Question

Question: Section 16(a) of the Securities and Exchange Act of 1934 , as amended in 1990 , requires that the officers, directors, and principal shareholders of companies disclose the extent of their ownership of equity securities of the company and any changes in the ownership. Section 16(b) permits companies to recover trading profits realized by such people arising from short-swing transactions in the company securities. Do you think that, as a result of these laws, the government will be forced to spend more money on its auditing and enforcement efforts? Explain.

Short answer

Answer:

The action must be reported and stopped, and no administrative costs need to be incurred.

Step-by-step solution

Securities and Exchange Act of 1934 

TheSecurities and Exchange Act of,1934 which was subsequently revised in , has restrictions aimed at limiting the practice of insider trading. In a way, the stock market's self-correcting process is created by these laws.

 Step 2: Explanation for enforcement efforts.

They exhort businesses to capitalize on the advantages that will result from outlawing insider trading themselves. Therefore,the government does not need to incur any additional supervision or administrative costs.

In reality, businesses themselves will suffer the most if they do not make an effort to cease such acts or denounce them to the government. In other words, the market itself helps enforce the law, as it will hamper the trust of bidders and the values of the companies will fall.