Trading on Secrets? Here’s What You Need to Know About Insider Dealing 

Understanding Insider Dealing: Trading on What Others Don’t Know

Imagine knowing tomorrow’s headlines today – and then using that knowledge to make a profitable trade before anyone else has a clue. This is exactly the kind of unfair advantage that insider dealing involves.

Insider dealing happens when someone buys or sells an asset based on material, non-public information (“MNPI”) – in other words, information that hasn’t been shared publicly but could impact the price of an asset. Using such information for personal gain undermines the principle of fair and open markets.

While insider dealing is strictly regulated today, this wasn’t always the case. In the early days of Wall Street, insider dealing was common and legal! Before the introduction of formal market regulation in the 1930s, corporate insiders regularly used confidential information to their benefit. It wasn’t until after the 1929 stock market crash – partly fueled by unchecked manipulation – that laws were put in place to curb these practices in an effort to restore public trust.

Today, insider dealing is prohibited in most jurisdictions because it undermines the integrity of financial markets. It allows a small group of people to profit unfairly, while everyday investors are left in the dark. In crypto – just like in traditional finance – ensuring fair and open markets starts with preventing insider dealing, which hinges on three key questions: 

  • Who counts as an “insider”? 
  • What kind of information is considered “material”? 
  • What is “non-public” information?

Insider Status: It’s Not Just the C-Suite

The term insider isn’t limited to executives or directors. An insider is any individual who has access to MNPI due to their role, responsibilities, or relationship with a project or company.

Insiders can include:

  • Employees at any level, including temporary or contract staff
  • External parties such as consultants, lawyers, accountants, or auditors
  • Individuals who gain access to MNPI through unauthorized means, such as hacking
  • Friends or family members who receive a “tip” and trade on that information

What matters is not the person’s title or affiliation, but rather:

  • Whether they had access to MNPI
  • How they obtained it
  • Their obligation to keep it confidential

What is Material Information?

Material information is any piece of information that could influence someone’s decision to buy or sell an asset. If it has the potential to move the market, it’s probably material.

This could include:

  • Major partnerships, mergers or acquisitions;
  • Significant changes in a project or company’s leadership;
  • Launching a major new product, receiving regulatory approval, or changes to an existing product.

In short, if the average investor would want to know about it before making a trading decision, it’s probably material. 

What Is Non-Public Information?

Non-public information – sometimes called inside information – is information that hasn’t been shared publicly and isn’t available through typical research or public sources.

To be considered inside information, it must be precise – meaning it describes something that’s either already happening or likely to happen, and it gives enough detail to reasonably predict how it could move the market.

Put simply, if a trader has access to information that isn’t available to the public – it likely qualifies as non-public.

Insider Dealing: A Quick Recap

At its core, insider dealing means trading an asset based on MNPI.

Insider dealing can take many forms, including:

  • Trading by insiders who possess MNPI.
  • “Tipping off,” where someone shares MNPI with another person who trades on it.
  • Misappropriation, when people outside an organization gains access to confidential information and uses it to trade.

It’s not just about who you are – it’s about what you know, how you got that information, and whether it’s public. 

Insiders Can Trade – Here’s When It’s Okay

Yes – insiders can trade, as long as it’s done the right way.

Being an insider doesn’t automatically mean you’re barred from trading. In fact, it’s common (and legal) for employees, executives, or major shareholders to trade assets – as long as they’re not using MNPI to do so.

The key difference lies in what the insider knows at the time of the trade and whether that information was available to the broader market

So yes, insiders can trade, but only on a level playing field, where everyone else has access to the same information. 

Martha Stewart and the Cost of a Tip-Off

One of the most high-profile cases of insider dealing in recent memory involved media personality Martha Stewart.

In 2001, Stewart sold nearly 4,000 shares of a biopharmaceutical company called ImClone Systems, after receiving a tip from her broker that the company’s CEO had sold all his shares. This occurred just before the FDA publicly rejected a key drug application, causing the stock price to plummet by 16%.

Although Stewart was not convicted of insider dealing specifically, she was found guilty of obstruction of justice and false statements during the investigation and served prison time. The case illustrates how even indirect access to MNPI can lead to serious consequences.

Kraken’s Efforts to Help Prevent Insider Dealing

At Kraken, we take active steps to provide fair, transparent, and compliant markets and to prevent insider dealing through policy, technology, and organizational controls.

We’ve developed an Insider Dealing Policy Framework designed to encourage ethical conduct and support adherence to applicable standards. This framework sets clear expectations for anyone at Kraken who handles confidential information, helping to prevent the misuse of MNPI. It also reflects our broader effort to support a trading environment that is as fair and trustworthy as possible.

In practice, this means:

  • Using confidential information for personal advantage is not permitted. All individuals are expected to act with integrity and avoid any behavior that could be considered misuse of non-public information.
  • Sharing sensitive information in a way that could influence others to trade is also not allowed. Whether directly or indirectly, encouraging others to act on confidential information compromises market fairness.
  • Fairness and transparency are core values. All activity should reflect sound judgment, and any potential conflicts of interest should be handled appropriately in line with internal policies and expectations.

Lastly, Kraken operates a dedicated market surveillance team that monitors trading activity for signs of market abuse, including insider dealing. 

Whether you’re an individual trader or institutional participant, you can trade confidently on Kraken knowing we’re actively working to detect and deter unfair practices, and to support a secure, transparent trading environment.