INSIDER TRADING

Insider Trading

INSIDER TRADING

In order to interpret the meaning of a given set of insider transaction, we need first to understand the everyday insider-trading characteristics. For instance, suppose that I would like to use insider trading to help guide my portfolio decisions. The first question I would ask is:

“How often does an insider trade occur for a typical stock? If an insider trade occurs once every five years, then waiting for insiders to provide investment signals is not going to be very helpful. On the other hand, if an insider trade is expected to occur once every other month, then I would have a sufficient number of buy and sell signals to monitor my portfolio decisions.” (Weisburd, 2001)

Examination of the industry wide or the economy wide insider-trading patterns can help us interpret such insider trading signals. Suppose that most insiders in banks and savings and loans have been sellers for the last ten years, with an average sale of 1,000 shares per month. In this case a sale of 1,000 shares in a bank would not be unusual. It would simply confirm what I already know. However, in this same situation a lack of sales would be a signal of a departure from the recent trends. Alternatively, a larger purchase would be more unusual and would require more attention, we need to examine usual insider-trading patterns in the economy as a whole as well as in each sector before we can interpret any insider-trading signal.

To execute an open market transaction, the Insider simply calls a broker and places a buy or a sell order. The broker may know that the order is from an insider of the firm, but the market maker or the trader on the other side of the transaction is not likely to find out who has initiated the transaction. It is this anonymity that allows the insider to exploit special information. (David, 2002)

Insider trading is a crime that makes a fellow person who buys or sells securities based on information not available to others, use or disclosure of privileged elements may allow illicit gains at stock transactions, which are prohibited by the regulation of financial market supervision.

In the insider trading case we have two types of investors called insiders:

those who have information of the press market

people who live in the issuer's title and who possess inside information about this company

The code of financial markets regulates insider trading by providing that an insider who has made ??or helped make the stock market, directly or by proxy, a transaction before the public is aware of inside information, commits a crime. (Bhattacharya, 2002)

The Concept of Insider Trading

The doctrine describes the insider law, domestic or wild. They are in fact social leaders, the chairman, general managers, managing directors or any person who is an administrator or member of the supervisory board. They are struck by the Prohibition Act to operate on the stock market because of their functions where there is an irrefutable presumption of initiation on the ...