Corporate Insider
What are corporate insiders?
Corporate insiders are any individuals who have material non-public information about a company. Under United States reporting regulations, all the officers and directors of a company as well as any owners of more than 10% of a class of company shares are automatically considered insiders.
How are corporate insiders and insider trading relating?
Insider trading is technically any trading of a corporation’s stock or other security by an insider at the company, even if the does not take advantage of non-public information and is thus legal.
Insider trading also includes illegal security trades based on material non-public information. In an effort to curb illegal insider trading, U.S. regulations require the “automatic insiders” discussed above to report their trades within a few business days.
Illegal insider trading includes all of the following:
- Corporate officers, directors, and employees who trade the corporation’s securities based on significant, confidential corporate developments.
- Friends, family members, and other individuals “tipped-off” by direct insiders who trade based on such information.
- Employees of the government, law firms, banks and other companies who have access to confidential corporate developments in the course of business but then trade on such information.
Why is some insider trading illegal?
Insider trading regulations are designed to prevent insider trading from undermining “investor confidence in the fairness and integrity of the securities markets,” but the logic for such restrictions has been questioned by numerous preeminent economists and legal theorists.
Particularly, critics point out that there are no restrictions on insider trading in markets such as real estate and that insider trading in all markets serves a beneficial purpose by more quickly disseminating new information.