Actually, the real legal insider trading is the trades that you _don’t_ place based on insider knowledge. Eg, if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it when otherwise you may not have cared. There’s no way to prove illegality for _not_ placing a trade.
> if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it
This is what executives with stock based compensations can an usually do.
we only regulate the sell side (or buy side), but not the inaction side (where you hold your existing position). I have not thought of a good way to make the market aware of these choices, in a way that enables market efficiency.
Knowing that a new competitor has entered the market with a superior product is not inside information. The iPhone was public knowledge (that is how the Nokia engineers, who were not Apple insiders, knew about it). Nokia's existing offering was also public knowledge. Sure, some members of the public might have speculated that maybe Nokia was about to respond with its own killer smartphone, and Nokia insiders knew that wasn't the case. But that's not concrete information. Not to mention that "we can't compete with Apple" is ultimately a matter of opinion/prediction, not concrete information.
This has nothing to do with inside information or insider trading, it is just "if your company is bad, maybe you should go work for a better company".
Yeah, it's a really bad take. And there is no proof that what killed Nokia was iPhone... I've seen a pretty solid argument that what killed Nokia was Elop / the Microsoft deal.
I watched "Enron: The smartest guys in the room" documentary, and I think Lou Pai is the most fascinating character in the story.
As quoted online:
Lou Pai was a senior executive at Enron who, after having an affair with a stripper, to satisfy his divorce settlement, cashed out $250 million of his Enron stock just before the company's stock price collapsed and it filed for bankruptcy protection.
I don't know if he ever knew about the stuff that was going down at Enron, but that guy managed to leave the ship in a nice boat before it sank.
If he structured a divorce, with a judge signed cash settlement to manufacture an insider trade to cash out before the stock went to 0 ... he deserves the title "The smartest guy in the room".
This is a bad analogy because it perpetuates a misconception of the basis of insider trading law (in the US).
Insider trading has nothing to do with having an information advantage. The markets and their regulators encourage those with an information advantage to use it to as full advantage as they can.
Insider trading is based on having an economic obligation to someone else. If you use your knowledge to make money and you don’t share that equitably with the people you have that obligation to, that’s insider trading (in the US).
You’d have to torture that definition for it to make sense in the job market and none of the examples in the article match.
You'd have to tell all shareholders and potential shareholders the same information you have, i.e. make the information public, then it's no longer inside information.
I think the major reason the Nokia engineers didn't jump ship to Apple/Google is that they did not want to move to another country.
The article is written like it assumes the Nokia HQ was next door to Apple/Google.
There is another type of insider trading: If an engineer had stayed at Nokia but bought a lot of shares in Apple after Apple launched the iPhone, would that still be considered insider trading when the engineer did not have any non-public information about Apple, only in which way the general market was moving?
A lot of people laughed at smart phones in 2007-2010, the market majority did not value them and did not predict Apple's stock would grow.
Really stretching the language to make it meaningless. Changing a job is now insider trading? While there's no actual trading of anything? No shares being bought or sold. No insider information being leaked out.
This is information asymmetry. The nokia engineers knew something that the rest of the world didn't and were able to use it to their advantage.
In any transaction if you know less than the other party, you're at a disadvantage. I was just thinking this morning I could've negotiated a much higher comp for my current job if I knew just some of things about the company I know now.
This is not only is obviously AI writing, it feels like it is the output of a single prompt completely unedited. With some AI generated comics thrown in.
There are explicit insider trading forms such as SEC forms 3, 4, and 5. Insiders are allowed to trade as long as it is declared to the government. The issue is with trading while having material non public information. Frequently trades are executed on an explicit schedule with rule 10b5-1 to act as a defense against accusations of trading on MNPI.
The first paragraph of the article drove me insane for that reason. MNPI is one of the bedrocks
For a stable market system. If you trust, on some level, that the people who are counterparty to your trade and not pulling one over on you you’re more likely to participate in the market. The more that trust degrades, the less likely people are to want to interact with the market. The fewer people, the worse prices/spreads get.
Efficient and tight markets are almost entirely predicated on being able to determine that any informational asymmetry is irrelevant over differing time horizons.
"Initial drummer Carruthers was replaced after Mustaine and Ellefson decided they could not trust him. Carruthers had chosen to hide his black heritage from them by claiming he was Spanish, and they could not understand why he would deceive them.Brett Frederickson joined the band in November 1983 as their next drummer."
That move probably hasn't aged well. Pretty nasty.
Edit:
I can't recall which podcast I heard this, but ismtbhebthe guy that was sad that his band didn't sell as many records as Metallica?
I don't understand what happened, he hid the fact that he was black from them, they couldn't understand why he'd hide it, and they fired him? Isn't this kind of exactly why he'd hide it from them?
You understand of course that those numbers show a very mediocre trading strategy. The sharpe ratio and beta on that would get you fired at any professional equity shop.
Graph that congress long/short strategy against qqq and you’ll see why. The very rich in congress are tech investors by and large. They hold outsized bets in Nvidia mostly. You didn’t need any insider knowledge to make outsized returns if you are willing to have a risk on Nvidia position cherry picked from 2020 to today.
I read the article and I’m far more interested in talking about actual legal insider trading in the equities market
You may not be able to trade your company’s stock, or a competitor’s if you have knowledge that was under an employer agreement, but you can trade your sector and correlated assets
I assume you mean things like trade secrets that you cannot disclose? That is legal because it is not information that is confidential the same way as say financial results are. It is confidential, but for different reasons. It also tends to be much more long term information so people cannot make a quick profit from it. Its also impractical to regulate.
On the flip side, even if the company is on the way up and you're on some team that's at the center of it and you'll never benefit from it if your manager doesn't like you. All the opportunity to do all the things that lead toward career growth and compensation will go to other people.
Unfortunately doesn't work that smoothly everywhere because outcomes are often tied to larger unknowns whether it is will AI bubble pop or will the global economy take a dip.
This is what executives with stock based compensations can an usually do.
we only regulate the sell side (or buy side), but not the inaction side (where you hold your existing position). I have not thought of a good way to make the market aware of these choices, in a way that enables market efficiency.
This has nothing to do with inside information or insider trading, it is just "if your company is bad, maybe you should go work for a better company".
Also it reeks of AI.
As quoted online:
Lou Pai was a senior executive at Enron who, after having an affair with a stripper, to satisfy his divorce settlement, cashed out $250 million of his Enron stock just before the company's stock price collapsed and it filed for bankruptcy protection.
I don't know if he ever knew about the stuff that was going down at Enron, but that guy managed to leave the ship in a nice boat before it sank.
Insider trading has nothing to do with having an information advantage. The markets and their regulators encourage those with an information advantage to use it to as full advantage as they can.
Insider trading is based on having an economic obligation to someone else. If you use your knowledge to make money and you don’t share that equitably with the people you have that obligation to, that’s insider trading (in the US).
You’d have to torture that definition for it to make sense in the job market and none of the examples in the article match.
so if you simply tell the other shareholders to also participate in the insider trading, you'd be free of charges?
The article is written like it assumes the Nokia HQ was next door to Apple/Google.
There is another type of insider trading: If an engineer had stayed at Nokia but bought a lot of shares in Apple after Apple launched the iPhone, would that still be considered insider trading when the engineer did not have any non-public information about Apple, only in which way the general market was moving?
A lot of people laughed at smart phones in 2007-2010, the market majority did not value them and did not predict Apple's stock would grow.
Why would that be considered insider trading
In any transaction if you know less than the other party, you're at a disadvantage. I was just thinking this morning I could've negotiated a much higher comp for my current job if I knew just some of things about the company I know now.
Amusing the press report the sales as if he's selling due to something that's happening to the company that week.
Efficient and tight markets are almost entirely predicated on being able to determine that any informational asymmetry is irrelevant over differing time horizons.
https://en.wikipedia.org/wiki/Dave_Mustaine
who left Metallica to found Megadeth.
Also
"Initial drummer Carruthers was replaced after Mustaine and Ellefson decided they could not trust him. Carruthers had chosen to hide his black heritage from them by claiming he was Spanish, and they could not understand why he would deceive them.Brett Frederickson joined the band in November 1983 as their next drummer."
That move probably hasn't aged well. Pretty nasty.
Edit: I can't recall which podcast I heard this, but ismtbhebthe guy that was sad that his band didn't sell as many records as Metallica?
https://www.quiverquant.com/strategies/s/Congress%20Long-Sho...
Graph that congress long/short strategy against qqq and you’ll see why. The very rich in congress are tech investors by and large. They hold outsized bets in Nvidia mostly. You didn’t need any insider knowledge to make outsized returns if you are willing to have a risk on Nvidia position cherry picked from 2020 to today.
You may not be able to trade your company’s stock, or a competitor’s if you have knowledge that was under an employer agreement, but you can trade your sector and correlated assets
You can have an edge, it’s not a legal issue.
Access to internal data isn't a crystal ball