If management of a publicly held company, members of its board of directors, or anyone who holds more than 10% of the company trades its shares, it's considered insider trading.
This type of trading is perfectly legal, provided it's based on information available to the public.
It's only illegal if the decision is based on knowledge of corporate developments, such as executive changes, earnings reports, or acquisitions or takeovers that haven't yet been made public.
It is also illegal for people who are not part of the company, but who gain access to private corporate information, to trade the company's stock based on this inside information. The list includes lawyers, investment bankers, journalists, or relatives of company officials.
- Browse Related Terms: 10-k, 8-k, Acquisition, Audit committee, Closely held, Conglomerate, Depositary bank, Diluted earnings per share, Insider trading, Merger, Privatization, Retained earnings, Reverse stock split, Sarbanes-Oxley Act of 2002, Spin-off, Stock split