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
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005