Mar 07 2011

What is insider trading?

Category: Finance

Answer:

stocks, bondsInsider trading is defined as the practice of trading (buying or selling) a particular company’s securities by individuals that have more information about the company than what is available to the public. Trading that takes place with knowledge of non-public information of a particular company or security, “in breach of a fiduciary duty or other relationship of trust and confidence”, is considered illegal. The SEC has a very broad and vague definition of insider trading that many believe should be clarified more definitively.

There are some forms of legal insider trading, however. Trading that is conducted by the officers, employees, directors, or major shareholders of a company must be reported to the SEC and/or disclosed to the public within 2 trading days. This type of insider trading is considered legal as long as these “insiders” are not acting on information that is not known or available to the public.


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