Insider trading allows the Insider to have an advantage at his trading. This is simple words is the selling and buying of the company stocks by any person who has access to non-public information about the stocks? What is non-public information? This is any information that has the power to influence the value of company stocks and has not been made public. This information can be acquired by anyway. However, some laws prohibit and combat Insider trading, there is also an issue of Corporate trading where employees of the company use the information at their disposal which is completely legal.
What is Insider trading?
The state definition of Insider trading can be broad but to put it in the simplest form, it is the buying and selling of company stocks by a person who has access to the information that is yet to be made public. However, this illegal and there is the STOCK act passed against it, but there can be a difference between legal and illegal Insider trading.
Legal vs. Illegal Insider Trading
Legal Insider trading is part of the business. This is called Corporate Insider trading where employees of a company trade the stocks of their companies, but the illegal Insider trading depends on the corporate information that is not meant for the public. It gives Insider a boost in the game and this advantage helps him to manipulate the prices to a large extent in the market. In other words, it undermines the fairness in the equity market as well as is a breach of trust.
Classic Insider Trading
A top executive of a company has access to information that can be beneficial in trading. This is a trust that the company puts on him. If he buys or sells stocks based on the information that he has about the corporation, it falls in the category of “insider trading”.
Tipper and Tippee
This is the smartest form of Insider trading. It is when an employee has the access to the non-public information but he doesn’t trade himself but passes that information to another person so that they can profit from it. The law deems both the Tipper and the Tippee illegal and considers it a breach of trust.
This involves the unfair use of the company’s information for personal profits. This is, however, a broad term, and can apply to a lot of scenarios.
The initial attempt to regulate and prohibit Insider trading was in 1934, but as soon as the business started making progress, this was followed by other steps. As for now, the STOCK act passed in 2012 by the Obama administration prohibits Insider trading ad not only that it applies to the Congress, the top-level executives, government employees, and also puts ethical obligations on President as well as the Vice president. However, there is a certain type of legal loophole as far as congress is concerned, but as far as the application is concerned, there is no one immune to the STOCK act.