| Definition |
Buying or selling a company’s securities based on non-public, material information. |
Executing orders on a security for one’s own account ahead of a large client order to profit from the expected price movement. |
| Information Used |
Confidential, material information not available to the public. |
Knowledge of pending client orders before they are executed. |
| Legality |
Illegal and punishable by law in most countries. |
Illegal practice violating fiduciary duty and market fairness. |
| Actors |
Corporate insiders like executives, employees, or related parties. |
Brokers, traders, or brokers’ employees with access to client orders. |
| Motivation |
To profit from price changes expected after confidential information becomes public. |
To capitalize on price movements caused by large client trades. |
| Market Impact |
Undermines market integrity and investor confidence. |
Creates unfair advantage and market manipulation concerns. |
| Detection Difficulty |
Challenging to detect due to secrecy and timing. |
Often detected through trade pattern analysis and surveillance. |
| Examples |
Executive buying shares before a takeover announcement. |
Broker placing orders just before a client’s large buy order. |
| Consequences |
Fines, imprisonment, reputational damage. |
Fines, bans from trading, legal action. |
| Regulatory Oversight |
Monitored by securities regulators (e.g., SEC, SEBI). |
Monitored by exchanges and regulatory bodies for suspicious trading. |
| Ethical Considerations |
Considered unethical due to unfair information advantage. |
Considered unethical due to abuse of client information. |
| Preventive Measures |
Disclosure policies, trading blackout periods, surveillance. |
Strict order handling policies, trade surveillance, compliance training. |
insider trading vs front running