Insider trading refers to the buying or selling of a security (such as stocks, bonds, or options) in a public company by individuals who have access to non-public, material information about that company. This privileged information is not yet available to the general public, and its disclosure could potentially impact the company's stock price. Insiders who engage in trading based on such information may be exploiting their informational advantage for personal gain.
Examples of insiders include corporate officers, directors, and employees who have access to crucial details about a company's financial health, performance, mergers, acquisitions, or other significant events. Engaging in insider trading is illegal in many jurisdictions, as it undermines the fairness and integrity of financial markets. Authorities, such as the Securities and Exchange Board of India (SEBI) in India or the U.S. Securities and Exchange Commission (SEC) in the United States, enforce regulations against insider trading and impose penalties for those found guilty of violating these rules.
To promote transparency and prevent unfair advantages, companies often have internal policies and procedures to monitor and restrict the trading activities of insiders, requiring them to disclose their transactions and adhere to blackout periods where trading is prohibited to avoid potential conflicts of interest.
