Insider Trading: An Insight for the Layman

Posted by Mak Peter on January 5th, 2021

Insider trading refers to the trading of stocks of a public company from a person who has material information or nonpublic information about the stocks. It's considered malpractice or even a substantial financial crime if done illegally. In many countries, it is deemed to be illegal because it gives an unfair advantage to that investor over others in the market. Such a person may also be charged with a penalty for committing a financial crime in accordance with the laws of that particular country.

Samuel Spottedhorse, in his book "Killing at Red Horse", has narrated an interesting story revolving around the aftermath of insider trading. 

KEY ELEMENTS TO UNDERSTAND INSIDER TRADING:

What is Material Information?

A non-public, material information means any information which could potentially affect the investor's decision to buy and sell the stocks, that have not yet been open to the public. Such a piece of information is supposed to be kept confidential within the company. 

When is it considered Legal or Illegal?

The legality of the trade depends on the time when the trade was made. It is said to be illegal, if at the time of trading, the material information which is kept confidential, was made nonpublic. 

As per the definition by Securities and Exchange Commission (SEC) of the U.S, illegal insider trading implies the buying or selling of a security, while breaching the fiduciary duty, or relationships of confidence and trust, on the basis of non-public, material information about that security. 

When an illegal insider trading has supposedly occurred, the suspects could be anyone employed or associated with that company who might have leaked valuable information. It may also be their acquaintances, relatives, family, or friends. Through illegal insider trading, the investor gets a tip-off when the share prices would most likely rise. 

On the other hand, legal insider trading proceeds officially, whereby the transactional records are officially maintained with the SEC of the U.S.  

Penalty:

The laws governing the penalty of such illegal trade varies from country to country. However, there has remained an uncertainty among legal scholars and businessmen whether to consider insider trading as illegal or not. Many questions whether someone is actually afflicted with a loss when this takes place illegally.

Author's Bio: 

Samuel Spottedhorse has lived in Midland, Texas, most of his life and currently works over there as well. He's an avid reader of different types of books, but his passion for mystery and thriller books is unparalleled. Killing at Red Horse ISBN: 191396924X is Samuel Spottedhorse's first book, which is a product of his die-hard love for mystery and suspense fiction books. This book is set to enrapture its readers in a thrilling story when insider trading goes wrong, and greed overtakes one's good conscience. This book is a depiction of many people trying to live a better life but seeking it in the wrong way.