Insider Trading Question

[SkyHog]

The definition of material information is:

"any information that a reasonable investor would consider important in a decision to buy, hold, or sell securities."

Inside information is material information that is not generally known to the public.

I bolded "hold" because that is related to my question:

If I come into contact with inside information that would cause me to want to hold securities, am I obligated to do something other than hold my securities at that point? Seems that by holding, I'd be acting on insider information, wouldn't I?

 

[TangoWhiskey]

Nope. But if you didn't already hold those securities, and then acquired them, or if you used that information to buy more or sell the ones you have, then you'd be eligible for insider trading scrutiny.

 

[PittsDriver]

I can think of a case were holding a security would be acting on insider information. Top tier executives in publicly traded companies are often subject to trading windows and programmed selling restrictions to avoid the appearance (or act) of insider trading. Typically the way these trading windows and restrictions play out is that the person holding a butt load of the company's stock will have a trade programmed to happen the day or so after the quarterly report is issued to the public. It's usually the same amount every quarter regardless of the good or bad news coming out from the company. They're allowed to trade in the stock until about mid-quarter when the trading window would close when it would be considered that they would know more than the public until the next quarter's numbers come out.

So let's say that after several quarters of programmed trades on the window, they know that in the next quarter they'll have some major news that will likely cause a run up of the stock price. Knowing this, the execs cancel their programmed trade and hold that salvo until the next quarter's news. That would be holding stock based upon insider information and likely open them to questioning the integrity of their programmed trading that was meant precisely to avoid this problem.

 

[JeffDG]

I think Pitts has it.

Essentially, I break insider information down as: Once you have it, you can't change your behaviour until it both becomes public, and the public has a reasonable time to act on it (ie. you can't have your mouse hovering over a "Buy" order waiting for the exact moment that the press release you just approved hits the wires).

That includes regularly scheduled orders that you may have in place to turn your options into liquid cash.

 

[gismo]

The definition of material information is:

"any information that a reasonable investor would consider important in a decision to buy, hold, or sell securities."

Inside information is material information that is not generally known to the public.

I bolded "hold" because that is related to my question:

If I come into contact with inside information that would cause me to want to hold securities, am I obligated to do something other than hold my securities at that point? Seems that by holding, I'd be acting on insider information, wouldn't I?

Given that the only additional alternative to "buy, hold, or sell" would be to self terminate, I'm pretty certain you aren't required to avoid "holding" securities you already own simply because you have insider information that suggests this is a good idea for you.

 

[wsuffa]

Pitts has it right.

You can't take any action with respect to stock trades (including cancelling programmed trades) in respect to material, non-public information.

For those of us who do M&A for a public company, that's a big restriction (I don't trade in stock that's even in the same industry).

And you don't even have to be a listed officer to get nailed. If your CFO or general counsel tells you about some material, non-public information - even in passiing - you can't trade in the stock/s involved. If someone in the know is evil to you, they can easily contaminate you by intentionally telling you info that's non-public.

 

[woodstock]

Pitts has it right.

You can't take any action with respect to stock trades (including cancelling programmed trades) in respect to material, non-public information.

For those of us who do M&A for a public company, that's a big restriction (I don't trade in stock that's even in the same industry).

And you don't even have to be a listed officer to get nailed. If your CFO or general counsel tells you about some material, non-public information - even in passiing - you can't trade in the stock/s involved. If someone in the know is evil to you, they can easily contaminate you by intentionally telling you info that's non-public.

There's a special name for someone who does that...

 

[rpadula]

[/B]
There's a special name for someone who does that...

"Goldman Sachs employee?"

 

[wabower]

It's relatively easy for good analysts to construct a mosaic of a company's condition and stock expectations without using insider info. They can legally obtain it from public information provided by the company and information gathered from other sources, such as the subject company's customers, suppliers, etc. There are obviously situations where being an insider would provide a signficant advantage, but in the big picture they are somewhat limited.

An equally interesting "fecal matter on the fan blades" case of insider information just played out when Mark Hurd, the former head of HP was terminated and subsequently hired by Oracle.