"Insider trading basically comes down to where you know or ought to know that the person from whom you're getting this information has a duty to someone else to keep it confidential," said Paul Atkins, former commissioner for the SEC. "If you go in and pay the mail clerk to give you special information, that's not proper."
It doesn't matter if you're paying for it or not or even if the information should be confidential. Insider Trading is acting upon ANY material non-public information. In other words, anything a person hears or knows that is not public, and could be material to stock price, is not allowed to be acted upon by any broker in anyone's interest.
Suppose I work for a company that supplies parts for the iPad and my wife and I have decided we're going to sell $40,000 of our Apple stock to put in a swimming pool in the backyard. Then consider the following two scenarios:
1. I go to work and find out iPad production is being significantly ramped down due to slow sales. This is "insider" information and the poor sales information, when made public, is likely to affect Apple's share price. No worries, I've already decided to sell to finance the pool, but does having that information now make my sale suspect? How do I prove intent? What if my next door neighbor is the one with the Apple stock and is putting in the pool. If I tell him, are we both now guilty of insider trading? What if it's my son and daughter-in-law?
2. I go to work and find out iPad production is being significantly ramped up due to blowout sales and possibly a next generation iPad coming out the next quarter. Again, I have "insider" information, only this time I go home and tell my wife we should wait a few months before selling and she agrees. In this case the insider information has clearly affected my sell decision, but there's no way for anyone to know. And if it's my neighbor putting in the pool and I tell him, no one can prove it in that case either.
You can construct a million scenarios like this. No one is going to care when we're talking $40,000, but if my neighbor happens to run a mutual fund, now it matters. You can't stop that kind of information flow unless you can get inside people's heads and discern intent. Contractually a worker can sign non-disclosure statements, and if the company finds he is leaking information take appropriate legal action.
The system will never be perfect. We should demand transparency at every opportunity, but if the company is secretive in the interest of increasing shareholder value, then they're doing the right thing. Being secretive is one thing, being dishonest is another.
Scenario #1: Technically, that's insider trading if you go ahead and sell the stock without waiting for that materially significant news to become public. As for your neighbor, it would hold for him/her, too. You likely wouldn't have any liability for telling him unless you did it specifically to aid his financial well-being.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
Let's not kid ourselves... this relatively minor stuff goes on all the time. It's when an analyst gets involved it draws the attention of the authorities as the effects can be massively multiplied.
It doesn't matter if you're paying for it or not or even if the information should be confidential. Insider Trading is acting upon ANY material non-public information. In other words, anything a person hears or knows that is not public, and could be material to stock price, is not allowed to be acted upon by any broker in anyone's interest.
Correct. The key words are, material and non-public.
I have no idea what the (former) Commissioner guy was saying!
Scenario #1: Technically, that's insider trading if you go ahead and sell the stock without waiting for that materially significant news to become public. As for your neighbor, it would hold for him/her, too. You likely wouldn't have any liability for telling him unless you did it specifically to aid his financial well-being.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
Let's not kid ourselves... this relatively minor stuff goes on all the time. It's when an analyst gets involved it draws the attention of the authorities as the effects can be massively multiplied.
I agree this is an example of a relatively minor event. The point is action and non-action can be difficult to differentiate. In the first case, my employment by the company is specifically harming my financial well-being if I choose to hold on to the stock - seems unfair. In the second case I would argue there are three actions - buy, sell, HOLD. I'm choosing HOLD (with the intent to sell later). Clearly not honest, but as you say, not insider trading.
Finally, if my neighbor is a stock analyst, and I mention my insight at a backyard barbeque, he's going to act on it. I think this is not uncommon. I am trying to point out the futility of monitoring for impropriety (and getting a conviction) other than for significant manipulations.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
More at his original quote than yours on scenario 2, actually it is considered profiting from MNPI and could result in you losing your license if you're a broker even in these limited personal circumstances. It's also wrong, so don't confuse getting caught with doing something wrong.
Saying 'everyone does it a little bit' is both untrue and no valid defence even if it were. I have to have ALL of my personal trades reviewed and signed off, and things like 'holding on a little longer' usually are found out, especially if you have a pattern of trading.
For example, if you typically buy and then sell after a 15% gain, but with one security you wait for a 25% gain, that might be looked into and it really doesn't take much to link you to information given. For people who work in the securities industry, this is a very serious matter and it's really not worth the risk for a couple of cents on the dollar for a small personal trade.
The financial industry is the worst of all for puking out confusing and pretentious uses of English. And I love how wanting to read simple, clear communication whose point is easily to establish without reading half a dozen times is now "anal."
The AI headline is incredibly confusing for people who speak normal English. The financial industry doesn't fall in that category.
On topic, I wonder what the venerable Shaw Wu will do if the entire basis for his career becomes illegal?
It's funny because the SEC doesn't even know how to regulate much less is aware of a lot of stuff that is going on.
Just wait until they start talking about dark liquidity pools. I bet that will come up when the SEC figures out it exists. That is even worse for the individual trader. Basically, large brokerages take in vast order flow- especially on some stocks (could be anything electronically traded in fact) and they privatize that order flow by giving internal large/favored customers first shot at it before it goes onto the public market as long as they hook up (usually via FIX) to their data centers.
And the flash crash was caused by black box trading. Every firm now black box trades, and the real value coming out of that is a market for algorithms. You'll hear various large brokerages coming around shopping out their algorithm with a built in revenue for a commission. And that's commission on thousands of orders a day. Another product to come out of this is proximity trading.. where you rent space in a data center that houses the trade servers for NASDAQ, NYSE, etc with a low latency line to your office for purposes of controlling your trade server.
All kinds of stuff that makes it impractical for a sole prop trader to do much other than buy and hold and reliably make money.
The financial industry is the worst of all for puking out confusing and pretentious uses of English. And I love how wanting to read simple, clear communication whose point is easily to establish without reading half a dozen times is now "anal."
The AI headline is incredibly confusing for people who speak normal English. The financial industry doesn't fall in that category.
On topic, I wonder what the venerable Shaw Wu will do if the entire basis for his career becomes illegal?
Actually, the worst are those writers who like to throw French expressions into their articles which are written in English:
Pretty simple rules, if you have inside information you can't use that info to profit from the buying or selling of securities. What is insider information? Insider info is information that is not intended for public consumption, aka was not part of a press release. If you want to park outside a factory and count trucks, fine; if you want to pay an employee for info, not so much. In the first case at lease there is still room for guess work, in the second case the guess work is not there or if there are still guesses the mole can go back and confirm. To be clear, the amount of money that could be made either on insider info or manufactured insider info, is huge. There is nothing to say these guys are not getting insider info and using that through a network to buy options, then once the options are bought they can release the info as if it were all just reporting. To be fair not all analysts are the same, but either way, intent is difficult to prove for either side and the way the SEC is hounding fund managers, and those that work for funds, is sending a chilling message to insider traders.
To the question, what about those that sell insider info?... That would be unethical, and could cost them their job.
Those that use that info to profit from either buying or selling of securities, either directly or through a network... That would be illegal, and since most folks have 401Ks those illegal trades cost us all a little here and there.
Edit: I guess also the person that sold insider info would have some questions to answer if the person they sold to were convicted of insider trading. Akin to I pay you $100 to keep an eye on the store across the road and tell me the schedule of the owner, then I use that info to rob the owner. Either way maybe some rotters will go to jail and that will make investing better for all of us.
The one analyst that has nothing to worry about is Gene Munster. He has been wrong so many times that he could never be accussed of having insider info.
Not at all. They are not talking about information that Apple releases or authorizes. They are investigating information that analysts get from contacts on the sly. The article mentioned talking to mail clerk for info. This would also include talking to someone in a firm who supplies parts to apple to get an idea of Apple's build rate.
Contrary to what the Obama hater is trying to say, Apple is surely fine with this. They go through great trouble to keep production info secret...
It is pretty vague in my mind. Is Traffic Analysis at an Apple Store covered? What about parking lot analysis for suppliers? What about taking an IR Thermographic camera and scoping out a manufacturer's transformers in order to estimate time-of-day and relative period utility consumption to trend changes in total production rate?
All of those things can be done without trespassing, so they tend to be in the 'intelligence' realm rather than espionage. This would be a reasonable line to draw.
But, say you put together a single-blind panel of employees of various companies of interest and ask them questions. The accuracy of their information may be limited, and as long as they aren't disclosing 'privileged' information, what is wrong. Same goes for hiring iSupply to do teardown margin analysis for a product.
In terms of balancing out information for retail vs institutional investors, the little guy will always be at a disadvantage. The key is to limit the magnitude, duration, and accuracy of the differences.
Comments
"Insider trading basically comes down to where you know or ought to know that the person from whom you're getting this information has a duty to someone else to keep it confidential," said Paul Atkins, former commissioner for the SEC. "If you go in and pay the mail clerk to give you special information, that's not proper."
It doesn't matter if you're paying for it or not or even if the information should be confidential. Insider Trading is acting upon ANY material non-public information. In other words, anything a person hears or knows that is not public, and could be material to stock price, is not allowed to be acted upon by any broker in anyone's interest.
Suppose I work for a company that supplies parts for the iPad and my wife and I have decided we're going to sell $40,000 of our Apple stock to put in a swimming pool in the backyard. Then consider the following two scenarios:
1. I go to work and find out iPad production is being significantly ramped down due to slow sales. This is "insider" information and the poor sales information, when made public, is likely to affect Apple's share price. No worries, I've already decided to sell to finance the pool, but does having that information now make my sale suspect? How do I prove intent? What if my next door neighbor is the one with the Apple stock and is putting in the pool. If I tell him, are we both now guilty of insider trading? What if it's my son and daughter-in-law?
2. I go to work and find out iPad production is being significantly ramped up due to blowout sales and possibly a next generation iPad coming out the next quarter. Again, I have "insider" information, only this time I go home and tell my wife we should wait a few months before selling and she agrees. In this case the insider information has clearly affected my sell decision, but there's no way for anyone to know. And if it's my neighbor putting in the pool and I tell him, no one can prove it in that case either.
You can construct a million scenarios like this. No one is going to care when we're talking $40,000, but if my neighbor happens to run a mutual fund, now it matters. You can't stop that kind of information flow unless you can get inside people's heads and discern intent. Contractually a worker can sign non-disclosure statements, and if the company finds he is leaking information take appropriate legal action.
The system will never be perfect. We should demand transparency at every opportunity, but if the company is secretive in the interest of increasing shareholder value, then they're doing the right thing. Being secretive is one thing, being dishonest is another.
Scenario #1: Technically, that's insider trading if you go ahead and sell the stock without waiting for that materially significant news to become public. As for your neighbor, it would hold for him/her, too. You likely wouldn't have any liability for telling him unless you did it specifically to aid his financial well-being.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
Let's not kid ourselves... this relatively minor stuff goes on all the time. It's when an analyst gets involved it draws the attention of the authorities as the effects can be massively multiplied.
It doesn't matter if you're paying for it or not or even if the information should be confidential. Insider Trading is acting upon ANY material non-public information. In other words, anything a person hears or knows that is not public, and could be material to stock price, is not allowed to be acted upon by any broker in anyone's interest.
Correct. The key words are, material and non-public.
I have no idea what the (former) Commissioner guy was saying!
Scenario #1: Technically, that's insider trading if you go ahead and sell the stock without waiting for that materially significant news to become public. As for your neighbor, it would hold for him/her, too. You likely wouldn't have any liability for telling him unless you did it specifically to aid his financial well-being.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
Let's not kid ourselves... this relatively minor stuff goes on all the time. It's when an analyst gets involved it draws the attention of the authorities as the effects can be massively multiplied.
I agree this is an example of a relatively minor event. The point is action and non-action can be difficult to differentiate. In the first case, my employment by the company is specifically harming my financial well-being if I choose to hold on to the stock - seems unfair. In the second case I would argue there are three actions - buy, sell, HOLD. I'm choosing HOLD (with the intent to sell later). Clearly not honest, but as you say, not insider trading.
Finally, if my neighbor is a stock analyst, and I mention my insight at a backyard barbeque, he's going to act on it. I think this is not uncommon. I am trying to point out the futility of monitoring for impropriety (and getting a conviction) other than for significant manipulations.
Scenario #2: Not insider trading as you already owned the stock and you're not acting on the non-public info. "Acting" in this case means buying or selling and you chose to do neither.
More at his original quote than yours on scenario 2, actually it is considered profiting from MNPI and could result in you losing your license if you're a broker even in these limited personal circumstances. It's also wrong, so don't confuse getting caught with doing something wrong.
Saying 'everyone does it a little bit' is both untrue and no valid defence even if it were. I have to have ALL of my personal trades reviewed and signed off, and things like 'holding on a little longer' usually are found out, especially if you have a pattern of trading.
For example, if you typically buy and then sell after a 15% gain, but with one security you wait for a 25% gain, that might be looked into and it really doesn't take much to link you to information given. For people who work in the securities industry, this is a very serious matter and it's really not worth the risk for a couple of cents on the dollar for a small personal trade.
wow. this response is pretty funny
The AI headline is incredibly confusing for people who speak normal English. The financial industry doesn't fall in that category.
On topic, I wonder what the venerable Shaw Wu will do if the entire basis for his career becomes illegal?
Just wait until they start talking about dark liquidity pools. I bet that will come up when the SEC figures out it exists. That is even worse for the individual trader. Basically, large brokerages take in vast order flow- especially on some stocks (could be anything electronically traded in fact) and they privatize that order flow by giving internal large/favored customers first shot at it before it goes onto the public market as long as they hook up (usually via FIX) to their data centers.
And the flash crash was caused by black box trading. Every firm now black box trades, and the real value coming out of that is a market for algorithms. You'll hear various large brokerages coming around shopping out their algorithm with a built in revenue for a commission. And that's commission on thousands of orders a day. Another product to come out of this is proximity trading.. where you rent space in a data center that houses the trade servers for NASDAQ, NYSE, etc with a low latency line to your office for purposes of controlling your trade server.
All kinds of stuff that makes it impractical for a sole prop trader to do much other than buy and hold and reliably make money.
The AI headline is incredibly confusing for people who speak normal English. The financial industry doesn't fall in that category.
On topic, I wonder what the venerable Shaw Wu will do if the entire basis for his career becomes illegal?
Actually, the worst are those writers who like to throw French expressions into their articles which are written in English:
du jour
de rigueur
raison d'être
and so forth
To the question, what about those that sell insider info?... That would be unethical, and could cost them their job.
Those that use that info to profit from either buying or selling of securities, either directly or through a network... That would be illegal, and since most folks have 401Ks those illegal trades cost us all a little here and there.
Edit: I guess also the person that sold insider info would have some questions to answer if the person they sold to were convicted of insider trading. Akin to I pay you $100 to keep an eye on the store across the road and tell me the schedule of the owner, then I use that info to rob the owner. Either way maybe some rotters will go to jail and that will make investing better for all of us.
The one analyst that has nothing to worry about is Gene Munster. He has been wrong so many times that he could never be accussed of having insider info.
Holly shift, that's too funny!
Not at all. They are not talking about information that Apple releases or authorizes. They are investigating information that analysts get from contacts on the sly. The article mentioned talking to mail clerk for info. This would also include talking to someone in a firm who supplies parts to apple to get an idea of Apple's build rate.
Contrary to what the Obama hater is trying to say, Apple is surely fine with this. They go through great trouble to keep production info secret...
It is pretty vague in my mind. Is Traffic Analysis at an Apple Store covered? What about parking lot analysis for suppliers? What about taking an IR Thermographic camera and scoping out a manufacturer's transformers in order to estimate time-of-day and relative period utility consumption to trend changes in total production rate?
All of those things can be done without trespassing, so they tend to be in the 'intelligence' realm rather than espionage. This would be a reasonable line to draw.
But, say you put together a single-blind panel of employees of various companies of interest and ask them questions. The accuracy of their information may be limited, and as long as they aren't disclosing 'privileged' information, what is wrong. Same goes for hiring iSupply to do teardown margin analysis for a product.
In terms of balancing out information for retail vs institutional investors, the little guy will always be at a disadvantage. The key is to limit the magnitude, duration, and accuracy of the differences.
"Apple analysts under SEC investigation for 'channel checks'"
It's not Apple analysts under investigation, it's Wall Street analysts who cover Apple.
Guys, you don't get to suspend the fundamentals of Journalism 101 just so you can write a catchy headline...
Agree, and i spent years as a journalist starting with UPI.