What is insider trading in the stock market?

Insider trading can mean two things. In market data, it refers to trades by company insiders, such as executives and directors, in their own company’s shares. These trades can be legal when they comply with applicable trading and disclosure rules. In the U.S., company insiders generally report these transactions to the SEC on Form 4 within two business days.

Illegal insider trading generally involves buying or selling securities while aware of important information that hasn’t been made public, in breach of a duty or another applicable rule. For example, a CFO who buys shares after learning about a confidential takeover offer, before it’s announced, may be engaging in illegal insider trading. The exact rules vary by market. See the SEC’s overview for the U.S. rules.

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