Insider trading is a form of trading that involves the illegal use of information that is only available to insiders of a company. They will then use this information to make a profit. So, let’s delve into insider training and find out what it is all about.
What is Insider Dealing
This term relates to the trading of stocks and securities which might include the likes of sock and bonds. Those people who trade them will be considered on the inside of a company or have access to information from within a company. As a result, they will have prior information that relates to the specific bonds and stocks of a company and they can use this information to make a profit.
What this means is that the information that they have access to, could have a real impact on the price of shares in a company if it was published. As a result, if an investor has private information they are considered to have an unfair advantage over other investors who do not have access to this information.
So, for anyone who has non-public information and trades based on this information, they are carrying out legal activity. What this means is that individuals should only trade using information that is accessible and in the public domain.
There is ongoing debate as to whether insider trading should be considered illegal as the majority of insider trading is not identified. Despite this debate, insider trading is illegal in the UK and has been since 1980. The Financial Conduct Authority considers it as fraud and believes that it is not a victimless crime.
What is Considered Insider Dealing?
So, it does help to understand what is considered insider trading but it is possible to find this information in the Criminal Justice Act 1993. It states that an individual is partaking in a criminal act if they choose to use inside information that has an impact on prices in relation to shares. Furthermore, they will also be breaking the law if they deal shares that relate to inside information or if trading takes place on a market that is not regulated or through a broker.
However, the legislation states that those who carry out inside trading can be defended if they can prove that the sensitive information was not expected to generate a profit. They can also be defended if it is believed that the information they were given was in the public domain or that they would have purchased shares even if they did not have access to this private information.
In recent months there is mounting evidence of cases involving insider information being leaked to short sellers, such as in the case of DOJ investigations into short sellerssuch as Bybrook Capital and Stifel Financial Corp.
Conclusion
While it can prove challenging to detect and identify insider trading, insider dealing legislation and investigation can result in individuals being prosecuted. As a result, they might receive a fine or they could be imprisoned for up to seven years. It is considered illegal in the UK and that means that the purchase and trading of stocks and bonds should be avoided if you have access to non-public inside information.