3 ms·

Because insider trading laws in the United States have nothing to do with "fairness" (note that this isn't true in other countries). In the US insider trading

Because insider trading laws in the United States have nothing to do with "fairness" (note that this isn't true in other countries). In the US insider trading laws are about misappropriation of information and the victim is the company. The company cannot commit "insider trading" against itself. Insider trading laws in the US are all about "you were entrusted with this information and by using it for your benefit you harmed the company." For example if you know of a coming acquisition and you buy a bunch of short-dated out of the money call options then you're going to push up the price of the acquisition target and cost the company money. The crime you committed (in the view of the US government) is not "unfair trading" it "theft" in that you gained at the expense of the company. That said, I don't think share buybacks would be considered any kind of insider trading anywhere in the world.

elliekelly 7y ago
I'm a securities lawyer. I'm well aware this is not insider trading nor did I ever say anything at all related to insider trading. The opinion I expressed was one of policy, not criminality. My issue is that the transaction goes against the concept of a fair market where everyone has equal access to information. When a company buys back stock the market takes it as a "signal" that the shares are undervalued for reasons that are unknown to the public. Maybe management is aware of key information and the shares are indeed undervalued but that isn't always the case. It seems to me that stock buybacks serve a mixed purpose of paying a dividend while also artificially boosting market "confidence" in the short-term. I'm of the opinion that the market shouldn't be manipulated by subtle hints from management that way.
- jsight 7y ago
  I'm not the person you are replying to, but either way, thank you for that post. That is an element that I've never thought of in that way and I can see where it presents a problem. I will add that in general I am not fond of the limits on direct sharing that seem to be the result of our current approach to securities regulation.
- throw0101a 7y ago
  > When a company buys back stock the market takes it as a "signal" that the shares are undervalued for reasons that are unknown to the public. Does not the company have to pre-announced its plan to run a buyback program (both in the amount and time frame)? Does not pre-broadcasting that achieve the result of making sure everyone has the same information? Executives also have to file ahead of time paperwork to say that they're buying (selling) stock in the company that they run IIRC. Is that not sufficient to allow the trading public to make decisions on?
  - elliekelly 7y ago
    Announcing it ahead of time doesn't make a difference because the market still doesn't know what the material information is or even whether it exists. It's like management saying "I know something you don't knowww ;)" and leaving the market to sort out whether or not that's a meaningful and reliable piece of information. My point is that there often isn't any material nonpublic information underlying the buyback so it only serves as a way to juice the stock price in the short-term by manipulating the psychology of the market. It's also worth noting that these transactions were illegal until Rule 10b-18 specifically exempted them from market manipulation and deception rules.

elliekelly 7y ago

I'm a securities lawyer. I'm well aware this is not insider trading nor did I ever say anything at all related to insider trading. The opinion I expressed was one of policy, not criminality. My issue is that the transaction goes against the concept of a fair market where everyone has equal access to information. When a company buys back stock the market takes it as a "signal" that the shares are undervalued for reasons that are unknown to the public. Maybe management is aware of key information and the shares are indeed undervalued but that isn't always the case. It seems to me that stock buybacks serve a mixed purpose of paying a dividend while also artificially boosting market "confidence" in the short-term. I'm of the opinion that the market shouldn't be manipulated by subtle hints from management that way.

jsight 7y ago
I'm not the person you are replying to, but either way, thank you for that post. That is an element that I've never thought of in that way and I can see where it presents a problem. I will add that in general I am not fond of the limits on direct sharing that seem to be the result of our current approach to securities regulation.
throw0101a 7y ago
> When a company buys back stock the market takes it as a "signal" that the shares are undervalued for reasons that are unknown to the public. Does not the company have to pre-announced its plan to run a buyback program (both in the amount and time frame)? Does not pre-broadcasting that achieve the result of making sure everyone has the same information? Executives also have to file ahead of time paperwork to say that they're buying (selling) stock in the company that they run IIRC. Is that not sufficient to allow the trading public to make decisions on?
- elliekelly 7y ago
  Announcing it ahead of time doesn't make a difference because the market still doesn't know what the material information is or even whether it exists. It's like management saying "I know something you don't knowww ;)" and leaving the market to sort out whether or not that's a meaningful and reliable piece of information. My point is that there often isn't any material nonpublic information underlying the buyback so it only serves as a way to juice the stock price in the short-term by manipulating the psychology of the market. It's also worth noting that these transactions were illegal until Rule 10b-18 specifically exempted them from market manipulation and deception rules.