Insider trading of a linked security like an ETF your company has a heavy weighting in

Asked by: Renee Franklin

Who is considered an insider in insider trading?

An “insider” is an officer, director, 10% stockholder and anyone who possesses inside information because of his or her relationship with the Company or with an officer, director or principal stockholder of the Company.

What is insider trading in security analysis?

Definition: Insider trading is defined as a malpractice wherein trade of a company’s securities is undertaken by people who by virtue of their work have access to the otherwise non public information which can be crucial for making investment decisions.

Which of the following is an example of insider trading?

Examples of insider trading that are legal include: A CEO of a corporation buys 1,000 shares of stock in the corporation. The trade is reported to the Securities and Exchange Commission. An employee of a corporation exercises his stock options and buys 500 shares of stock in the company that he works for.

What is the law on insider trading?

Insider trading is deemed to be illegal when the material information is still non-public and this comes with harsh consequences, including both potential fines and jail time. Material nonpublic information is defined as any information that could substantially impact the stock price of that company.

Does insider trading apply to ETFS?

Is buying an index ETF which contains my company insider trading? If you make the decision to buy based on material, non-public information, then yes. Legally, buying an ETF that contains non-trivial quantities of a company’s stock is the same as buying the company’s stock for insider trading purposes.

How does insider trading affect the company?

Insider traders and other speculators with private information are able to appropriate some part of the returns to corporate investments made at the expense of other shareholders. As a result, insider trading tends to discourage corporate investment and reduce the efficiency of corporate behavior.

What are two types of insider trading?

There are two types of insider trading. One is legal, and the other is illegal. Legal insider trading is when insiders trade the company’s securities (stock, bonds, etc.) and report the trades to the authorities such as the SEC under applicable regulations.

What are the elements of insider trading?

The basic elements of insider trading are: (i) engaging in a securities transaction, (ii) while in possession of material, non-public information, (iii) in violation of a duty to refrain from doing so.