Maybe I don't understand insider trading laws, but they seem somewhat unreasonable to me.

Lets say I'm a software developer, and I accepted stock options as part of my compensation. In the course of my work, I come to realize the company is not long for this world. If I sell my stock, am I guilty of insider trading? I'm obligated to go down with the ship?

I'm interested in answers from any jurisdiction really, this is just a hypothetical question.


1 Answer 1


Because you're acting on private information that the average trader doesn't have. How is it fair for you to do that?

You do understand that when you sell stock, it doesn't just vanish into the aether. Some other sucker buys it. You have a duty of honesty and disclosure to the buyer, Just like when you sell anything. Your aim was to not fulfill your duty and defraud the sucker. This is practically unenforceable, so they take the tack of punishing the underlying behavior.

However, there are rules for trading by rank and file employees who do not have access to deep financial or strategic data. In those cases, you are allowed to trade most of the time. They have freeze windows, for instance, shortly before an earnings call, because you could for instance lurk around the copiers in the executive offices and sneak a peek at an early draft, or have a friend in financial give you the skinny over beers, etc.

At the end of the day, employee trade restrictions are about the company escaping enforcement scrutiny by being above reproach.

Anyway, you should sell your company's stock one year and one day after buying it, so you qualify for the long term capital gains rate. Then diversify into anything but your company. Your job is already tied up there, which means you are already way overinvested in the company. You don't want to be in a situation where you job goes south at the same time as all your investments do!

  • Aren't you assuming the company is public? Apr 23, 2020 at 10:18

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