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What is insider trading?
ATrading by a firm in its own listed shares
BTrading between two brokers at one firm
CTrading on information the public lacks
DTrading placed after the market has closed
Answer & Solution
Correct answer: C. Trading on information the public lacks
1. Insider trading is the use of information that is not available to the general public to make profits on securities transactions.
2. The Securities Exchange Act of 1934 banned it, but lax enforcement allowed several big scandals in the late 1980s.
3. The Insider Trading and Fraud Act of 1988 greatly increased the penalties and gave the SEC more power to investigate and prosecute.
4. That act also widened the meaning of insider beyond a company's directors, employees and their relatives to anyone who gets private information about a company.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.7 Buying and Selling at Securities Exchanges_
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