insider trading question

[Paddyboy1]

what is insider trading? "Insiders" always trade in stock, when they do it is public record. Clearly they hold more information than the public, but usually it is legal. What does a person have to do to cross the threshhold from insider trading to illegal insider trading?

[Aaron Brachowitz]

I think certain executives of any public corporation are required to make public any trades they execute of their own company's stock.

Also, I think it is illegal for anyone (not just certain executives) to buy or sell your company's stock on information considered not publicly available, or to provide such information to others such as friends or family members in the expectation that they will act on it. Obviously this is difficult to enforce except in the most egregious cases.

[bongo]

There are two kinds of insider trading. If you are an "insider" (I'm not sure what the definition is, but someone on the board, an officer of the company, or if you own a large amount of the stock qualifies) then you can trade legally, but you have to file certain papers with the SEC, and follow certain rules.

The second, illegal, kind is that anyone who has knowledge not available to the general public is not allowed to trade based on that information. They don’t have to have any position of power, or be an employee. If you happen to overhear the CEO talking on the subway, then you, technically, should not trade on that “insider” information.

[Aaron Brachowitz]

I remember from one of the exams that studies have been done of trading activity on a stock prior to a major announcement (e.g. how much activity was there in January given that a merger was announced in February) and it's pretty clear that people in the know are buying or selling accordingly.

[Paddyboy1]

OK, I get conflicting info here. Is it that execs can trade on inside info as long as they disclose or that nobody can trade on inside info?

[Boink]

On 2002-01-14 23:08, Paddyboy1 wrote:
OK, I get conflicting info here. Is it that execs can trade on inside info as long as they disclose or that nobody can trade on inside info?

No, execs can't trade on info not publicly available. They must report any trading in their own stock to the SEC, which then BECOMES public after the fact ... this will make it relatively easy, in theory, for the SEC to investigate any allegations of insider trading if, for example, an annoucement was made in Feb with an unusual amount of buying or selling beforehand.

OK, so let's say my company just had a secondary public offering a couple of months ago. (This is obviously public knowledge.) Assume (1) the last couple of years have been filled with quite a few acquisitions, and (2) the execs have stated an intent to acquire more. Also, (3) a number of employees higher up (and even not-so-high-up) are aware of some of the specifics about the whos and whats of a few upcoming transactions.

Would it be inside info to be trading stock a month or so prior to the company's public announcement of said acquisitions? 2 weeks? 1 week? 2 days?

[NO1UNO]

aannoonn, I think the answer is yes. If you trade based on any info not available to the public, it is insider trading. Technically, you need to wait for the announcement before you trade based on the information.

[E. Blackadder]

Why couldn't you just call a press confrence?

"My best friend's mothers' bridge friends' lover's daughter heard from somebody that Enron was ...."

[My Name]

Bongo,

Actually if you overhear the CEO talking on the subway and trade on that information you are not insider trading. You are not an "insider" of the company and the information you have received was not directly given to you by an insider - thus making you an insider - therefore you can trade on it.