deontology

Maxim: One should be able to pursue his own interests over the interests of the company he is working for.

Principle of Universality

An employee is expected to contribute to and act in the best interest of the firm and its shareholders. Not doing so would be a violation of contract. This maxim fails the test.

Principle of Humanity

Other employees perform their duties with the intention of maximising value for the shareholders and firm. Using them to maximise value for oneself is treating them as a means. The maxim fails the test.

Conclusion: It is not