Insider Trading Glossary: 50+ Key Terms Defined

Insider trading terminology can be confusing, especially for investors new to following SEC filings and corporate insider activity. This glossary defines over 50 key terms you'll encounter when tracking insider buying and selling activity.

A

10b5-1 Plan

A pre-arranged trading plan that allows corporate insiders to buy or sell shares on a predetermined schedule. Established under SEC Rule 10b5-1, these plans provide an affirmative defense against insider trading allegations because the trading decisions are made when the insider does not possess material non-public information. As of 2023, new rules require cooling-off periods of 90-120 days before the first trade can execute.

Acquisition (Transaction Code A)

A transaction code on Form 4 indicating shares acquired through a grant, award, or other non-market transaction. These are compensation-related and carry little informational value for investors.

B

Beneficial Owner

Any person who directly or indirectly has voting power or investment power over a security. Under SEC rules, a person is a beneficial owner if they have the right to acquire shares within 60 days through options, warrants, or convertible securities. Beneficial owners of more than 10% of a company's shares are considered insiders and must file Forms 3, 4, and 5.

Blackout Period

A period during which corporate insiders are prohibited from trading their company's stock. Most companies impose blackout periods around earnings releases, typically beginning two to four weeks before the earnings announcement and ending one to two days after. Blackout periods also apply during certain corporate events such as mergers or restatements.

C

Cluster Buy

A pattern where three or more insiders at the same company make open market purchases within a 30-day period. Cluster buys are widely considered the strongest insider signal and have been shown to precede above-average stock returns. Track active cluster buys on the cluster buys page.

Controlling Person

A person or entity that has the power to direct or control the management and policies of a company. Under securities law, controlling persons can be held liable for insider trading violations committed by persons under their control.

Conversion (Transaction Code C)

A transaction code indicating the conversion of a derivative security (such as a convertible bond or preferred stock) into common shares.

D

Derivative Security

A financial instrument whose value is derived from an underlying security. In the context of insider trading filings, derivative securities include stock options, warrants, convertible notes, and restricted stock units (RSUs). Derivative transactions are reported in Table II of Form 4.

Direct Ownership

Shares held in the insider's own name, as opposed to indirect ownership through entities like trusts, LLCs, or family members. Direct ownership is reported in the ownership column of Form 4.

Disgorgement

A legal remedy requiring a person who has profited from illegal insider trading to return all ill-gotten gains. Disgorgement is separate from civil penalties and fines — the violator must surrender profits and may also face additional financial penalties.

Disposition (Transaction Code D)

A non-market transfer of securities, such as a gift to a charity or transfer to a trust. Not to be confused with open market sales (code S).

E

EDGAR

The Electronic Data Gathering, Analysis, and Retrieval system operated by the SEC. EDGAR is the central repository for all SEC filings, including Forms 3, 4, and 5. All insider transaction data available on InsiderFlow is sourced from EDGAR filings.

Exchange Act

The Securities Exchange Act of 1934, the foundational federal law governing securities trading, insider reporting requirements, and market regulation. Section 10(b) of the Exchange Act is the primary legal basis for insider trading enforcement.

F

Fiduciary Duty

A legal obligation of trust between the insider and the company's shareholders. Insider trading liability typically requires a breach of fiduciary duty — trading while in possession of material non-public information violates the insider's duty of loyalty to shareholders.

Form 3

The initial statement of beneficial ownership filed when a person first becomes an insider (officer, director, or 10%+ owner). Form 3 must be filed within 10 days of the person becoming an insider and discloses all existing holdings.

Form 4

The statement of changes in beneficial ownership, filed whenever an insider buys, sells, or otherwise changes their holdings. Form 4 must be filed within two business days of the transaction and is the primary document used to track insider trading activity. Learn more on our Form 4 explained page.

Form 5

The annual statement of beneficial ownership, used to report transactions that were not reported on Form 4 during the year (either because they were exempt from Form 4 reporting or were inadvertently not filed). Form 5 is due within 45 days after the company's fiscal year end.

G-I

Gift (Transaction Code G)

A transaction code on Form 4 indicating that shares were given as a gift. Gifts are not investment-motivated and carry no informational signal about the insider's views on the stock.

Indirect Ownership

Shares held through an intermediary such as a trust, LLC, partnership, or family member. Insiders must report indirect holdings on Form 4 and specify the nature of the indirect ownership.

Insider

Under SEC rules, an insider is any officer, director, or beneficial owner of more than 10% of a company's equity securities. These individuals are subject to Section 16 reporting requirements and must disclose their transactions on Forms 3, 4, and 5.

Insider Trading

In common usage, this term has two meanings: (1) legal insider trading, which refers to the buying and selling of company stock by insiders who properly report their transactions; and (2) illegal insider trading, which involves trading based on material non-public information in breach of a fiduciary duty.

M-O

Material Non-Public Information (MNPI)

Information about a company that has not been disclosed to the public and would be considered important by a reasonable investor in making an investment decision. Examples include upcoming earnings results, pending mergers, major contract wins or losses, and regulatory decisions. Trading on MNPI is illegal.

Misappropriation Theory

A legal theory under which a person who misappropriates confidential information from the source of that information and trades on it can be held liable for insider trading, even if they do not owe a fiduciary duty to the company's shareholders. Established in United States v. O'Hagan (1997).

Open Market Purchase (Transaction Code P)

A voluntary purchase of shares on the open market using the insider's own funds. Open market purchases are the most informative insider transaction type because they reflect a deliberate investment decision. See our full guide on open market purchases.

Open Market Sale (Transaction Code S)

A voluntary sale of shares on the open market. While insider sales can sometimes be informative, insiders sell for many reasons (diversification, liquidity needs, tax planning) unrelated to their outlook on the company, making sales a weaker signal than purchases.

Option Exercise (Transaction Code M)

The exercise or conversion of a derivative security, such as exercising a stock option to acquire shares. Option exercises are compensation-related and typically carry less informational value than open market purchases, especially when followed by immediate sales.

P-R

Pre-Clearance

A corporate compliance requirement that insiders obtain approval from the company's legal or compliance department before trading. Pre-clearance helps ensure that insiders do not trade during blackout periods or while in possession of MNPI.

Regulation FD (Fair Disclosure)

An SEC rule adopted in 2000 that prohibits public companies from selectively disclosing material information to certain market participants. When a company discloses material information to analysts or investors, it must simultaneously make the same information available to the general public.

Restricted Stock Unit (RSU)

A form of equity compensation in which shares are promised to an employee but do not vest until certain conditions (typically time-based or performance-based) are met. When RSUs vest, the shares are reported on Form 4, often with an accompanying tax withholding disposition (code F).

Rule 10b-5

The SEC rule that broadly prohibits fraud in connection with the purchase or sale of securities. Rule 10b-5, adopted in 1942 under Section 10(b) of the Exchange Act, is the primary regulatory basis for insider trading enforcement actions.

S

Schedule 13D

A filing required when a person or group acquires beneficial ownership of more than 5% of a public company's shares with the intent to influence or change control of the company. Schedule 13D must disclose the purpose of the acquisition and the acquirer's plans for the company. Often filed by activist investors.

Schedule 13G

A simplified version of Schedule 13D available to passive investors who acquire more than 5% of a company's shares but do not intend to influence or change control. Institutional investors and index funds commonly file Schedule 13G.

Section 16

The section of the Securities Exchange Act of 1934 that governs reporting by corporate insiders. Section 16(a) requires insiders to file Forms 3, 4, and 5. Section 16(b) mandates disgorgement of short-swing profits. Section 16 applies to officers, directors, and 10%+ beneficial owners.

Short-Swing Profit Rule

Under Section 16(b) of the Exchange Act, any profit realized by an insider from buying and selling (or selling and buying) the company's stock within a six-month period must be returned to the company. This rule is strict liability — intent does not matter.

STOCK Act

The Stop Trading on Congressional Knowledge Act of 2012, which confirmed that members of Congress and federal employees are prohibited from trading on material non-public information obtained through their official duties.

T-Z

Tax Withholding (Transaction Code F)

A transaction code on Form 4 indicating shares withheld by the company to cover tax obligations arising from the vesting of restricted stock or RSUs. These are automatic, non-discretionary transactions and carry no informational value.

Tipper

A person who communicates material non-public information to another person (the tippee) who then trades on it. Tippers can be held liable for insider trading even if they did not personally trade.

Tippee

A person who receives material non-public information from a tipper and trades on it. Tippees can be held liable for insider trading if they knew or should have known that the tipper breached a duty by sharing the information.

Transaction Codes

Single-letter codes used on Form 4 to identify the type of transaction. The most important codes for investors are P (open market purchase), S (open market sale), M (option exercise), A (award/grant), F (tax withholding), and G (gift). Filtering for code P is the most effective way to identify meaningful insider buying on the insider buying page.

Treble Damages

A civil penalty of up to three times the profit gained or loss avoided through illegal insider trading. Authorized by the Insider Trading Sanctions Act of 1984, treble damages are imposed by courts in SEC enforcement actions.

Whistleblower Program

An SEC program established by the Dodd-Frank Act of 2010 that rewards individuals who report securities law violations, including insider trading. Whistleblowers can receive 10-30% of monetary sanctions exceeding $1 million. The program has paid out over $1 billion in awards since inception.