Question of the Week: Can I buy stock in the company I work for? Part II

Last week in Part I of this topic we looked at what an insider was and what it meant to conduct insider trading.

Now we’ll look more closely at our question to see how a regular employee of a company can legally purchase stock in that company.

As we said last week, anyone classified as an ’insider’ must disclose any purchase or sale of company securities. But what about staff that would not be classified as an insider. For example, what about a front-line worker at a larger company? If I’m a salesman at a car company can I buy stock in that company? The answer is yes, as long as the company does not have a policy that forbids the purchase and sale of company securities by employees during certain time periods. Anyone can check with the corporate/general counsel of the company to see if there is a company policy regarding the buying and selling of securities.

A regular employee can purchase stock in the company through a brokerage account. It may not always be that simple though. What if the employee is at work one day and they become privy to a material change or material fact about that company that has not yet been made public?

A material change may include: a change in the business, operations or capital of the issuer would reasonably affect the price of the security. A material fact would have significant effect on the market price or value of the security.

For example, an employee may be told the company will be laying off some employees, closing stores, or a scandal is about to erupt that has not yet been made public and is material. If the employee were to use this material non-public information as a basis to buy or sell stock in the company, it could be considered insider trading.

Before purchasing stock in the company you work for, staff of the commission recommends you consult with a securities lawyer or the company’s general counsel to see if you qualify as an insider. If this is the case you will need to disclose your trades on SEDI. You should also be aware that any information that could be a undisclosed material change or material fact about the company that you learn about must be made public before it a can be acted on.