Series 24: Insider Trading

Insider Trading

Insider trading is the buying or selling of securities based on one’s access to confidential or proprietary information that is not available to the general public.

By the original provisions of the 1934 Exchange Act, an insider is anyone who owns more than a 10% share of any equity security or who is an officer or director of the issuer of that security. Insiders are required to report if they transact in their company’s stock, and they are prohibited from short-term trading of that stock (buying and selling within six months).

This definition of insider proved too narrow for the SEC, which wished to expand the definition of “insider” to include other persons both inside and outside the issuing company in possession of non-public information. The SEC pursued its ambition using the fraudulent behavior provisions of the Act. A Supreme Court decision blocked this path in 1980, which saw no duty to disclose inside information merely by the possession of it. The Insider Trading Sanctions Act of 1984 quickly followed. This Act specifically permits the SEC to seek civil penalty against anyone who has bought or sold a security while in possessio