What is insider dealing?

According to EU MAR Article 8, insider dealing (AKA insider trading) occurs when a person uses inside information by making transactions (buying or selling) or altering orders (modifying or cancelling), for its own account or for 3rd party account, directly or indirectly, regarding financial instruments to which that information relates.

Who can do insider dealing?
  - Everyone who has access to inside information is a potential insider dealer. The main suspects are usually executives, employees with high level of responsibility and high level of access to corporate information, and (financial or law) advisors.

  - Nevertheless, anyone (family, friends, brokers, business partners, etc) who contacts with these abovementioned people can also have access to inside information.

Which market conditions are needed for insider dealing to occur?
  - The more liquid the market is, the easier is to buy or sell large volumes of securities without being noticed.
  - Moreover, the market needs to be somewhat liquid for the security price to incorporate the impact of an event (without such impact the insider trader cannot make a profit).

Example 1

This is the classic insider dealing buy pattern:
  - The insider buys a certain amount of shares;
  - A positive event sharply increases the security’s price;
  - The insider sells the same amount of shares.

Example 2

And this is the classic insider dealing sell pattern:
  - The insider sells a certain amount of shares;
  - A negative event sharply decreases the security’s price;
  - The insider re-buys the same amount of shares.


Example 3

There can also be situations in which the insider sells [buys] less shares than the ones he/she bought [sold] before a positive [negative] event.


Example 4

There can also be situations in which the insider does not sell any shares at all. In fact, the key aspect in an insider dealing pattern is whether he/she acted before the event (whether he/she acted after the event is not relevant).

Example 5

An insider (or set of insiders) can buy ahead of a positive event without impacting the market (total volumes stay within usual levels and the security price does not change materially.

Example 6

Or, an insider (or set of insiders) can buy ahead of a positive event while significantly impacting the market – these cases are easier to detect at naked eye.