Insider Trading
Trading on material non-public information in breach of a duty.
What is Insider Trading?
Prohibited under the '34 Act and Rule 10b-5. Liability extends to tippers and tippees who knew or should have known the information was improperly disclosed. Penalties include disgorgement, treble civil penalties, and criminal prosecution.
Insider Trading: a worked example
An executive's friend buys ahead of an unannounced acquisition.
More terms in Regulation & Professional Duty
Fiduciary Duty
A legal obligation to act in the client's best interest.
Suitability Standard
A recommendation must be appropriate given the client's profile.
Regulation Best Interest (Reg BI)
SEC rule requiring broker-dealers to act in a retail client's best interest.
Registered Investment Adviser (RIA)
A firm registered to give advice for a fee, holding fiduciary duty.
Broker-Dealer
A firm that executes trades as agent (broker) or principal (dealer).
FINRA
The self-regulatory organization overseeing broker-dealers.
Securities and Exchange Commission (SEC)
The federal agency regulating securities markets.
SIPC
Insurance against broker failure - not against investment losses.