insider trading
Discussion
i'm considering buying shares in listed company who is launching a new product which uses services provided by the company i work for. i don't know any dates but i know that after an announcement about the service the share price will jump so if i buy shares now and sell after the announcement will this be considered insider trading?
I hoped my subtle and (humourous, if I don't mind saying so myself) picture art would reach the right spot..:hehe 
They are crap at prosecuting this offence, but don't do it anyway.
>> Edited by Zod on Tuesday 21st September 19:54
Criminal Justice Act 1993 S 52 et seq. said:
Criminal Justice Act 1993 Part V: Insider Dealing
A. The Offence
s.52 Dealing
(1) An individual who has information as an insider is guilty of insider dealing, if, in the circumstances mentioned in subsection (3), he deals in securities that are price-affected securities in relation to the information.
s.52 Encouraging and Disclosing
(2) An individual who has information as an insider is also guilty of insider dealing if
(a) he encourages another person to deal in securities that are (whether or not that other knows it) price-affected securities in relation to the information, knowing or having reasonable cause to believe that the dealing would take place..; OR
(b) he discloses the information, otherwise than in the proper performance of the functions of his employment, office or profession, to another person.
(3) The circumstances referred to above are that the acquisition or disposal in question occurs on a regulated market, or that the person dealing relies on a professional intermediary or is himself acting as a professional intermediary.
B. The Ingredients
Individual
Information as an Insider
s.57 Insider (requires definition of inside information and inside source)
a person has info as an insider if and only if
(a) it is inside information AND
(b) he knows that it is inside info AND
(c) he has it from inside source AND
(d) he knows that he has it from an inside source
s.56(1) Inside Information (requires definition of ‘made public’)
inside info is info which
(a) relates to particular securities or to a particular issuer [s.60(4) info which may affect company’s business prospects]
(b) is specific OR precise
(c) has not been made public
(d) if it were made public would be likely to have a significant effect on the price of any securities
s.58 Information ‘made public’
s.58(2) not exhaustive but a guide
info is made public if
(a) it is published in acc with the rules of a regulated market for the purpose of informing investors and their prof advisors
(b) it is contained in records which by virtue of any enactment are open to inspection by the public
(c) it can be readily acquired by those likely to deal in any securities to which the info relates or of the company to which the information relates OR
(d) it is derived from information which has been made public
s.58(3) info can be regarded as made public
(a) it can be acquired only by persons exercising diligence or expertise
(b) it is communicated to a section of the public and not to the public at large
(c) it can be acquired only by observation
(d) it is communicated only on payment of a fee OR
(e) it is published only outside the UK
s.57(2) Inside Source
a person has info from an inside source if and only if
(a) he has it through being a director, employee or shareholder of an issuer of securities OR
(b) he has it through having access to the information by virtue of his employment, office or profession OR
(c) the direct or indirect source of his information is a person within above categories
Deals
s.55 (1) ... a person deals in securities if (a) he acquires or disposes of the securities (whether as principal or agent) or (b) procures, an acquisition or disposal of the securities by any other person (see also s.55(4))
Securities
s.54 and Schedule 5
Price-Affected Securities
s.56(2)... securities are price-affected securities in relation to inside info, if and only if the info would, if made public, be likely to have a significant effect on the price of the securities
Regulated Market
s.60(1) any market which is identified as a regulated market by an order made by the Treasury
Insider Dealing (Securities and Regulated Markets) Order 1994
C. Main Defences
s.53(1) &(2) Defences to Dealing and Encouraging Offences
(a) he did not think at the time that dealing would result in a profit due to nature of info
(b) he believed on reasonable grounds that the info was disclosed widely enough so as not to prejudice anyone engaged in dealing
(c) he would have done what he did even if he had not had the information
s.53(3) Defences to Disclosing Offence
(a) he did not at the time expect any person, because of the disclosure, to deal in securities
(b) although he had such expectation at the time, he did not expect the dealing to result in a profit attributable to the nature of the info
s.53(6) 'profit' includes avoidance of a loss
D. INVESTIGATIONS AND PENALTIES
s.168 FSMA gives FSA (or DTI) power to investigate suspected breaches of the insider dealing provisions under the Criminal Justices Act
Stock Exchange - computerised system of surveillance of dealings taking place
Prosecutions maybe brought by DTI, FSA, Crown Prosecution Services, Serious Fraud Office
s.61 on conviction in indictment: unlimited fine or imprisonment for a term of no more than 7 years or both
disqualification sanction available : R v Goodman [1993] 2 All ER 789
s.2 Company Directors Disqualification Act 1986
under FSMA: FSA also has the power to ask the court for an an injunction or restitution (ss. 380 & 382)
>> Edited by Zod on Tuesday 21st September 19:54
It is very hard to pick up on insider-trading unless you make a very substantial purchase of shares and then off-load them pretty quickly. If you work for an FSA regulated firm though I really wouldn't bother as market supervision departments are pretty good these days. My department has just written some software for a market supervision department and it is damn good a picking up even very small irregularities.
Basically, if the knowledge that you have is not yet in the public domain, then you would be insider trading if you bought the shares now.
Basically, if the knowledge that you have is not yet in the public domain, then you would be insider trading if you bought the shares now.
I work in the investment banking world and know a thing or 2 about this. Basically as Imadreader says - ask yourself the following question:
Is ALL the information on which you are basing the decision to trade the share in the public domain?
If the answer is YES, proceed to your stockbroker.
If the answer is NO, go directly to jail, do not pass go, do not collect £200.
What you're saying about analysts doesn't necessarily hold - do they know for definite that the launch is going to happen, or are the speculating that it will. Analysts can detect these things by the amount of activity between the 2 companies and interpret this. Whereas if you know for definite and they don't, then you would be trading on insider information and it is illegal.
It is possible that either your or their company has a compliance officer - ask them first, or at least ask the financial chief of your own company for permission.
Even telling relatives is dodgy, as they are assumed to have the insider knowledge and will be banged up with you....if you're gonna do that it has to be someone with very little/no ties to yourself.
Is ALL the information on which you are basing the decision to trade the share in the public domain?
If the answer is YES, proceed to your stockbroker.
If the answer is NO, go directly to jail, do not pass go, do not collect £200.
What you're saying about analysts doesn't necessarily hold - do they know for definite that the launch is going to happen, or are the speculating that it will. Analysts can detect these things by the amount of activity between the 2 companies and interpret this. Whereas if you know for definite and they don't, then you would be trading on insider information and it is illegal.
It is possible that either your or their company has a compliance officer - ask them first, or at least ask the financial chief of your own company for permission.
Even telling relatives is dodgy, as they are assumed to have the insider knowledge and will be banged up with you....if you're gonna do that it has to be someone with very little/no ties to yourself.
tim_s said:
not really no. i only know as much as the analysts do (they've forecasted the jump in price).
if the analysts know then the information is in the public domain...
Personally I would check first with your compliance depts etc...
>> Edited by mcflurry on Wednesday 22 September 11:27
Doesn't sound like Tim_s works for an FSA regulated business so he won't have a complinance officer to talk to. Nonetheless, this sounds like inside information. If the information is price sensitive ... and yet the price hasn't moved, then either it ain't price sensitive after all (in which case your trade is a waste of time) or the information is not in the public domain, in which case your information is still "inside".
i wouldn't think it was, if it's a company you don't work for, just basically a customer then you are purely only gambling on the fact that you think what your company does and offers them will increase their share price. I remember back in the 80's my Dad ran a plastics company. They started making all the casings for a well known computer handheld product company and my Dad thought, there's a product that might do well, so he bought a truck load of their shares at 15p each which is what they were trading at. a few years later he sold them when they hit £15 a share, laughing all the way to the bank on that one and so were sunseeker when they took most of it off him!
>> Edited by paul001 on Wednesday 22 September 14:42
>> Edited by paul001 on Wednesday 22 September 14:42
>> Edited by paul001 on Wednesday 22 September 14:42
>> Edited by paul001 on Wednesday 22 September 14:42
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