Insider trading

The most important component of capital market is perfect information. Perfect information means that everyone should have equal access to information at the same time it becomes available to anyone. For this reason, it is important that all pertinent information is made available to all investors. However, if the information is not available to all investors, a person using such knowledge can gain unfair advantage and returns over the rest of the capital market. This type of information is called insider information. Insider information is defined as information that is non-public and material. If a person trades with nonpublic information, he or she gains an advantage that is impossible for the rest of the public and what he or she does is insider trading. Insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading occurs when insider makes an investment decision based on material information that is not available to the general public. As a result, insider trading was banned with serious penalties in many countries. Key Words: 1) Insider Trading 2) Insider 3) Material Information 4) Financial Markets