Insider Trading Definition:

In US v O'Hagan, the US Supreme Court stated (edited extract):

"Under the traditional or classical theory of   insider trading liability ... when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a deceptive device ... because a relationship of  trust and confidence (exists) between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation.

"That relationship ... gives rise to a duty to disclose (or to abstain from trading) because of the necessity of preventing a corporate insider from . . . taking unfair advantage of . . . uninformed . . . stockholders.

"The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation."

Also known as insider dealing (UK) or insider short-swing transaction (USA).

Canada's Criminal Code defines "prohibited insider trading" at ¶382.1 as follows:

"(1) A person is guilty of an indictable offence and liable to imprisonment for a term not exceeding ten years who, directly or indirectly, buys or sells a security, knowingly using inside information that they

(a) possess by virtue of being a shareholder of the issuer of that security;

(b) possess by virtue of, or obtained in the course of, their business or professional relationship with that issuer;

(c) possess by virtue of, or obtained in the course of, a proposed takeover or reorganization of, or amalgamation, merger or similar business combination with, that issuer;

(d) possess by virtue of, or obtained in the course of, their employment, office, duties or occupation with that issuer or with a person referred to in paragraphs (a) to (c); or

(e) obtained from a person who possesses or obtained the information in a manner referred to in paragraphs (a) to (d).

"(2) Except when necessary in the course of business, a person who knowingly conveys inside information that they possess or obtained in a manner referred to in subsection (1) to another person, knowing that there is a risk that the person will use the information to buy or sell, directly or indirectly, a security to which the information relates, or that they may convey the information to another person who may buy or sell such a security, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or an offence punishable on summary conviction."

"(3) For greater certainty, an act is not an offence under this section if it is authorized or required, or is not prohibited, by any federal or provincial Act or regulation applicable to it.
 
"(4) In this section, “inside information” means information relating to or affecting the issuer of a security or a security that they have issued, or are about to issue, that (a) has not been generally disclosed; and (b) could reasonably be expected to significantly affect the market price or value of a security of the issuer."

Section 52 of the Criminal Justice Act 1993 (England) defines the offence of insider dealing as follows:

"(1) An individual who has information as an insider is guilty of insider dealing if, in the circumstances mentioned in (3), he deals in securities that are price-affected securities in relation to the information.

(2) An individual who has information as an insider is also guilty of insider dealing if he encourages another person to deal in securities that are (whether or not that other knows it) price-affected securities in relation to the information, knowing or having reasonable cause to believe that the dealing would take place in the circumstances mentioned in subsection (3); or he discloses the information, otherwise than in the proper performance of the functions of his employment, office or profession, to another person.

(3) The circumstances referred to above are that the acquisition or disposal in question occurs on a regulated market, or that the person dealing relies on a professional intermediary or is himself acting as a professional intermediary."

Research and Further Reading:

• Criminal Code of Canada R.S.C. 1985, c. C-46, published at canlii.org/ca/sta/c-46/
• US v O'Hagan 521 U.S. 642 (1997), published at supreme.justia.com/us/521/642/case.html