insider trading

Insider trading is the trading of a corporation's stock (or other securities, such as bonds) by corporate insiders.

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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.