A corporate officer, for instance, who uses information known to him, but not to the public, to purchase or buy securities is generally guilty of insider trading. Exceptions may be allowed for certain transactions which are immaterial or which are reported the United States Securities and Exchange Commission. It must also be noted, however, that the concept of insider trading extends beyond corporate officers and insiders in the technical sense. It also includes people who provide tips to outsiders. This secondary portion of the definition ensures that the primary subjects of the law, corporate officers and fiduciaries, cannot escape punishment by secretly providing information to outsiders and non-fiduciaries (Insider Trading, 2006).
The causes of insider trading are quite easy to understand. To illustrate, a corporate officer knows when the value of the corporation is going to increase or decrease. Perhaps there are secret negotiations for a takeover in which share prices are going to increase. He can sell his securities in order to maximize his profits or minimize his losses.