Insider trading
From The Art and Popular Culture Encyclopedia
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Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make. The rules governing insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. The definition of insider in one jurisdiction can be broad, and may cover not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members. A person who becomes aware of non-public information and trades on that basis may be guilty of a crime.
Trading by specific insiders, such as employees, is commonly permitted as long as it does not rely on material information not in the public domain. Many jurisdictions require that such trading be reported so that the transactions can be monitored. In the United States and several other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders must be reported to the regulator or publicly disclosed, usually within a few business days of the trade. In these cases, insiders in the United States are required to file a Form 4 with the U.S. Securities and Exchange Commission (SEC) when buying or selling shares of their own companies. The authors of one study claim that illegal insider trading raises the cost of capital for securities issuers, thus decreasing overall economic growth.
See also
- Abuse of information
- Big boy letter
- Efficient-market hypothesis
- Federal Bureau of Investigation (FBI)
- ImClone stock trading case
- Mathew Martoma
- Operation Perfect Hedge
- Private Securities Litigation Reform Act
- Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta insider trading cases
- Reebok insider trading case
- Securities fraud
- Securities regulation in the United States
- Selective disclosure
- Tip and Trade: How Two Lawyers Made Millions From Insider Trading