A bill that would define illegal insider stock trading as the "wrongful use or wrongful communication" of material nonpublic information is scheduled to be introduced tomorrow by two members of the Senate Banking Committee, sources familiar with the bill said yesterday.

Current law provides no formal definition of insider trading. Federal law-enforcement officials have relied on broad securities fraud statutes to bring cases in this area, largely allowing courts to create a working definition.

The bill, drafted by a committee of securities law experts headed by Washington attorney Harvey Pitt, is a response to longstanding criticism that the government should not bring insider trading cases without first defining the crime. Despite support in the Senate, the bill faces opposition in the House, where John D. Dingell (D-Mich.) opposes a definition on the grounds that it would provide a road map for those eager to violate the spirit of the law by finding loopholes.

The bill is expected to be introduced by Sens. Alfonse M. D'Amato (R-N.Y.) and Donald W. Riegle (D-Mich.).

Under its terms, wrongful use would refer, for example, to trading stocks on the basis of confidential information about an upcoming corporate takeover.

Wrongful communication would refer to tipping someone else who trades.

Both tipper and tipee would be liable for criminal and civil prosecution under the bill.

One of Dingell's objections to a definition is that it would restrict the Securities and Exchange Commission's ability to prosecute Wall Street professionals and others who trade stocks on the basis of inside information.

To avoid that pitfall, sources said, the bill seeks to incorporate the legal theories under which the SEC has been bringing its cases and also gives the SEC authority to make rules in the future to clarify the statute.

Sources said the bill defines as wrongful the use or communication of information that has been obtained directly or indirectly through theft, misappropriation or breach of any fiduciary, contractual, employment, personal or other relationship of trust or confidence.

There is a "use presumption" in the bill that says that anyone in possession of inside information who trades stock is presumed to have done so on the basis of that information, sources said.

In the past, there has been a legal debate over the distinction between possession of the information and its use, which may have hampered government investigations.

The bill would put the burden on individuals who have inside information to refute the presumption that they relied on it when they traded.

However, it would apply a lesser standard to Wall Street firms, if it can be established that the trading was not influenced by or made by somebody in possession of inside information.

In that regard, the existence of "Chinese Wall" policies governing the sharing of sensitive information inside firms would be taken into account, sources said.

For Wall Street firms, one of the major issues addressed in the bill is the question of liability for employe acts.

The bill states that if the firm does not receive any profits or other benefits from the illegal trading, the employer does not have liability.

In regard to the relationship between tippers and tippees, the bill says a tipper could be acting illegally in providing inside information whether or not he knows that the information has been used for trading.

Likewise, the tippee would be liable if he traded on information he knew or should have known was improperly obtained.

Both tipper and tippee would be liable under the bill -- as under existing law -- to civil penalties of up to three times the amount of any stock trading profits. The tipper would not need to trade himself to be liable for the profits of the tippee.

There is a specific provision in the bill that would prohibit leaking information about an upcoming offer to buy stock, known as a tender offer, beyond the immediate bidding group and its advisers.

A bidder who tips professional stock traders, known as arbitrageurs, to put stock in friendly hands before a tender offer would be in violation of the law under this provision.

Finally, the bill gives investors who sell their shares the right to sue those who were buying stock on the basis of inside information at the same time.