insider trading


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Insider trading

Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.

Insider Trading

A trade one makes because one has relevant information on a company that has not been released to the public. For example, a person may have access to a company's financial state prior to its official announcement, and then buy or sell that company's stock accordingly. Generally speaking, those who engage in insider trading are a company's board of directors, executives, major shareholders, and other investors who have access to non-public information. Insider trading is a serious crime when it is done without proper authorization.

insider trading

The illegal buying or selling of securities on the basis of information that is generally unavailable to the public. An example is the purchase by a director of shares of his or her firm's stock just before the release of surprisingly good earnings information.
Case Study In November 2001 the Securities and Exchange Commission charged 15 individuals with insider trading in the shares of Nvidia Corporation, a California maker of graphics chips. According to the SEC, in March 2000 Nvidia's president used e-mail to inform employees the firm had won a major contract to supply chips for Microsoft Corporation's new Xbox video game system. News of the contract was not announced to the public until five days following the employee e-mail. The time lag allowed the 15 individuals—11 employees plus 4 people tipped by the employees—to profit by purchasing Nvidia shares prior to the public announcement of the contract. The case was relatively unusual in that the individuals charged with insider trading were low-level employees rather than high-level executives.

Insider trading.

If managers of a publicly held company, members of its board of directors, or anyone who holds more than 10% of the company trades its shares, it's considered insider trading.

This type of trading is perfectly legal, provided it's based on information available to the public.

It's only illegal if the decision is based on knowledge of corporate developments, such as executive changes, earnings reports, or acquisitions or takeovers that haven't yet been made public.

It is also illegal for people who are not part of the company, but who gain access to private corporate information, to trade the company's stock based on this inside information. The list includes lawyers, investment bankers, journalists, or relatives of company officials.

insider dealing

or

insider trading

transactions in FINANCIAL SECURITIES by persons having access to privileged (secret and confidential) information not yet available to the general investing public, and who in consequence stand to profit from exploiting this knowledge. For example, an employee of a merchant bank engaged in working out the financial details of a prospective TAKEOVER BID by a client firm for another company, might himself or through intermediaries buy shares in the target company prior to the public announcement of the bid.

In the UK, the provisions relating to the criminal offence of insider dealing are now contained in Part V of the Criminal Justice Act 1993 which replaced the Company Securities (Insider Dealings) Act 1985. In addition, the directors and the company will be bound by the Stock Exchange Model Code. See STOCK MARKET.

insider trading

any transactions in securities such as STOCKS and SHARES by persons having access to privileged (confidential) information not as yet available to the general investing public, and who in consequence stand to gain financially from this knowledge. For example, a person who is employed by a merchant bank and is involved in working out details of a prospective TAKEOVER by a client firm of another firm may himself or through other people arrange to purchase shares in the target firm prior to the public announcement of the takeover. See CITY CODE.
References in periodicals archive ?
Insider trading encourages insiders to delay disclosures and to make management decisions that increase share price volatility but do not maximize firm value.
Insider trading increases the "bid-ask" spread of stock specialists, who systematically lose on trades with insiders (whom they cannot identify ex ante) and who will thus tend to "insure" against such losses by charging a small premium on each trade.
In an attempt to remedy the lack of effective deterrent, and at the behest of the SEC, in 1984 Congress passed the Insider Trading Sanctions Act (ITSA) which authorized the SEC to seek a fine of treble gains (in addition to disgorgement), and increased the maximum criminal fine from $10,000 to $100,000.
In consent settlement, the person accused of insider trading can, without accepting or rejecting the charge, pay a fine to Sebi, which drops the case.
The commission of insider trading offences driven by such factor could be reduced by deterrent punishment for the offences.
Gupta with insider trading for illegally tipping Rajaratnam while serving on the boards of Goldman Sachs and Procter & Gamble.
To study the market microstructure effects of insider trading, however, one needs intraday information on the insider trades.
32) This non-excludability feature of insider trading benefits could generate a free-rider problem and possibly lead to information hoarding within the firm as the true entrepreneurs, who are the real innovators in the firm, would have an incentive to hold their information close to their chests to maintain a monopoly on insider trading profits.
In addition to doubt about the harm insider trading causes, there are other reasons for skepticism about the argument from harm: credible economic arguments purport to show that insider trading, if it causes some harm, also creates benefits; perhaps these benefits are more significant than any harms that insider trading causes.
On the other hand, not until 1966, when Henry Manne published his book, Insider Trading and the Stock Market, do we find some economic analysis of insider trading.
A Komatsu official said, ''We mistakenly judged that it (the dissolution) was not an important matter'' which constitutes one of the necessary factors in insider trading under the law.
Moreover, some companies went so far as to skirt insider trading rules and other ethical constricts by timing stock prices at dates either before or after significant corporate events, either increasing or decreasing the share price--practices known as "spring loading" and "bullet dodging"