6 ms·

What exactly is insider trading? Last year, if I remember correctly, Facebook released “Messenger Rooms” and it tanked Zoom stock quite a bit when they announce

What exactly is insider trading? Last year, if I remember correctly, Facebook released “Messenger Rooms” and it tanked Zoom stock quite a bit when they announced this. If you were A Facebook engineer and loaded up on ZM puts just before the announcement, would that be an insider trading? With the right ZM puts you would be able to profit immensely.

deleted 6y ago
[deleted]
montagg 6y ago
Yes. From [Investopedia][1]: > Insider trading involves trading in a public company's stock by someone who has non-public, material information about that stock for any reason. [1]: https://www.investopedia.com/terms/i/insidertrading.asp https://www.investopedia.com/terms/i/insidertrading.asp)
- IfOnlyYouKnew 6y ago
  ...and has a duty to the company to keep such information secret. If you’re an employee, you can’t trade on it. Same if you work at the accountancy that does the company’s financials. If, however, you hear some employees talking about it in public, it’s fair game. Or if you notice Facebook hiring lots of people with expertise in live audio broadcasting.
- alasdair_ 6y ago
  It's not quite that simple. If you were in a café and overheard the CEO of some company telling someone else that next quarter will be fantastic, that's non-public material information but you have no duty to keep it secret.
- kortilla 6y ago
  That’s incorrect. If you overhear a CEO complaining to someone about how terrible they are doing that quarter, you can absolutely trade on that. If you’re an expert in deriving sales from Bluetooth beacon data you have not available to the public, you can use that to trade as well.
asdfasgasdgasdg 6y ago
My understanding is that that would be considered insider trading. It's when you use material non-public information that has been misappropriated -- i.e. confidential information from your employer or from some other entity where you had a duty not to disclose, or such information after conveyance to another party. On the other hand, if you were able to derive such information on the basis purely of what's observable in public, then you would be in the clear. For example, if you saw a Facebook engineer wearing a "Rooms" badge or using the product in a cafe, and traded based on that, then it would be considering public information. IANAL, don't blame me if you follow this advice and go to jail.
- jldugger 6y ago
  Also not a lawyer, don't blame me if you follow this advice and go to jail. But as I understand it from reading Matt Levine's triply also not a lawyer blog, using knowledge only Facebook has to trade on the market of its competitors is insider trading, on the basis that you misappropiated Facebook's data, and exploited Facebook shareholders. Which sounds like if Facebook ran a quant fund that took information, traded on it and returned the profits to Facebook shareholders, there'd be no grounds for a suit. Might even be more profitable than whatever failure as a service FB intends to roll out.
  - astrange 6y ago
    Note Matt Levine is a former lawyer, which is a lot like being a lawyer.
space_rock 6y ago
Yes, an even playing field for traders requires all participants to have the same access to information. Otherwise the game is rigged against traders that can't get access to inside information
- kasey_junk 6y ago
  In the US insider trading laws aren’t about leveling the trading playing field, in fact quite the opposite we use the markets as a price discovery tool because it incentivizes acting on that disadvantage. Insider trading is about stealing from someone, the shareholders of a firm, the customers of a company etc.
- space_rock 6y ago
  Price discovery through superior analysis. Not trading on information no one else can obtain. So it's a level playing field when it comes to information access. Same reason public companies have transparency requirements. Otherwise the price is a mechanism for insiders to extract wealth from other investors like a crypto ICO
ABeeSea 6y ago
It’s a very grey area. A corollary to “Everything is securities fraud” is “Everything might be insider trading.” https://www.bloomberg.com/opinion/articles/2020-01-27/everything-might-be-insider-trading https://www.bloomberg.com/opinion/articles/2020-01-27/everyt...
coliveira 6y ago
The is exactly the definition of insider trading. If you're working in a situation when you know material information about public companies and trade on this information, you can get caught.

deleted 6y ago

[deleted]

montagg 6y ago

Yes. From [Investopedia][1]: > Insider trading involves trading in a public company's stock by someone who has non-public, material information about that stock for any reason. [1]: https://www.investopedia.com/terms/i/insidertrading.asp https://www.investopedia.com/terms/i/insidertrading.asp)

IfOnlyYouKnew 6y ago
...and has a duty to the company to keep such information secret. If you’re an employee, you can’t trade on it. Same if you work at the accountancy that does the company’s financials. If, however, you hear some employees talking about it in public, it’s fair game. Or if you notice Facebook hiring lots of people with expertise in live audio broadcasting.
alasdair_ 6y ago
It's not quite that simple. If you were in a café and overheard the CEO of some company telling someone else that next quarter will be fantastic, that's non-public material information but you have no duty to keep it secret.
kortilla 6y ago
That’s incorrect. If you overhear a CEO complaining to someone about how terrible they are doing that quarter, you can absolutely trade on that. If you’re an expert in deriving sales from Bluetooth beacon data you have not available to the public, you can use that to trade as well.

asdfasgasdgasdg 6y ago

My understanding is that that would be considered insider trading. It's when you use material non-public information that has been misappropriated -- i.e. confidential information from your employer or from some other entity where you had a duty not to disclose, or such information after conveyance to another party. On the other hand, if you were able to derive such information on the basis purely of what's observable in public, then you would be in the clear. For example, if you saw a Facebook engineer wearing a "Rooms" badge or using the product in a cafe, and traded based on that, then it would be considering public information. IANAL, don't blame me if you follow this advice and go to jail.

jldugger 6y ago
Also not a lawyer, don't blame me if you follow this advice and go to jail. But as I understand it from reading Matt Levine's triply also not a lawyer blog, using knowledge only Facebook has to trade on the market of its competitors is insider trading, on the basis that you misappropiated Facebook's data, and exploited Facebook shareholders. Which sounds like if Facebook ran a quant fund that took information, traded on it and returned the profits to Facebook shareholders, there'd be no grounds for a suit. Might even be more profitable than whatever failure as a service FB intends to roll out.
- astrange 6y ago
  Note Matt Levine is a former lawyer, which is a lot like being a lawyer.

space_rock 6y ago

Yes, an even playing field for traders requires all participants to have the same access to information. Otherwise the game is rigged against traders that can't get access to inside information

kasey_junk 6y ago
In the US insider trading laws aren’t about leveling the trading playing field, in fact quite the opposite we use the markets as a price discovery tool because it incentivizes acting on that disadvantage. Insider trading is about stealing from someone, the shareholders of a firm, the customers of a company etc.
space_rock 6y ago
Price discovery through superior analysis. Not trading on information no one else can obtain. So it's a level playing field when it comes to information access. Same reason public companies have transparency requirements. Otherwise the price is a mechanism for insiders to extract wealth from other investors like a crypto ICO

ABeeSea 6y ago

It’s a very grey area. A corollary to “Everything is securities fraud” is “Everything might be insider trading.” https://www.bloomberg.com/opinion/articles/2020-01-27/everything-might-be-insider-trading https://www.bloomberg.com/opinion/articles/2020-01-27/everyt...

coliveira 6y ago

The is exactly the definition of insider trading. If you're working in a situation when you know material information about public companies and trade on this information, you can get caught.