Excerpted from (OSC) Investor News. Tipping is closely related to illegal insider trading (commonly known simply as "insider trading"). In general, insider trading involves buying or selling a security of a public company with knowledge of material information about the company that has not been publicly announced. This is known as "material undisclosed information". An example is a proposed merger with another company that has not yet been publicly announced.

Tipping generally means giving someone else material undisclosed information. It can occur in person, by phone, through the mail, by e-mail or on the Internet.

It is generally illegal for anyone in a "special relationship" with a company to trade on or tip material undisclosed information. It is also illegal to act on a tip. This includes passing the tip onto a third party (like your spouse or a friend) who then trades on the information.

Insider trading and tipping are illegal because investors who have access to material undisclosed information can gain an unfair advantage over other investors. They have the opportunity to trade ahead of company news and make money or prevent a loss before the information is made public. This compromises the integrity of the market because it creates distrust and an unwillingness to invest by the general public.

Besides people who are directly involved with running the company, such as directors and senior officers, people with a special relationship to the company include major shareholders, accountants, lawyers and investment bankers. It also includes service providers who have access to material undisclosed information, such as printers, technical support staff and administrative staff.

Securities regulators use sophisticated market surveillance systems to help detect insider trading and tipping. These systems look for unusual changes or patterns in trading volumes and share prices. In some cases, securities regulators receive a complaint or information from the public.

Insider trading and tipping are serious offences. Those found guilty in Ontario can be fined up to $5 million, jailed for up to five years less a day or banned from trading in securities.

What do you do if you get a stock tip?