What is leakage?

By Justin Bynum AAA
A:

Leakage describes a situation where information is released to the public when it should have remained private. This is often referred to as "leaking information".

Most commonly, leakage takes the form of corporate insiders disseminating confidential information about publicly traded companies to outside investors. The investors then use the information to profit illegally from the non-public intelligence by buying, selling, or shorting the company's corresponding securities. Additionally, leakage may take the form of former employees using private information to maliciously punish their former employers or the form of company executives leaking confidential information to securities firms and/or the press as a way to manage expectations.

While leakage traditionally has been intentional, in the information age, it has taken on a less insidious, although equally harmful, form. The accidental dissemination of confidential data by careless employees, faulty technology, poor infrastructure and lax business practices all constitute leakage. Whatever the cause, leakage is unseemly, at best, and criminal, at worst.

To read more about insider knowledge, check out Uncovering Insider Trading and Defining Illegal Insider Trading.

This question was answered by Justin Bynum.

RELATED FAQS

  1. How do regulators ensure that markets are conducted at arm's length?

    Learn about arm's length transactions and how the Investment Advisers Act allows stockbrokers to sell securities based on ...
  2. What's the difference between legal defalcation and illegal defalcation?

    Discover what is meant by the term ''defalcation'' and how it can be used in multiple contexts to describe illegal or legal ...
  3. What was the Mahonia company and why did it become the subject of a lawsuit?

    In 1992, J.P.Morgan went into the energy trading business by creating a venture company called Mahonia Limited. At least, ...
  4. What are the dangers of using the Electronic Federal Tax Payment System (EFTPS)?

    The Electronic Federal Tax Payment System (EFTPS) is a convenient way to file your taxes, but you need to be aware of some ...
RELATED TERMS
  1. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  2. Banker Trojan

    A malicious computer program designed to gain access to confidential ...
  3. Black Market

    Economic activity that takes place outside government-sanctioned ...
  4. Bear Raid

    The illegal practice of ganging up to push a stock's price lower ...
  5. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  6. Financial Shenanigans

    Acts or actions designed to mask or misrepresent the true financial ...

You May Also Like

Related Articles
  1. Economics

    America's Most Notorious Corporate Criminals

  2. Investing News

    Educating Your Clients About Cybersecurity

  3. Investing News

    How The Patriot Act Works & Why Is It ...

  4. Insurance

    What You Need To Know About Insurance ...

  5. Markets

    What Investors Can Learn From Insider ...

Trading Center