Learn about the controversial topic of insider trading, its ethical and legal implications, and the arguments for and against it. Discover how mergers and acquisitions impact stock prices and why New Zealand acquisitions can affect European-listed companies.
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“If I have industry insight into a purchase (of a company) potentially about to take place would it be unethical to buy shares in the purchases publicly listed stock?
Also, would the purchase of an NZ company affect the share price of say a European listed company?”
(Original question on Reddit)
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The act of purchasing or selling securities by someone with material information that is not public knowledge is known as insider trading. Insider trading is considered unethical and illegal in many jurisdictions because it creates an unfair advantage and goes against the basic principles of fairness, transparency, and trust. Critics of insider trading laws claim it should be legal because it provides valuable information to markets, and the laws against it can harm innocent people, while the offence itself causes little damage to others. However, the main argument against insider trading is that it is unfair and discourages ordinary people from participating in markets, making it more difficult for companies to raise capital. Consider consulting with an attorney to determine if you are breaching trading regulations.
As for your second question, when one company acquires another, the stock prices of both entities tend to move in predictably opposite directions, at least over the short term. In most cases, the target company’s stock rises because the acquiring company pays a premium for the acquisition. The acquiring company’s share price drops because it often pays a premium for the target company or incurs debt to finance the acquisition. This holds true regardless of the geographical location of the companies involved. Therefore, the purchase of a New Zealand company could potentially affect the share price of a European-listed company if the latter is involved in the acquisition. However, the specific impact would depend on a variety of factors, including the financial health of the companies involved, the terms of the deal, and the overall market conditions.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
