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Definition: Open-Market Transaction
Open-market transactions are transactions involving the buying or selling of shares in the open market by an insider - a person with inside information of a firm, after following relevant rules and regulations as mandated by the Securities and Exchange Commission (SEC). Investors can track insider sentiments by analysing such open market transactions to predict future movements in stock prices. As insiders possess critical information that is unavailable to the general public, tracking open-market transactions is an important tool in analysing securities.
An insider, as defined by the SEC, is an individual who is an officer or director of a listed company or one who owns % or more of the company’s stock. The SEC mandates insiders to report their transactions in the company’s shares by filing relevant details on the SEC EDGAR (Electronic data gathering, analysis and retrieval) system. These filings become public knowledge in a timely manner and are available in the SEC’s website and financial newspapers.
Investors can track and learn about the insider’s intentions via the relevant forms filed by the insider that reflect the insider’s actual purchases, sales and the intention to sell. Such insider information can give pertinent clues such as the insider’s reason for buying or selling of shares, the unloading of a large number of shares in the open market, the position of the insider in the firm and the volume of the transactions. Such information can act as useful signals to investors to learn about the company and enable them to predict future movements in the stock’s price.
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