Insider Trading in US Securities Markets

The research examines the problem of insider trading in American securities markets. Of particular interest in this research is the effects of insider trading on the securities markets generally, the participation of small investors in the markets, and acquisition and merger activity.

One of the major difficulties in dealing with the problem of insider trading appears to be concerned with defining just what the practice is. One book on finance defines an insider as "a stockholder of a corporation who is also an officer or key executive" of the firm (Clark and Gottfried, 1987, p. 194). The authors go on to include, as insiders, professional traders, as opposed to the investing public. Another book defines insiders as "anyone who has knowledge of facts not available to the general public" (Nemmers, 1990, p. 232). This definition is said to specifically include corporate directors and officers, and other individuals holding 10 percent or more of a firm's outstanding equity stocks. This latter definition of an insider comes fairly close to that used by the SEC (Securities and Exchange Commission). For years, the SEC applied a "strict constructionist view" of what was considered to be insidertrading (Conner, 1986, p. 48). The following example illustrates this view of insidertrading:

. . . an airplane passenger who saw a factory in flames while aloft and rushed to the phone to short sell the stock when the plane landed violated

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Category: Economics - I