What constitutes insider trading?

Insider trading refers to the buying or selling of a security based on non-public, material information about a company. This concept is crucial in the financial industry because it undermines the integrity of the market by giving an unfair advantage to those who possess confidential information not available to the general public. This non-public information could include earnings reports, news of a pending merger or acquisition, or any other significant developments about the company that could influence the stock price.

The rationale behind prohibiting insider trading is to maintain a level playing field for all investors. When people trade on insider information, they can potentially profit at the expense of other investors who do not have access to such information, which can lead to a loss of confidence in the fairness of the securities markets.

In contrast, the other options describe scenarios that do not constitute insider trading. For instance, publicly sharing material information does not create an unfair advantage since it is accessible to all investors. Similarly, buying or selling based on public information is part of ordinary trading practices that everyone can utilize. Trading based on market trends and analysis relies on publicly available information and established methods rather than confidential insights.