Inside information is a fact about a public company's plans or finances that has not yet been revealed to public and that could give an unfair advantage to its possessors if acted upon. Buying or selling stock based on insider information can be a criminal offense.
Insider information is usually available to executives working within or close to a public company, but sometimes may be accessible to third parties.
Checklist for inside information
European Market Abuse Regulation has introduced a clear checklist for identifying an inside information:
- The information relates, directly or indirectly, to particular instruments or issuers;
- It is of a precise nature;
- It has not been made public; and
- If it were made public, would be likely to have a significant effect on the price of those instruments.
Information of a precise nature
The most important element from the checklist presented above is if information is deemed to be "of a precise nature":
- a set of circumstances which exists, or which may reasonably be expected to come into existence; or
- an event which has occurred or which may reasonably be expected to occur.
Examples
Some of the European supervisory authorities decided to give examples of cases that may represent inside information, for helping issuers in their reporting activities:
- forecasts that are giving concrete indications
- financial data in the context of quarterly, half-yearly and annual reports
- an individual transaction that significantly influences one or more individual items of financial data (for instance a transaction that may exceed the level of materiality set by auditors)
- dividend expectations
- corporate actions
- considerable extraordinary income/expenses (as extraordinary losses, income/expenses due to the outcome of litigation of existential importance for the company, compensation paid for redundancies)
- merger and acquisitions
- liquidation plan
- personnel related decisions – even the key persons involved are not part of the board
- disagreements between management and the board.
In Romania there are several companies that are in the way to be listed, and the most important part for their Boards and senior managers is to be trained on reporting obligations and on how inside information needs to be checked and treated. Market abuse criminal sanctions are very severe and may change the entire personal and professional life.