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It's actually still possible to perform a specific type of legal insider trading.

Example: you are an executive at E Corp and the company will announce its acquisition in two months. You had previously set up planned trades to sell x number of shares each month before then. Because the acquisition is at a premium on the current price, you will make much less money if you go forward with your trades before the announcement. So, what do you do? You cancel the trades.

Was this insider trading according to the SEC? Surprisingly, no! Even though you're profiting from insider information, the SEC rules are such that for insider trading to occur, you actually need a trade.

https://en.wikipedia.org/wiki/SEC_Rule_10b5-1#A_possible_loo...

Martha Stewart did exactly this before her company was acquired earlier this year:

http://i.imgur.com/ZikHCpP.jpg




What was that about how most problems in Computer Science can be solved with an additional level of indirection? Maybe the same is true for Insider Trading? Instead of buying options on the stock of a company, use options on the stock of another company that owns options on the 1st company. Perhaps derivatives have gotten so complicated in recent years as a means of hiding insider trading? (Perhaps there are quants with Comp Sci degrees figuring out ways to make detection of insider trades an NP-Complete problem?)


use options on the stock of another company that owns options on the 1st company

Not viable -- think how many options e.g. Google would have to own on e.g. Microsoft to meaningfully move the needle at Google.

I think you're right overall, though. "Buy exposure to a symbol you are not allowed to trade in." is easy if a) there exists an ETF which you are allowed to trade in, b) you know what the constituents of the ETF are and what their weighting is (trivial), c) you can program a computer to successfully do 4th grade math, d) you are good at trade execution (highly non-trivial).


Politicians in Congress are explicitly allowed to insider trade based on information they hear about. This is why congressmen's stock portfolios are far more profitable than an average person's.


It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns.

Of course, the answer to that is to require all Congressmen to put their assets in a blind trust.


>It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns.

How about disallowing them to trade altogether in the first place for as long as they hold office?


I agree with that (hence the blind trust suggestion).


This would make more sense if there weren't career Congress-critters, though perhaps this would encourage movement in that direction...


Yeah, that is a huge issue in itself. Public office should not be a career but something you take time out of your career to perform.


It makes sense if an idiot were to come up with a solution in 5 seconds.

The answer is NOT to give them free reign to do it. It's to prevent them from being allowed to choose stock investments entirely. They get enough perks, they don't need free reign over the market.


Or to decriminalize all insider trading.


What about public disclosure of their stock holdings?


They are disclosed, but offline.


For staff only, for the actual congresspersons they are online:

http://clerk.house.gov/public_disc/financial.aspx


what does offline mean here?

I agree that public disclosure of their trades is viable, because if they decide to trade based on information they have, the public (whom they _serve_!) should also get the same opportunity.


So can you do a FOIA? Or go to an office in DC?


Legislative Resource Center 135 Cannon House Office Building Washington DC, 20515-6612 Phone: (202) 226-5200 Office Hours: 9:00 am - 6:00 pm

You can go here and make copies.


Wait, Wait. Hold a second. I am not sure I read that correctly.

Are you telling me that until 2012, for every confidential hearing that American congressman could attend, every budget proposal or allocation they had to vote on, every bill (say on the environment, or regarding corporate or financial regulation) they had to pass, or every declaration of war they had to approve, they were allowed to choose the outcome and personally profit from it?


SEC employees also do pretty well for themselves: http://www.bloombergview.com/articles/2014-02-27/the-sec-sho...


Doesn't the STOCK Act (https://en.wikipedia.org/wiki/STOCK_Act) explicitly ban Congresspeople from insider trading?

The only study on the performance on Congressional stock portfolios is from 2004 [1]. Do you know of any post-STOCK studies?

[1]: Ziobrowski, A.J., Cheng, P.X., Boyd, J.W., and Ziobrowski, B.J. (2004) “Abnormal Returns from the Common Stock Investments of Members of the United States Senate.” Journal of Financial and Quantitative Analysis, Vol. 39, No. 4, pp. 661-676. (http://www.walkerd.people.cofc.edu/400/Sobel/P-04.%20Ziobrow...)


NOPE!

"Congress Quickly And Quietly Rolls Back Insider Trading Rules For Itself"

"It was such a national risk that Congress did the whole thing quietly, with no debate. The bill was introduced in the Senate on Thursday and quickly voted on late that night when no one was paying attention. Friday afternoon (the best time to sneak through news), the House picked it up by unanimous consent. The House ignored its own promise to give Congress three days to read a bill before holding a vote, because this kind of thing is too important to let anyone read the bill before Congress had to pass it."

https://www.techdirt.com/articles/20130416/08344222725/congr...


I already explained this in my reply to bsbechtel's comment (https://news.ycombinator.com/item?id=10045388). The amendment makes retrieving disclosure reports more difficult, but does not repeal the STOCK Act's explicit prohibition on insider trading by politicians.


I'm pretty sure the key provisions of the STOCK Act were repealed the same weekend as the Boston Marathon Bombings. See the amendment section of the Wikipedia article you linked to.


The amendment makes it significantly more difficult to detect insider trading (since financial disclosure reports are not available online), but I wouldn't describe it as a repeal of the law's "key provisions". See http://www.npr.org/sections/itsallpolitics/2013/04/16/177496... :

"Still, two major elements of the law remain. Insider trading is illegal, even for members of Congress and the executive branch. And for those who are covered by the now-narrower law, disclosures of large stock trades are required within 45 days."


> The amendment makes it significantly more difficult to detect insider trading (since financial disclosure reports are not available online)

That's only for staff. The reports for Congress members are still required to be available online. They are here [1].

[1] http://clerk.house.gov/public_disc/financial.aspx


Do you have any source data?


That's not insider trading! That's insider cancelling!

totally different


Now insider traders will follow in the footsteps of fighting game nerds and obsess over cancels.


So a "trade canary", then.


I wonder if it would be possible to track the continual sales of stock by large shareholders, use that to buy options based on the canary trades disappearing.

This would then lead to the question: am I an insider trader if I am basing my options off of the lack of sales of insiders?


Their sales are very sporadic so it's not as reliable as you would think. Sometimes they need cash to pay for a new house, hitmen, etc. Other times they let the stock vest for longer because they don't need the money.


Continual sales, I mean -- large owners of big companies often have recurring monthly sales of x number of shares. Deviation from this is notable, and a possible source of information.


Interestingly, if you look at the Martha Stewart chart posted, there's a big spike when she would have sold but didn't... maybe there was some real news at that time, too, I don't know, but maybe there are algorithms already set up to detect this?


No! Matt levine's articles (which I recommend reading) give an excellent description of this.


Is it that easy? So just pre-schedule many possible trades, and in the end, just cancel all except the ones you actually want to do (after getting the inside information).


similar, "relativity" based, approach - the finance dept makes sure that bad news are released before CEO's planned buys or after planned sells, while good news - after planned buys or before planned sells. Just look at history of some corps' quarterly results releases and their CEO's planned trades :)


There are probably hundred ways to do it legally. Would you be surprised to find out that for every company with such a business model that gets caught there are 10 or 100 or maybe 1000 that do the same thing but more smart and therefore with legal protection? Wouldn't shock me.


Are planned trades by insiders public information? Or are they only made public when the actual trade occurs?


The thing that confounds the situation a bit, for a large quantity of people, is that in certain industries and in certain roles, a huge number of people are considered insiders. For example, anyone at a corporation who can access sales or booking data is an insider ... including the poor CRM administrator in IT or the exec admin in the Sales office. Beyond that, though, in financial services firms it's entirely possible they might consider all employees insiders on all equities. Fidelity does this, for example, and they additionally require all employees' equity holdings solely to exist in Fidelity-managed accounts so they can actively audit for insider activity.

This second case seemed more nutso to me than the first, but both are true -- I've lived them.


A large swath of people where I worked a couple of jobs back were considered "covered portfolio persons" who had to pre-clear trades in all but a few classes of securities (basically open-ended mutual funds, and small trades in very large-cap equities) and report almost everything. We had to instruct any brokerage firms to send quarterly reports to our compliance department.

I don't know if everybody was covered, but everybody in my group was.


Working for D. E. Shaw and later Merrill, we had duplicate trade confirms cc'd to compliance for all trades in all accounts. I didn't have to pre-clear trades in general, though there was a process to do so for some employees and for employees with questions about whether a contemplated trade was OK.


at amazon virtually everyone is considered an insider because almost everyone has access to the sales graphs that are used to track the health of the website and you can see detailed graphs of the revenue which only become public during the quarterly announcements. Basically anyone who had a company computer had access to this info so you were only allowed to trade amazon stock for like 15 days after each quarterly announcement. HR would send out emails saying when the allowed trading periods began and ended


Only made public some time after the trade occurs.


It also seems that trading currencies is not prohibited by any "insider trading" rules. See: recent unpegging of the swiss franc from the euro. There was much shenanigans in the market before the franc was unpegged.


I would not get insider trading advice from Martha Stewart…


To be a pedant, Martha Stewart wasn't convicted of insider trading; she was convicted of obstruction of justice and making false statements, etc. Mark Cuban, facing similar circumstances, kept his mouth shut and stayed out of jail.


Yes this is the lesson.

NEVER TALK TO THE POLICE WITHOUT YOUR LAWYER.


How were you able to acquire this source? Is there a public database of some sort?


ELI5...why would you sell shares that you know will increase in value? Or does this have something to do with options.


he is talking about canceling a pending sale of stock. When you are an executive or board member of a company you are not allowed to just buy and sell large amount of stock on a whim you must setup buying and selling plans to spread the trades out over weeks or months.

So in this case you had a sell order planned over the next few months but now you know the shares will increase in value after the date of the scheduled sale so you cancel the sell plan. This is considered legal because you did not use your insider information to actually trade stock only to refuse to trade stock


what about making 1000s of trades and cancelling the risky ones via insider info.

then the good trades weren't insider trades?


how about monitoring regular sales for sudden stops and buying those shares?


That seems a bit of a stretch to call that insider trading.


Why? It's effectively the same action as placing a new order. Cancellations are, for instance, how lots of market makers alter their prices in reaction to events.


If I understand correctly, these are planned orders that are un-planned days if not hours before they go out to the exchange, not orders that are sent to the exchange but cancelled before they can be filled. The latter is what the market makers are doing.

So it is more effectively the same as deciding not to do what you have been doing every month. It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.


> It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.

So? That hardly seems impossible to enforce. You just don't allow cancellations unless they are also planned. If you're allowed to schedule recurring sells, say, 30 days in advance (I don't know what the specific rules are), you should only be able to cancel them with 30 days advance notice.

The whole point of the planned trade exemption is to allow trades to happen independent of insider knowledge. If you allow cancellations, you're allowing insider knowledge to impact the trading.


> It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.

Why would that be impossible to enforce? If you register a planned trade with the SEC you have to follow through with it or pay a fine equal to the amount of money you saved by not going through with it.


that puts SEC employees in the catbird's seat - selling access to those pending trades would pay for a lot of trips to Milan


It's not very straightforward. It's a trade the way an Electron Hole is a particle.

https://en.m.wikipedia.org/wiki/Electron_hole


It's using private information for material gain in breach of a fiduciary duty to shareholders, so yes it is insider trading.




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