Are All Insiders Rogue Traders?
— June 23, 2014
By Menachem Brenner, Marti Subrahmanyam and Patrick Augustin
Registered insiders — corporate directors or officers, their advisers, or stakeholders who hold a significant fraction of a company's stock — are allowed to trade in their company's stock, or options written on it, but they are bound by mandatory disclosure rules, and timing. Thus, their trades may be of a legal or illegal nature, depending on the circumstances of trading and disclosure.
But there are also other informed traders, who are not directly connected with the company, who may make educated guesses or have superior forecasting ability. Alternatively, others may enter into illicit trades if such trades are based on material non-public information, and if they are in breach of their fiduciary duty.
Read full article as published by CNBC
Menachem Brenner is a Research Professor of Finance. Marti Subrahmanyam is the Charles E. Merrill Professor of Finance, Economics and International Business.