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Market Abuse Traditional Finance

Insider Trading

Trading securities based on material, non-public information in breach of a fiduciary duty or other relationship of trust.

1 Introduction

Insider trading occurs when a person trades a security while in possession of material, non-public information (MNPI) about that security, in violation of a duty to keep that information confidential. It is one of the most prosecuted forms of market abuse worldwide, with regulators increasingly leveraging data analytics and cross-border cooperation to detect it.

$180M+

SEC disgorgement in 2023

56

Cases filed in 2023

92%

Conviction rate

2 How It Works - Interactive Simulation

Day 25
50,000

Estimated Illicit Profit

$0

Detection Risk Level

Moderate

Adjust the sliders to simulate different insider trading scenarios. Hover over the chart for price details.

3 Detailed Analysis

Legal Framework

In the United States, insider trading is primarily governed by Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The European Union addresses it through the Market Abuse Regulation (MAR, Regulation No 596/2014). Key elements include the concept of "inside information," the prohibition on tipping, and the obligation for insiders to disclose their transactions.

Detection Methods

Regulators use sophisticated surveillance tools that monitor abnormal trading patterns before material announcements. The SEC's MIDAS system processes billions of data points daily, while the FCA uses pattern-recognition algorithms to flag suspicious order flow. Key indicators include unusual volume spikes, options activity concentration, and trading by connected persons in the days before news releases.

Typology of Insiders

Primary Insiders

Officers, directors, and employees with direct access to MNPI

Tippees

Persons who receive MNPI from primary insiders and trade on it

Shadow Insiders

Advisors, auditors, lawyers with temporary access during transactions

Remote Tippees

Downstream recipients in multi-layer tipping chains

Red Flags

  • Concentrated trades in short-dated out-of-the-money options before announcements
  • First-time trading in a security by persons connected to the issuer
  • Sequential trades through multiple accounts in the same household
  • Trading correlated with access to draft press releases or board minutes
  • Abnormal profit patterns with very short holding periods around corporate events

Related Fraud Types

Market Manipulation

Artificially inflating or deflating the price of a security or otherwise influencing market behavior for personal gain.

Front-Running

Executing orders on a security ahead of a large pending order that will predictably move the price.

Spoofing & Layering

Placing and quickly canceling large orders to create a false impression of supply or demand.