There has been a great amount of debate about what constitutes illegal insider trading. SEC has the definition here.
In light of the current news about the health of Steve Jobs, Apple’s CEO, I wonder whether the insider trading done using this information will be illegal. For example, if the doctor treating Jobs advises immediate rest and withdrawal from all the activities, then goes out and shorts the Apple stock, would that be illegal insider trading? It seems that SEC doesn’t require companies to disclose information about their CEO’s health. Considering this, one could argue that SEC doesn’t regard this information as “material.” If so, can trading on such information be illegal? The graph below shows a huge drop in AAPL yesterday morning, which could have been exploited by the people aware of Jobs’s health.
Here is a recent article about disclosure of CEO health.