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. 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 >>
  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. In what areas does adverse selection exist in the stock market?

    Read about some of the types of adverse selection in the stock market, whether that includes insider trading, and how intermediaries ... Read Answer >>
Related Articles
  1. Insights

    Should Insider Trading Be Legal?

    Insider trading has become a hot-button issue. Here are some of the pros and cons to making it legal.
  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. Trading

    How The SEC Tracks Insider Trading

    We look at how the SEC tracks and tries to stop insider trading - a seemingly impossible task.
  5. 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.
  6. Investing

    SEC Allowing Too Many Secrets On Wall Street

    Confidential treatment orders allow corporations to avoid disclosure and protect their secrets, but are they too easily granted?
  7. 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.
  8. Trading

    The Truth About Insider Trading

    Allowing insider trading to go unchecked could hurt confidence in the system enough to hinder the economy in general.
  9. Personal Finance

    Standards And Ethics For Financial Professionals

    Scandals and fraud have given financial professionals a black eye. Learn how to avoid typical ethical dilemmas.
  10. Investing

    What is Market Value?

    Market value is the price of an asset that is traded or offered for sale in a public forum where multiple buyers are allowed to make offers to buy that asset.
RELATED TERMS
  1. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
  2. Material Insider Information

    Material information, about certain aspects of a company, that ...
  3. Confidentiality Agreement

    A legal agreement between two or more parties that is used to ...
  4. Signaling Approach

    The idea that insiders have information not available to the ...
  5. Non-Disclosure Agreement - NDA

    A legal contract between two or more parties that signifies a ...
  6. Insider

    A director or senior officer of a company, as well as any person ...
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  3. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  5. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  6. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
Trading Center