Which term describes selling or buying a security of the issuer when in possession of material information not generally available to the public?

Which term describes selling or buying a security of the issuer when in possession of material information not generally available to the public?

• A. Wash sale
• B. Squeezing the float
• C. Hype and dump
• D. Insider trading

Answer: (D)

Insider trading describes buying or selling a security while in possession of material information that is not publicly available, giving the trader an unfair advantage. Material information is something a reasonable investor would consider important when deciding to buy or sell, and it hasn’t been broadly disclosed yet—think unpublished earnings, a pending merger, regulatory approval, or a major contract. People who have access to this information, such as company insiders or others who receive tips, are expected not to trade on it or disclose it to others. Trading on such information is illegal in many markets because it undermines fairness and erodes trust in the financial system. For example, someone aware of an upcoming positive earnings surprise should wait for the information to be made public rather than trading on it. The other options refer to different concepts: wash sales relate to tax rules; squeezing the float and hype-and-dump describe market manipulation tactics that don’t rely on nonpublic material information.

Insider trading describes buying or selling a security while in possession of material information that is not publicly available, giving the trader an unfair advantage. Material information is something a reasonable investor would consider important when deciding to buy or sell, and it hasn’t been broadly disclosed yet—think unpublished earnings, a pending merger, regulatory approval, or a major contract. People who have access to this information, such as company insiders or others who receive tips, are expected not to trade on it or disclose it to others. Trading on such information is illegal in many markets because it undermines fairness and erodes trust in the financial system. For example, someone aware of an upcoming positive earnings surprise should wait for the information to be made public rather than trading on it. The other options refer to different concepts: wash sales relate to tax rules; squeezing the float and hype-and-dump describe market manipulation tactics that don’t rely on nonpublic material information.