Inside information is non-public information of a precise nature about a publicly traded company that, if made public, would likely have a significant effect on the price of the company's financial instruments (such as stocks or derivatives). This information is typically related to events or circumstances that could influence investment decisions, such as mergers, dividends, earnings shortfalls, or other important corporate developments. Using or disclosing inside information to trade stocks or advise others is illegal because it gives an unfair advantage and undermines market integrity.
Key Characteristics of Inside Information
- It is not publicly available.
- It is precise, referring to specific existing or reasonably expected circumstances.
- It would significantly affect share or financial instrument prices if disclosed.
- It relates to financial instruments covered by market regulations.
- Sometimes, information that alone is not inside information could become so when combined with other information.
Examples
- Knowledge of an upcoming merger
- Announcement of special dividends
- Information about financial difficulties or major corporate changes
This concept is primarily regulated to prevent unfair trading practices and to maintain confidence in financial markets.
