The term insider trading can describe lawful trades by company insiders. It can also describe unlawful trades based on material nonpublic information. The trader's job title does not decide if a trade is legal. The facts, duties, company policy, and securities law decide that question.
What is material nonpublic information?
Information is material if a reasonable investor would consider it important. Examples can include unpublished earnings, a planned merger, a major contract, a product failure, or a change in senior management. Information is nonpublic when it is not broadly available to the investing public.
Legal insider transactions
Officers, directors, and beneficial owners of more than 10% can lawfully trade company securities in many cases. They must follow securities law and company policy. A company can also limit trading to an open trading window. Most reportable changes in ownership must appear on Form 4 within two business days after the transaction.
A public Form 4 does not prove that a trade complied with every rule. Disclosure is one part of the process. A filing also does not prove why an insider traded.
Illegal insider trading
Illegal insider trading often involves a purchase or sale made on material nonpublic information in breach of a duty or another relationship of trust. The rule is not limited to executives. Employees, lawyers, consultants, friends, family members, and other tip recipients can face liability when the required facts are present.
Possible consequences include civil penalties, repayment of gains, bars from serving as an officer or director, and criminal prosecution. The result depends on the facts of the case.
How Rule 10b5-1 fits
Rule 10b5-1 provides an affirmative defense when a trading arrangement meets its conditions. The person must enter the plan in good faith and without material nonpublic information. Current rules also include cooling-off periods and limits on some overlapping and single-trade plans. A plan is not automatic proof that each trade was lawful.
What a Form 4 can tell you
- Who reported the ownership change
- The transaction date and filing date
- The security, share amount, and reported price
- The SEC transaction code
- Direct or indirect ownership
- Holdings reported after the transaction
- Plan information, amendments, and other details in the filing
A Form 4 records an ownership event. It does not state that a trade was a good investment. It does not establish the insider's intent. It does not provide a complete view of the person's wealth or portfolio.
What this product does
The Insiders Post converts Form 4 transaction rows into a searchable feed. It keeps grants, option exercises, tax withholding, gifts, purchases, and sales separate. It also links to the SEC source so that you can check the full filing.
A filing reports an ownership change. It does not predict the next stock-price move.
Where to start
First, read the transaction code. Next, check the insider's role, ownership type, and holdings after the transaction. Then read the footnotes and the source filing. Use the company page to compare the event with other recent insider activity.