Insider Trading

IN MOST JURISDICTIONS, insider trading can be legal, or illegal. Legal insider trading occurs when corporate insiders buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the securities regulator. Illegal insider trading, a type of white-collar or corporate crime, refers to situations where a person deals on the basis of price-sensitive information which is not in the public domain. And at the time of the dealing, the information is likely materially to affect the price of the securities being traded. Two main types of illegal insider trading exist: the use of insider information by an insider for self enrichment, and the leaking of information by an insider to a third person (tipping), causing the third person to engage in illegal trade practices.

Illegal insider trading exists worldwide and affects all financial markets. It is one of the major challenges of our time. Millions of dollars have been involved in big insider-trading cases. Although the phenomenon of insider trading is not new and arguments against it existed in the early years of the past century, it did not become a major interest of the media and the public until recently. Since the 1980s, insider trading has increasingly become a hot topic. Some scholars refer to it as “the representative white-collar crime of the 1980s.” The increasing media reports of business morality cases in securities markets makes the topic of insider trading even more popular among the public.