You enter the school spelling bee. And so does your older brother Sam, who's the top-notch linguist in the country. Should you be treated the same? Not fair, is it?
It works the same with securities. When it comes to trading, buying, or selling stocks and other securities, people working inside a company have a leg up when it comes to knowledge of their own company's performance. Why? Because they have special insider information. These people—including C-level officers and board members—are considered affiliated persons, and they have to follow a bunch of extra laws. If these types own more than 10% of their own company's securities, they're considered affiliated investors, and they face even more restrictions.
It all helps level the playing field between insiders and you, the average Joe or Jane investor. Fair? Definitely.
Related or Semi-related Video
Finance: What is an Affiliated Person or...3 Views
finance a la shmoop - What is an affiliated person or affiliated investor
ah Phil he eight ed.. affiliated meaning with or connected to or legally
conjoined at the hip that's affiliated well why does the concept even matter or
exists in finance land well because too many times in the dark [Ancient ornament appears]
days before the SEC was invented family members seemed to always get spectacular
breaks in knowing just when to buy stock right before the big merger happened
well the SEC took notice and basically declared that affiliated people like
family members or people living under the same roof or connected in various
and sundry other you know close means well all of them would be treated more [The Daily Shmoop newspaper page]
or less as the same person as far as the law was concerned they created this
notion of an affiliate so that Joe Sixpack would have at least as fair a [Joe Sixpack appears]
chance to get positive investment returns at least as close as you know
the the close-knit cousin living in the guest home of the CEO of whatever
dot-com only back then it was just called whatever simply said if you're an
affiliate of an insider ie someone who can't just buy and sell shares of a
given company whenever they want because they have inside knowledge then you the
affiliate are legally treated as if you yourself are the insider that's an [Insider and affiliate side by side]
affiliate so don't let what happen to Phil happen to you [Phil standing behind bars]
Up Next
What is Asymmetric Information? The idea of asymmetric information applies to basically all transactions. It exists in the financial world because...
What is insider trading and the Securities Fraud Enforcement Act of 1988? It's nothing too complicated, if this minute long video is any indication.
How does a board of directors function? Public companies, as well as some private corporations and non profit groups, have a board of directors. Us...
What is an Associated Person? An associated person is just an employee of a broker or a dealer that are involved in trading. These people must be c...