The trading of a corporation's stock (or other securities, such as bonds)
by corporate insiders. Corporate insiders include officers, directors, or persons
holding substantial (e.g., more than 5 percent) blocks of the firm's stock.
Insider trading is legal, provided the person making the trade did not do so
on the basis of private information to which the public was not privy and reported the trade to the Securities and Exchange Commission
(SEC). Conversely, trades
by insiders are illegal when they are made with nonpublic knowledge. Directors
and officers (D&O) liability insurance policies specifically exclude coverage for
claims involving damages produced by illegal insider trading. However, the policies
do cover the cost of defending against allegations of illegal insider trading.