Lecture 6 Flashcards
Efficiency comes in two forms:
Pareto efficiency
&
Informational efficiency
What is Pareto efficiency?
exists when no other feasible allocation of resources and technology can improve one person’s situation without harming that of another.
What is Informational efficiency?
achieved when all investors hold objective beliefs and information in common, so that competitive prices accurately reflect that information.
Fairness can be thought of a claim to certain entitlements:
- Freedom from coercion
- Freedom from misrepresentation
- Equal information
- Equal processing power
- Freedom from impulse
- Efficient prices
- Equal bargaining power
List some (4) financial regulations:
- Insider trading regulations
- Mandatory disclosure regulations
- Margin regulations
- Trading interruption regulations
What is inside information definition?
Inside information is material information obtained from management that is not widely available to the public.
Does inside information include information obtained from someone who obtained it from management?
Yes; Managers must control the dissemination of material managerial information.
What is insider trading?
Illegal insider trading traditionally defined as “execution of transactions on the basis of material non-public information”.
•In the US, reference to “violation of a relationship of trust and confidence”.
Does Australia have the violation of fiduciary duties in definition?
No
Registered insiders are allowed to do what with non-public information?
are forbidden from trading on material non-public information
Registered insiders are forbidden from trading on material non-public information based on
- the disclose-or-abstain theory.
* the misappropriation theory
What section in the Corporations Act defines inside information?
1042A Corp Act 2001
How does the 1042A Corp Act 2001 define inside information?
defined as information that is not generally available, which is likely to have an effect on the value of a financial product.
What ASX Listing Rule require an entity to report to ASX any material information?
Rule 3.1
Why have insider trading rules?
- The public demands fairness
- To protect dealers and limit order traders from inside traders.
- To remove unwanted distortions in the managerial labour markets.