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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 tradingtransactions 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.