Insider definition
/What is an Insider?
An insider is an individual who possesses information about a publicly held firm that has not been made known to the investing community. This person is in a position to profit from that information at the expense of the investing community. The Securities and Exchange Commission defines an insider as a director, officer, or shareholder who owns at least 10% of the outstanding shares of a business.
Example of an Insider
As an example of an insider, a vice president within a company might know that a major contract has been signed with a customer, and so buys additional company shares before the contract is announced to the public. Similarly, someone working in the research department might realize that a new concept is ready for market, and so buys company shares before this information becomes general knowledge.
Insider Reporting Requirements
Insiders have to comply with rules regarding when they can buy or sell shares, so that they cannot take advantage of their knowledge. Anyone violating these rules will be required to give up any profits made, as well as pay fines and possibly be incarcerated.