A new study suggests insider trading by company directors trading on the Australian Securities Exchange (ASX) is rife.

Key points: The study suggests company directors are illegally using inside information to profit on the ASX

The study suggests company directors are illegally using inside information to profit on the ASX A significant number of directors were found to have made trades against the flow of the market

A significant number of directors were found to have made trades against the flow of the market ASIC says the findings are based on a different concept of what constitutes inside information

Insider trading is illegal, and takes place when investors use company information — not generally available to the public — to make money on a share market trade.

Stockbroker Marcus Padley has been trading on the market for decades. He doesn't sit on any boards, but he has no doubt that most company directors make share trades with the help of knowledge that's not available to the rest of the market.

"Of course directors have inside information — it's unavoidable," he said.

Now a study from the Australian National University suggests directors are illegally using this information to profit.

The ANU looked at 50,000 directors' trades on the ASX from 2005 to 2015 and concluded insider trading is "rife".

The study found a "statistically significant" number of directors were making trades against the flow of the market immediately after a market-sensitive company announcement.

"I find that there is significant buying pressure by directors following bad news, and I find there is a lot of selling pressure following good news," lead researcher Dean Katselas told AM.

Bellamys CEO sold shares together on 17/3/16 and 26/8/16 worth $8.4m. The purchase and immediate sale of 832,194 shares bought at 100c (presumably through 100c options) and sold at 670c by the CEO on 9/9/15 netted a profit of $4.7m. In total the CEO has netted around $12.2m through sales. ( Source: Marcus Today )

He says directors are using their intimate knowledge of a company, and buying shares after a negative news announcement, for example, confident the share price will improve (after a fall) because they know the company has other growth opportunities.

"So what I'm suggesting is, there is some evidence there that directors are potentially trading on information that they have that the public does not," he said.

"The question that must be asked is 'is this sort of thing desirable?'

"If they are indeed doing this, and if it is beyond a level that we would consider acceptable, we must ask the question, whether it is desirable?"

The ANU's research shows the practice is most common in mining companies, but it can also be seen across all sectors, including healthcare, pharmaceuticals, consumer and other services.

The ABC asked the market regulator ASIC to respond to the findings.

Healthscope: 1.4 million shares sold worth $4.27m on 31/8/16 at 305 cents. ( Source: Marcus Today )

In a statement, an ASIC spokesperson said "ASIC actively monitors trading for misconduct, including market manipulation and insider trading."

"Based on a brief look at the research by Dr Katselas, his view appears to be based on a very different concept of what constitutes 'inside information' and 'insider trading' than applies in any comparable market anywhere," the statement said.

For his part, Mr Padley accepts the findings of the study but says it is impractical to ban directors from trading on inside information.

"In which case you'd have to ban all trading by directors which would be just ridiculous," he said.

"I think more the issue here is that the stock market has become very nasty in the short term, very non-value orientated, very momentum and news-driven, and if directors want to take advantage of that, and tell us that they are doing so, then I think that's a great piece of information.

"And rather than punish them for it, I would say we probably ought to just respect it."