Insider Trading
Insider trading is the buying or selling of a security by someone who has access to material, nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. When corporate insiders—officers, directors, and employees—buy and sell stock in their own companies, they must report their trades to the Securities and Exchange Commission (SEC).
History of Insider Trading
Insider trading has been around since the early days of the stock market. In the late 19th century, the New York Stock Exchange (NYSE) began to crack down on insider trading. In 1934, the Securities Exchange Act was passed, which made it illegal for corporate insiders to buy and sell stock based on material, nonpublic information. The SEC was created in 1934 to enforce the new law.
In the 1980s, the SEC began to take a more aggressive stance on insider trading. In 1984, the SEC created the Insider Trading Sanctions Act, which allowed the SEC to impose civil penalties on those who engage in insider trading. Since then, the SEC has continued to crack down on insider trading, and the penalties for engaging in insider trading have become more severe.
Comparison Table
| Type of Insider Trading | Legal? |
|---|---|
| Corporate Insiders | No |
| Non-Corporate Insiders | Yes |
Summary
Insider trading is the buying or selling of a security by someone who has access to material, nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. Corporate insiders must report their trades to the SEC, and those who engage in insider trading can face severe penalties. For more information about insider trading, visit the SEC’s website or consult a financial advisor.
See Also
- Securities Exchange Act
- SEC
- Stock Market
- NYSE
- Material Nonpublic Information
- Insider Trading Sanctions Act
- Financial Advisor
- Stock Trading
- Securities Fraud
- Market Manipulation
