What Is Insider Trading?

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Insider trading defines the illegal practice of trading on the stock exchange to one’s own advantage through having access to confidential information. If you buy shares or trade in the stock market. You have to be very aware of insider trading. As it can have a major effect on you. 

In South Africa (SA) the growing numbers of acquisitions and mergers have provided fertile fields for insider traders. Furthermore, the emergence of a futures market has also created opportunities for insider traders to seek illegal profits.  

However Insider trading has a fine line that can be drawn between legal and illegal insider trading. An example of legal Insider trading is when corporate insiders, officers, directors, and employees buy and sell stock in their own companies.  

When corporate insiders trade in their own securities, they should then report their trades through the reports insiders must file to the necessary financial regulators within their country. In SA there‚Äôs the Financial Services Board (FSB). These financial regulators have rules to protect investment from the effects of insider trading. 

But when Insider trading is illegal it refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of non-public information about the security. Insider trading violations may also include tipping such information, securities trading by the person tipped, and securities trading by those who misappropriate such information. 

In keeping with the international move to regulate Insider Trading activities the South African authorities have recently enacted new legislation. Before the Insider Trading Act of 1998 came into force in early 1999. The insider trading offence fell under the Companies Act of 1973, which contained a criminal sanction only, requiring guilt to be proven beyond reasonable doubt.  

Under that legal framework, it was indeed very rare for anyone to be found guilty. However, the new dispensation is far more effective. The Johannesburg Stock Exchange (JSE) is also constantly monitoring investors in SA, as part of its regulatory role to avoid insider trading and other market manipulations.  

Through its two regulatory divisions at the Exchange, the Market regulation division and the market surveillance function. JSE have the responsibility to monitor the trading in listed securities on its exchange. Especially since the Steinhoff saga which JSE is probing the JSE is proactively advanced systems to adequately guard against the malpractices. 

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