What is it?
The trading of a public company’s stock or other securities by individuals with access to non-public information about the company.
How does it work?
Insider trading is the buying or selling of a public company’s stocks or other securities by individuals who have access to non-public, material information about the company. In many countries, this kind of trading is considered illegal as it is seen as unfair to other investors who do not have access to the privileged information.
When is it useful?
In a business context, insider trading can occur when directors, employees, or even family members with insider information about a company’s financial status, plan to acquire another company, etc, use this information to their advantage in trading the company’s stocks. It’s crucial for businesses to have strict policies and controls in place to prevent insider trading and ensure a fair and transparent trading environment.
Real-World Impact
A classic example of insider trading is the case of Martha Stewart. In 2001, she sold all her shares in the biopharmaceutical company, ImClone Systems, based on a non-public, material tip she received. When the company’s stock plummeted the next day, she avoided a loss of $45,673. Stewart was later convicted of lying about the stock sale, served jail time, and paid hefty fines.
How to Get Started
Understanding the concept of insider trading is beneficial when using Empress’s suite of tools and services. Empress aims to uphold the highest standards of ethical business practices and provides tools that can help monitor and manage compliance with insider trading laws and regulations.
Get the Empress Edge
Insider trading is not always illegal. Legal insider trading happens when corporate insiders—officers, directors, and employees—buy or sell stock within their own companies, but they must report their trades to the Securities and Exchange Commission (SEC). However, it’s the illegal form of insider trading that often makes the news due to the hefty fines and penalties associated with it.