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. What's the difference between insider trading and insider information?

    Learn about insider information and insider trading and the differences between the two; both involve nonpublic information ... Read Answer >>
  2. What exactly is insider trading?

    An "insider" is any person who possesses at least one of the following: 1) access to valuable non-public information about ... Read Answer >>
  3. How often should I measure my company's key performance metrics (KPIs)?

    Learn the definition of illegal insider trading while reviewing the people who can be involved and the regulations and consequences ... Read Answer >>
  4. Can you accidentally engage in insider trading?

    Learn why it's possible to commit insider trading by accident, and why insider trading laws create logical inconsistencies ... Read Answer >>
  5. A CFA Member or Candidate may be justified in disclosing confidential information ...

    The correct answer is: D) While acknowledging the importance of preserving confidentiality (and sensitivity of financial ... Read Answer >>
  6. What is the difference between wash trading and insider trading?

    Explore the differences between two trading practices, wash trading and insider trading, and find out why these practices ... Read Answer >>
Related Articles
  1. Trading

    Defining Illegal Insider Trading

    The better you understand why insider trading can be criminal, the better you'll understand how the market works.
  2. Investing

    Explaining Insider Trading

    While often associated with illegal activity, insider trading actually encompasses both illegal and legal trading of securities.
  3. Trading

    What Investors Can Learn From Insider Trading

    Some insider trading is actually legal - and can be extremely telling for investors.
  4. Investing

    When Insiders Buy, Should Investors Join Them?

    Insider tracking can inform your investment strategy, but it requires research and a level head. Find out what to look for.
  5. Financial Advisor

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  6. Investing

    Keeping An Eye On The Activities Of Insiders And Institutions

    These transactions reveal much about a stock. We go over what to consider and where to find it.
  7. Personal Finance

    Insider Selling Isn't Always A Bad Sign

    Predated trades at regular intervals can instill confidence, not fear, for investors.
  8. Trading

    Can Insiders Help You Make Better Trades?

    Find out why the trading activity of owners and executives can be a valuable trade-confirmation tool.
  9. Personal Finance

    Buy Stock With Insiders: How To Track Insider Buying

    Insider buying can be a sign that a company's stock prices will soon rise. Here's how to keep track of insider buying on public databases and websites.
  10. Investing

    The Viability Of Tracking Insiders

    Insider trading use to be profitable, but can it be today? Learn if investors should be paying attention to insiders.
RELATED TERMS
  1. Leakage

    A situation in which capital, or income, exits an economy, or ...
  2. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
  3. Insider Buying

    The purchase of shares of stock in a corporation by someone who ...
  4. Confidential Treatment Application

    A form filled out in accordance with a company's 8-K, 10-Q, ...
  5. Material Insider Information

    Material information, about certain aspects of a company, that ...
  6. Signaling Approach

    The idea that insiders have information not available to the ...
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center