Comment by nostrademons
8 years ago
"It’s just like insider trading: not executing a trade that would have otherwise (i.e. given only public knowledge) been in your best interests to execute, where you didn’t execute it because of corporate-internal knowledge, is still just as illegal as the reverse."
Can you provide a citation for that? Every definition I've read (eg. [1]) says that for it to be insider trading, there must be a trade. It doesn't necessarily have to be done by you (eg. U.S. vs. Rajaratnam [2], where an insider was convicted of passing information to a friend for relationship goodwill), nor do you have to be the insider (eg. Martha Stewart [3]) but some exchange of tangible property for financial benefit must have taken place.
It seems very problematic, from an enforcement perspective, to criminalize not doing something, particularly when it comes to trading. I don't see how you could ever prove "would be in your best interest to execute, given only public knowledge", given that the whole point of a trade is that one counterparty believes that it's in their best interests to own the security at the sale price while the other party believes it's in their best interests to not own the security. If there's any market liquidity at all at that price, it implies there's a difference of opinion over whether the security is worth owning. It also seems problematic to try and infer whether your lack of an action was because of inside knowledge or whether it was because you were restricted from stock transactions because of insider trading laws (ironically) or whether you just had too many other things going on to bother trading.
[1] https://www.investor.gov/additional-resources/general-resour...
[2] https://www.businessinsider.com/can-you-be-guilty-of-insider...
[3] https://en.wikipedia.org/wiki/ImClone_stock_trading_case
I was thinking specifically of a case mentioned previously here on HN, where someone cancelled a monthly scheduled partial stock-liquidation event on corporate-internal news that the company's value would change. IIRC the law said that this was insider trading: there was an evidence trail proving that the trade would have been executed, if not for corporate-internal knowledge.
I guess you could phrase this more clearly as: never investigating a trade in the first place can't be insider trading; but proposing/planning/scheduling a trade and then cancelling that trade, can be insider trading. Where, as well, choosing to execute a competing trade can be considered to cancel the trade that would have been executed in its place.
Ahh but that’s because the point of putting the trades on automatic is what allows insiders to trade even though they have inside information. As soon as you put trades on manual you’re opening yourself up to use inside information.
I don’t remember the story, but you can imagine a situation where you scheduled a big buy a year in advance right before earnings. You’ve done this consistently for a few years, and it’s paid off for you. The company has grown consistent quarter after quarter. Only now, this year right before the earnings call, you cancel the purchase.
Now tell me, do you think the company’s earnings exceeded expectations?