Insider Trading
What It Is
Insider trading involves buying or selling a company’s securities based on material, non‑public information.
Why It Matters
Illegal insider trading undermines market fairness and carries severe penalties, while legal insider trading must be publicly disclosed.
How It Works
- Insiders include executives, directors, and major shareholders
- Illegal trading uses confidential information
- Legal trading requires regulatory filings
- Regulators monitor unusual activity
Key Components
- Material non‑public information
- SEC regulations
- Form 4 disclosures
- Enforcement actions
Example
An executive buying shares before announcing strong earnings is illegal; buying shares after public filings is legal.
Key Takeaways
- Insider trading laws protect market integrity.
- Legal insider activity can signal confidence.
- Illegal activity carries major legal consequences.