Insider trading involves trading a public company's stock using nonpublic information. It can provide some market benefits like faster information dissemination, but it ultimately gives insiders an unfair advantage over uninformed traders. While research-based trading is legal, trading on insider information is not. Insider trading thrives on opacity and prevents stock prices from accurately reflecting company information. It is now considered a criminal offense under Pakistani law due to the unfairness and market inefficiencies it creates.

2. What is insider trading?
• Insider trading is the trading of a public company's stock or
other securities by individuals with access to nonpublic information
about the company.
• public company's stock- a company whose shares a listed on stock
exchange
• Individuals- Company officials, senior management, any stakeholder
directly or indirectly linked to the news
• nonpublic information- material information directly affecting the
share price

3. Dilemma about insider trading!
• Most of us think of insider trading as something unethical or illegal
• Before affirming to the cons, lets talk about the pros.
• move a share's price towards the level correctly reflecting all the real facts
about the company
• getting information to the market as quickly as possible helps to alleviate
asymmetry, lowering volatility, lessen the exposure to bad information
• if allowed, more participants seeking out that information, so not only
would it get to market faster, it will lessen the reward and profits of those
trading on it. Hence lower profits for the big guns of the markets

4. Continued…
• Extraction of info is of key important. Research vs inside info. Both
help in earning profits, deriving the same data through research is
legal while knowing it from a company official is not
• Buying of shares cause of inside info is penalized, however, holding on
to a share cause of the same info is not. Cause nobody knows I have
the inside info

5. The problems with insider trading!
• an inefficient way of achieving market efficiency
• it gives the insider an unfair advantage in the market
• insiders earn all their profits on the lag between when they start
selling and when the market figures out what's going on
• This gives them every reason to hoard information, with the result
that stock prices are out of whack for longer than they otherwise
would have been.
• Markets thrive on transparency, but insider trading thrives on opacity
• allows an insider to artificially influence the value of a company's
stocks.

6. Continued…
• individuals possessing material nonpublic information begin trading
creating a small affect on price. Some uninformed traders become
aware of the insider trading through leakage or tipping of information
or through observation of insider trades.
• Finally, the market reacts to the insiders' trades and gradually moves
toward the correct price. But while derivatively informed trading can
affect price, it functions slowly and sporadically. Given the inefficiency
of derivatively informed trading, the market efficiency justification for
insider trading loses much of its force

7. IT- a criminal offence
• Securities Act 2015: insider trading has been officially declared a
criminal offence.
• Under the 1969 law, the SECP had no powers to intervene for investor
protection and to handle investor complaints
• High monetary penalties
• Imprisonment