Reed bill seeks clearer federal insider trading rules

• Key takeaway: The bill, dubbed the Insider Trading Prohibition Act, would clearly define insider trading.
• Expert quote: "This legislation provides a clear definition of insider trading, with appropriate safety valves, that will help protect the investing public." — Sen. Jack Reed, D-R.I.
• What's at stake: There is no standalone federal statute specifically banning insider trading. Instead, courts have filled in the gaps by interpreting what constitutes insider trading. 

A group of lawmakers led by Sen. Jack Reed, D-R.I., introduced a bill aimed at cracking down on securities fraud by establishing a clearer definition of insider trading. 

The bill, dubbed the Insider Trading Prohibition Act, would amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by people who possess material, nonpublic information. 

"Insider trading puts the average investor at a disadvantage and reduces both public trust and confidence in our markets," Sen. Reed said in a statement. "This legislation provides a clear definition of insider trading, with appropriate safety valves, that will help protect the investing public. Sharpening the definition of insider trading will clear up ambiguity in the law and help repair a broken system."

The bill's goal would be to clearly define what constitutes insider trading, a phrase that is well understood generally but is hazily defined legally. Reed's bill would change that. "If a person trades a security on the basis of information that the person is aware is material and nonpublic and is aware was wrongfully obtained, then that person has engaged in unlawful insider trading," Sen. Reed's office wrote in a statement.

The bill comes as President Donald Trump has offered market participants early access to posts on his Truth Social platform through a $100,000 monthly subscription. Trump has used the site to announce market-moving information, including updates on tariffs and the war with Iran. 

Though the early access is measured in milliseconds, it would give traders a decided advantage and could also give certain businesses an advantage in making investment decisions. Reed has argued that the subscription service amounts to insider trading, saying it would allow some market participants to receive information before it becomes publicly available. 

Reed noted that there is no standalone federal statute specifically banning insider trading. As a result, courts have filled in the gaps by interpreting what constitutes insider trading, creating "an unnecessarily complex, inconsistent and uncertain legal standard." 

"In the absence of a statutory definition, an inconsistent and complicated body of common law – an accumulation of cases and judicial precedents – has developed as the courts have used varying interpretations of anti-fraud statutes in order to decide insider trading cases," he added.

The bill would not prohibit trading based on information that a person independently develops from publicly available sources.

"We do not intend to restrict those who take the time to independently develop their own information from publicly available sources from trading on the independently developed information," Reed added.

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The bill was co-sponsored by four other Democratic senators, including Sens. Chris Van Hollen, D-Md, Andy Kim, D-N.J., Angela Alsobrooks, D-Md., and Lisa Blunt Rochester, D-Del. It was referred to the Senate Committee on Banking, Housing and Urban Affairs on Aug. 4. 

Separately, Sens. Adam Schiff, D-Calif., and Elizabeth Warren, D-Mass., sent a July 28 letter to Securities and Exchange Commission Chairman Paul Atkins requesting an investigation into the Truth Social subscription offer and whether it violates securities laws. 

"This appears to be an outrageous abuse of the President's office for his personal benefit that undermines everyday investors and the integrity of our markets, while enriching Wall Street and other wealthy insiders," the lawmakers wrote. 

Atkins was nominated by Trump in January 2025 and confirmed by the Senate on April 9, 2025. He was sworn in as SEC chairman on April 21, 2025.

Since taking over as chairman, Atkins has pushed for regulatory changes aimed at encouraging companies to enter and remain in the public markets. In May, the SEC proposed allowing public companies to file semiannual reports instead of quarterly reports, though the proposal remains subject to public comment and has not yet been finalized.