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Insider Trading

Insider trading refers to the illegal practice of trading securities based on non-public information, creating unfair advantages in the market. Individuals such as legal advisors, accountants, and company executives can become insiders when they access confidential information that could impact stock prices. Offenses include trading for oneself or others while possessing insider information, disclosing such information, and influencing others to trade.

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8 views5 pages

Insider Trading

Insider trading refers to the illegal practice of trading securities based on non-public information, creating unfair advantages in the market. Individuals such as legal advisors, accountants, and company executives can become insiders when they access confidential information that could impact stock prices. Offenses include trading for oneself or others while possessing insider information, disclosing such information, and influencing others to trade.

Uploaded by

joseswartzsr31
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Insider Trading

Insider Trading: Explained

 Insider trading is the trading of securities on information


that is not public.
 It is a form of market abuse and is illegal in many countries.
 It is an offence to commit insider trading.
Explained further

 A norm exists that when insider trading is allowed to exist it creates an unfairness to a
market participant who does not have the same information as another market
participant.
Scenario…Inside information

 1.A legal advisor is asked for an opinion. In the brief provided to her, she gains access to
significant confidential information. The legal advisor therefore becomes an insider.
 2.Similarly, while working on the preparation of a company’s financial statements, an accountant
could become aware of confidential information that could affect the share price of a listed
company’s shares. The accountant is accordingly an insider in these circumstances.
 3. Consider the case of a managing director(MD) of a public company that is listed on the
Namibian Stock Exchange & which is involved in mining activities. The MD receives a report from
a consulting engineer that the new discovery of mineral deposits is of a disappointing quality. The
MD knows that when this information is made public, the company’s share price is likely to fall
significantly. The MD therefore instructs his stockbroker to sell 50 percent of his own personal
shareholding in the company with immediate effect. By doing this, the MD avoids a massive loss
because once the news is made public, the share price would have declined sharply.
 In both these above examples, the legal advisor, MD and the accountant have inside information.
The insider trading offences

 Dealing in securities for one’s own account, while in possession of inside information.
 Dealing in securities on behalf of another person while in possession of inside
information.
 Dealing in securities for an insider
 Disclosing inside information for another person.
 Encouraging or discouraging another person to deal

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