Insider trading is a corporate activity where information relating to a particular firm or company is given out to people secretly who are not associated with the company in a legal capacity. This information is then used to profit on the stock of the company. This is seen as an unethical activity in some countries, while there are many nations which have made it illegal.
Insider trading is found in abundance when employees, executives and directors of a company have the shares of their employing company which are publicly traded in the market. As many companies give the option of buying and selling stocks to their own employees, the concept of insider trading pretty much exists in every company. The SEC in America has enforced stricter laws to ensure prevention of illegal activity.
Most people in the world are familiar with illegal insider trading. However, there is also something called the legal format which could be made use of to one's benefit. There are certain companies which give out employee stock options as a part of the employee's compensation package. With these shares or stocks, the employees are eligible to trade. However, according to SEC rules, the employees of a company are required to reveal their stock holdings in their company. Such rules are applicable to only those employees and executives who have a share of more than 10 percent or equal to ten percent in the company.
Illegal trading is when the employee makes use of private information available to him for personal trading benefits. An insider is a person or group who has access to information that is not available in the general public. An insider would mostly be an employee of the company or someone attached to the company. However, this is not always the case and there are instances where the insider might not be associated with the company. Such people usually have acquaintances within the company and they gather their information through these sources.
One of the most common myths about this is that if people who indulge in such trading are not aware of the legal implications of doing this, then they cannot be held liable for it. This is not the truth as there is no excuse for ignorance of the law. A person claiming that he did not know the seriousness behind his activity is using a very lame and unacceptable excuse.
According to the SEC guidelines, if a company gives out information relating to its management and other related activities, then it is essential that it allows the general public to know the same information as well.
Insider trading is found in abundance when employees, executives and directors of a company have the shares of their employing company which are publicly traded in the market. As many companies give the option of buying and selling stocks to their own employees, the concept of insider trading pretty much exists in every company. The SEC in America has enforced stricter laws to ensure prevention of illegal activity.
Most people in the world are familiar with illegal insider trading. However, there is also something called the legal format which could be made use of to one's benefit. There are certain companies which give out employee stock options as a part of the employee's compensation package. With these shares or stocks, the employees are eligible to trade. However, according to SEC rules, the employees of a company are required to reveal their stock holdings in their company. Such rules are applicable to only those employees and executives who have a share of more than 10 percent or equal to ten percent in the company.
Illegal trading is when the employee makes use of private information available to him for personal trading benefits. An insider is a person or group who has access to information that is not available in the general public. An insider would mostly be an employee of the company or someone attached to the company. However, this is not always the case and there are instances where the insider might not be associated with the company. Such people usually have acquaintances within the company and they gather their information through these sources.
One of the most common myths about this is that if people who indulge in such trading are not aware of the legal implications of doing this, then they cannot be held liable for it. This is not the truth as there is no excuse for ignorance of the law. A person claiming that he did not know the seriousness behind his activity is using a very lame and unacceptable excuse.
According to the SEC guidelines, if a company gives out information relating to its management and other related activities, then it is essential that it allows the general public to know the same information as well.