What constitutes 'insider trading' according to Article VIII?

• A. Buying or selling securities based on public information
• B. Buying or selling securities based on non-public, material information
• C. Trading securities in an open market
• D. Giving stock tips to friends and family

Answer: (B)

The concept of 'insider trading' is defined specifically as the act of buying or selling securities based on non-public, material information. This means that if an individual has access to confidential information about a company that could influence an investor's decisions, using that information to trade is considered unethical and illegal. This practice is regulated to maintain fair securities markets, preventing individuals with insider knowledge from having an unfair advantage over the general investing public.

In essence, the key aspect that makes trading based on non-public, material information illicit is that it undermines the principle of transparency and fairness in the market. Investors rely on publicly available information to make informed decisions, and when someone acts on inside information, it disrupts that balance and trust in the fairness of trading practices.

The incorrect options highlight other trading scenarios that do not fit the legal definition of insider trading. Buying or selling based on public information is legal and acceptable, while trading in an open market typically involves transactions that do not involve undisclosed or non-public information. Giving stock tips to friends and family, although it may have ethical implications, does not inherently constitute insider trading unless the information shared is non-public and material to stock performance.