I don’t really get it. Wouldn’t you want to buy and trade your own company’s stocks? Why is it illegal? Am I just not understanding what insider trading actually is?
In: Economics
You can buy your own company’s stock, just just have extra rules in place to insure you don’t do so when you have access to material (significant impact on business and stock) information others don’t.
Companies typically place quiet periods where employees and board members cannot trade, such as period between close of quarter and earning release, or before a major merger/acquisition is announced, major new product is unveiled, or when a major regulatory/legal ruling is about to come down.
Employees often buy through an employee stock purchase plan, where parts of each paycheck are set aside and then shares are bought for employee at set intervals (typically quarterly). But they can buy on ad-hoc basis, as long as not a quiet period. Similarly, top level execs will often sell shares on a regular planned basis, eg. sell 5000 shares quarterly on Friday after earning release, because such regular trades are easier to show as pre-determined and not as a result of illegal insider knowledge.
The crime of insider trading is specifically regarding trading on material information not known to the public.
Latest Answers