You enter the school spelling bee. And so does your older brother Sam, who's the top-notch linguist in the country. Should you be treated the same? Not fair, is it?
It works the same with securities. When it comes to trading, buying, or selling stocks and other securities, people working inside a company have a leg up when it comes to knowledge of their own company's performance. Why? Because they have special insider information. These people—including C-level officers and board members—are considered affiliated persons, and they have to follow a bunch of extra laws. If these types own more than 10% of their own company's securities, they're considered affiliated investors, and they face even more restrictions.
It all helps level the playing field between insiders and you, the average Joe or Jane investor. Fair? Definitely.
Related or Semi-related Video
Finance: What is Asymmetric Information?25 Views
Finance allah shmoop what is asymmetric information Well asymmetry happens
when two sides of something aren't equal think giant red
wood and we'd regular crab and fiddler crab recumbent bike
and a eunice cycle well in the financial world asymmetric
information exists when one side of a transaction think inside
trader scumbag who collects briefcases full of cash from somalia
in overlords versus a normal joe six pack investor trying
to fairly participate in the stock market So he has
a pension to retire on while bouncing great grandchildren on
his newly installed robotic knees Well discount needs don't go
there Your summer college job is cleaning the house of
the ceo of whatever dot com currently trading at eighteen
bucks a share as you empty her garbage one night
pushing away adult diapers in the process Yes she has
a lot of pressure on the job on this conference
calls and saying ooh a lot I push that away
You realize that microsoft is buying her company for thirty
dollars a share You then by a ton of stock
at eighteen bucks you had a symmetric information because you
dug through the trash and you found the memo from
whoever the ceo is of microsoft these days to her
and that was bad You didn't have to act on
that information like you could have just done a whole
lot of nothing and not repeated it to anyone and
left the stock at eighteen dollars until it was all
in the news at thirty and moved on and still
have your job cleaning her trash Having inside information isn't
illegal but doing something to benefit yourself tor You know
your loved ones is illegal So if you trade based
on inside asymmetric information well then you just committed a
felony It's called insider trading And while here's hoping you
look good and either orange or black or or both
Up Next
What is an Affiliated Person or Affiliated Investor? An affiliated person is known as an insider in the financial world. These are the people who h...
What is an Associated Person? An associated person is just an employee of a broker or a dealer that are involved in trading. These people must be c...
What is insider trading and the Securities Fraud Enforcement Act of 1988? It's nothing too complicated, if this minute long video is any indication.
How does a board of directors function? Public companies, as well as some private corporations and non profit groups, have a board of directors. Us...