Let me posit the following scenario:
 Assume that insurance stocks fall every time there is a damage-causing earthquake.
 If I'm a seismologist, or friendly with one, and with the equipment,
I see an uptick in activity that presages an earthquake.  So I use
that information to short-sell the stocks of insurance-based property
and casualty insurers.
 Is this considered a form of "insider trading?"

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Clarification of Question by pcventures-ga on 29 Dec 2003 06:38 PST

I meant to say, "California-based insurers"

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Clarification of Question by pcventures-ga on 29 Dec 2003 11:41 PST

Very helpful comments, folks!  Thank you VERY much... :)

Sounds like a great idea.

Go for it!

If the seismologist is a government employee, it would probably be
considered improper use of government information for personal gain --
not quite insider trading, but an information-related offense just the
same.

Other than that, though, since the seismologist isn't "inside" the
insurance company or directly involved with it in any way, it's hard
to see how this could be construed as insider trading.

pcventures-ga,

While my advice is not to be taken as legal advice, as far as I know,
in the stock market, "inside information" refers to inside the
company. In other words, if you knew through your sister who works at
insurance company A that they were being acquired by B, and thought
that A's shares would rise as a result of the announcement, and you
acted on that info, that's illegal insider trading.

However, acting on outside forces that you personally predict through
your educated guess will have an adverse affect on a company's bottom
line in the near future is not "inside" info.

For all its good, the science of predicting earthquakes, as with
meteorology,  is far from perfected. Just as futures traders
speculating in coffee or orange markets would seem to benefit from
being meteorologists, this information is not "inside" the company,
therefore not illegal.

Besides, anyone who's willing can call the seismology lab at Cal Tech
and ask for the latest reports. It's scientific data that's made
available to the scientific community, it's not a closely guarded
secret, is it? Even if it is, it's not "inside" info as far as the
securities markets are concerned.

Hope this helps,

omniscientbeing-ga

pafalafa-ga and omniscientbeing-ga are correct, "insider trading" is
when someone who is inside a company, with access to information that
is not available to the stock-trading public, acts on that
information. In the past, "insider" referred primarily to the
officers/executives of a company only, as it was viewed that they were
the only ones in a position to know and influence the course of the
company. These days, as a result of a lot of the stock market scandals
that have been occurring, the definition of 'insider' is broadening to
include even middle-level managers in departments such as Finance,
Logistics, Engineering, and so on. Basic rule: if you are in a
position to know something that an equally capable person outside of
the company is not privy to, then acting on that information would be
considered insider trading.

If you are outside the company, and come across information that
causes you to act in the stock market, then that makes you simply a
good researcher. :)

aht-ga