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I can confirm this happens. I happened to have a set of standing instructions for a number of technology companies which consisted of buying stock when it drop

I can confirm this happens. I happened to have a set of standing instructions for a number of technology companies which consisted of buying stock when it dropped more than 5% below the 90 moving average, and selling stock when it exceeded more than 5% the 90 day moving average. For a lot of tech companies this was basically a money pump since they rose and fell quite cyclically. Then I went to work at one of the companies on my list (NetApp) and one quarter EMC announced they were going to miss their earnings and all storage companies dropped. Two weeks later NetApp announced their earnings which were better than expected. When I got my brokerage statement for the month I had a nice gain because they had bought NetApp on the dip, and then when the earnings were announced the stock went up so they sold the shares that had been bought. About three weeks after that I got a call from the SEC. I referred them to my broker which showed both the standing order, and that they had been in place for a couple of years before that event, and the SEC went away. However I did take NetApp out of the mix because, well it is always unnerving when your phone tells you the SEC is calling. :-).

hermitdev 5y ago
I'm surprised they got to you that quickly. Having worked in finance most of my career, some of which involved fielding SEC inquiries, my impression is they are way behind enforcement. Although, to be fair, usually the inquiries I was fielding were more to do with spoofing and manipulation, not insider trading.
- vxNsr 5y ago
  I know a few ppl in compliance at different exchanges, they move pretty quickly if they think it’s a one off, if it looks like it’s part of a larger game they’ll be more methodical. But this sounds pretty standard, it looked odd but not too odd so just warranted a quick call.
notyourwork 5y ago
Interesting story, I can imagine you were pretty worried at first. What brokerage do you use to configure that type of automated order execution?
- ChuckMcM 5y ago
  I met my financial planner when she cold called me at Sun. She worked for the company handling Sun's employee purchase plan and stock option plans. I've stuck with her as she he moved from company to company (generally by acquisition). Establishing a standing order was simply a matter of calling her up and telling her what I wanted to do. I'm not sure how it was implemented on her side though.
  - throwaway2037 5y ago
    What is her fee structure?
    - ChuckMcM 5y ago
      Currently, it is 0.78% of the assets under management.
      - dmoy 5y ago
        Oof that hurts Have you considered using IBKR to do the same sort of automated order execution, but without the AUM fees?
        ChuckMcM 5y ago
        Not really. Basically the basic calculation I make is what is my time worth vs what I'm paying in management fees. I've been pretty happy and the managed assets have consistently out performed the S&P 500[1] even after accounting for fees. Everyone is different of course, I'm not a min/maxer trying to eek every cent out of my investments. My goals are/were around not having to work if I don't feel like it. I do understand people who use their net worth as some sort of 'score' they feel they need to 'win.' That is not who I am. [1] I basically consider a zero fee robo-investment strategy in specific ETFs as the 'null hypothesis' here. If the team out performs that, it is okay, if they don't we need to talk.
        5y ago
hoten 5y ago
It's probably a good thing you removed it, because I bet if the SEC were bothered enough they could argue that NOT changing your standing order is possibly informed by insider knowledge. No idea if that is actually something they'd try to argue though.
- vmception 5y ago
  So would changing it to potentially avoid losses. They should have removed all orders the day they became an employee. I know high frequency trading firms that are heavily inconvenienced by insider knowledge. They have to shut down so many things. Securities Insider trading is really tricky in the US as it isn't a specific law specifically about insider trading, only a bunch of court cases by the securities regulators that they sometimes won.
  - throwaway2037 5y ago
    I'm confused by this sentence: <<<I know high frequency trading firms that are heavily inconvenienced by insider knowledge.>>> Normally, HFT firms don't care about insider trading. They are trading "noise" -- finding signals from past and present trading activity to make small bets that are 51% likely to be successful. They manage risk very carefully. This is not a secret. Cliff Asness from AQR Capital has given multiple long-form interviews on this topic. You can Google to find podcasts and printed articles. On the other hand, long-short hedge funds, such as Steven Cohen's legendary Point72, love insider information! It is the backbone of their business model. The best ones employ an onion-like defense strategy to launder inside information as legitimate analyst reports. Only the outermost layer is directly transacting in insider information. As the information moves closer to the center -- real traders -- it is carefully masked to hide its origin. The SEC was never able to catch Steven Cohen, but they caught many, many people around him and eventually forced his original fund to close.
    - sydthrowaway 5y ago
      Where on the spectrum is RenTech?
prostoalex 5y ago
Which brokerages support triggering trades off moving averages?
- kelnos 5y ago
  I expect none do, and this was probably implemented through a financial advisor who either has their own bespoke system for doing stuff like this automatically, or perhaps something more manual, like setting price alerts and then having a team of people react to them.
- sydthrowaway 5y ago
  Nowadays you can do it with Alpaca.
throwaway2037 5y ago
I find it hard to believe this strategy works with any kind of long term horizon. This story reads like easy money. Tell us about some of your losses. My old man always taught me: People love to brag about their wins (in the stock market), but rarely share their losses. The best traders know: You learn the most from your losses. If this strategy is so good, why don't you run a prop trading firm doing exactly this? And do you run the same strategy for oil, natural gas, soybeans, and pork belly futures?
- caslon 5y ago
  He wasn't bragging about it. He was just mentioning it because it had a side-effect of bringing the SEC onto him. "If your strategy in trading microelectronics stock (largely hype-based and that you have an intuitive understanding of) is so good even though you didn't actually claim it as being all that, why don't you run the same strategy in trading pork (no one has ever gotten hyped about pork)?"
  - devin 5y ago
    Agreed they weren't bragging about it, but it is worth pointing out it's a horrible strategy and will probably produce a net loss over time unless you happen to be incredibly lucky.
    - unclebucknasty 5y ago
      >it's a horrible strategy and will probably produce a net loss over time I dunno. Too many variables to dismiss as horrible out of hand. For one, it depends on the actual companies involved. Also depends on exactly how he executed it. If the stocks followed the typical average of 10% YoY gains as the rest of the market, then there's a way to execute this strategy wherein he wouldn't lose by definition. For instance, he might set a mark on the sell side to ensure he's not selling at a loss vs. his last buy. Now, he might get stuck holding the stock for some time (especially after a big downturn) and that might incur him some opportunity cost. But, that wouldn't mean a net loss if he was willing to wait. And, that'd be no different a risk than, say, a typical buy and hold strategy.
sumedh 5y ago
> I referred them to my broker Did you have any legal obligation to do that. What would have happened if you choose to remain silent?
- kadoban 5y ago
  If you can prove you didn't do a crime, seems like pointing out why is going to be in your best interest if the fuzz comes calling. Remaining silent is sure a good idea generally, but this seems like one of the rare cases where I don't see the point.
- ChuckMcM 5y ago
  An interesting question. I was a Technical Director at NetApp which isn't a corporate officer (that is VP and above), and wasn't an identified insider (there are forms to file for that). NetApp had a policy against employees trading stock during "blackout" periods (typically two weeks before and two weeks after the earnings announcement) but were okay with and knew about my 'programmed' trades. I think the SEC could have probably made a case that it was possible for me to know that NetApp's results were going to be better than the street expected (I didn't know that but I did know we weren't hurting like EMC was). And the money involved was small. I expect it was the timing more than the amount that triggered their call. I was surprised I didn't hear from NetApp's general counsel at the time (I'm sure they were notified). So if I said nothing? That would probably trigger a closer inspection. Sure its my right to not speak to them, but doing so would have probably made them more suspicious. And frankly, I have seen so many times when people trying to be "tricky" got into more trouble than if they had just been open with what was what that I have rarely felt tempted to push back on that sort of thing.
sydthrowaway 5y ago
What were your returns on this strategy?
fnord77 5y ago
roughly what kind of netapp volume did your orders trigger the SEC into looking into it? $1000s, $10,000s, ... ?
- ChuckMcM 5y ago
  It was a while ago, maybe $4,000 - $5,000 ? I was definitely not more than $5,000. As I said above, I think it was more the timing than the amount that got them curious.

hermitdev 5y ago

I'm surprised they got to you that quickly. Having worked in finance most of my career, some of which involved fielding SEC inquiries, my impression is they are way behind enforcement. Although, to be fair, usually the inquiries I was fielding were more to do with spoofing and manipulation, not insider trading.

vxNsr 5y ago
I know a few ppl in compliance at different exchanges, they move pretty quickly if they think it’s a one off, if it looks like it’s part of a larger game they’ll be more methodical. But this sounds pretty standard, it looked odd but not too odd so just warranted a quick call.

notyourwork 5y ago

Interesting story, I can imagine you were pretty worried at first. What brokerage do you use to configure that type of automated order execution?

ChuckMcM 5y ago
I met my financial planner when she cold called me at Sun. She worked for the company handling Sun's employee purchase plan and stock option plans. I've stuck with her as she he moved from company to company (generally by acquisition). Establishing a standing order was simply a matter of calling her up and telling her what I wanted to do. I'm not sure how it was implemented on her side though.
- throwaway2037 5y ago
  What is her fee structure?
  - ChuckMcM 5y ago
    Currently, it is 0.78% of the assets under management.
    - dmoy 5y ago
      Oof that hurts Have you considered using IBKR to do the same sort of automated order execution, but without the AUM fees?
      - ChuckMcM 5y ago
        Not really. Basically the basic calculation I make is what is my time worth vs what I'm paying in management fees. I've been pretty happy and the managed assets have consistently out performed the S&P 500[1] even after accounting for fees. Everyone is different of course, I'm not a min/maxer trying to eek every cent out of my investments. My goals are/were around not having to work if I don't feel like it. I do understand people who use their net worth as some sort of 'score' they feel they need to 'win.' That is not who I am. [1] I basically consider a zero fee robo-investment strategy in specific ETFs as the 'null hypothesis' here. If the team out performs that, it is okay, if they don't we need to talk.
        5y ago

hoten 5y ago

It's probably a good thing you removed it, because I bet if the SEC were bothered enough they could argue that NOT changing your standing order is possibly informed by insider knowledge. No idea if that is actually something they'd try to argue though.

vmception 5y ago
So would changing it to potentially avoid losses. They should have removed all orders the day they became an employee. I know high frequency trading firms that are heavily inconvenienced by insider knowledge. They have to shut down so many things. Securities Insider trading is really tricky in the US as it isn't a specific law specifically about insider trading, only a bunch of court cases by the securities regulators that they sometimes won.
- throwaway2037 5y ago
  I'm confused by this sentence: <<<I know high frequency trading firms that are heavily inconvenienced by insider knowledge.>>> Normally, HFT firms don't care about insider trading. They are trading "noise" -- finding signals from past and present trading activity to make small bets that are 51% likely to be successful. They manage risk very carefully. This is not a secret. Cliff Asness from AQR Capital has given multiple long-form interviews on this topic. You can Google to find podcasts and printed articles. On the other hand, long-short hedge funds, such as Steven Cohen's legendary Point72, love insider information! It is the backbone of their business model. The best ones employ an onion-like defense strategy to launder inside information as legitimate analyst reports. Only the outermost layer is directly transacting in insider information. As the information moves closer to the center -- real traders -- it is carefully masked to hide its origin. The SEC was never able to catch Steven Cohen, but they caught many, many people around him and eventually forced his original fund to close.
  - sydthrowaway 5y ago
    Where on the spectrum is RenTech?

prostoalex 5y ago

Which brokerages support triggering trades off moving averages?

kelnos 5y ago
I expect none do, and this was probably implemented through a financial advisor who either has their own bespoke system for doing stuff like this automatically, or perhaps something more manual, like setting price alerts and then having a team of people react to them.
sydthrowaway 5y ago
Nowadays you can do it with Alpaca.

throwaway2037 5y ago

I find it hard to believe this strategy works with any kind of long term horizon. This story reads like easy money. Tell us about some of your losses. My old man always taught me: People love to brag about their wins (in the stock market), but rarely share their losses. The best traders know: You learn the most from your losses. If this strategy is so good, why don't you run a prop trading firm doing exactly this? And do you run the same strategy for oil, natural gas, soybeans, and pork belly futures?

caslon 5y ago
He wasn't bragging about it. He was just mentioning it because it had a side-effect of bringing the SEC onto him. "If your strategy in trading microelectronics stock (largely hype-based and that you have an intuitive understanding of) is so good even though you didn't actually claim it as being all that, why don't you run the same strategy in trading pork (no one has ever gotten hyped about pork)?"
- devin 5y ago
  Agreed they weren't bragging about it, but it is worth pointing out it's a horrible strategy and will probably produce a net loss over time unless you happen to be incredibly lucky.
  - unclebucknasty 5y ago
    >it's a horrible strategy and will probably produce a net loss over time I dunno. Too many variables to dismiss as horrible out of hand. For one, it depends on the actual companies involved. Also depends on exactly how he executed it. If the stocks followed the typical average of 10% YoY gains as the rest of the market, then there's a way to execute this strategy wherein he wouldn't lose by definition. For instance, he might set a mark on the sell side to ensure he's not selling at a loss vs. his last buy. Now, he might get stuck holding the stock for some time (especially after a big downturn) and that might incur him some opportunity cost. But, that wouldn't mean a net loss if he was willing to wait. And, that'd be no different a risk than, say, a typical buy and hold strategy.

sumedh 5y ago

> I referred them to my broker Did you have any legal obligation to do that. What would have happened if you choose to remain silent?

kadoban 5y ago
If you can prove you didn't do a crime, seems like pointing out why is going to be in your best interest if the fuzz comes calling. Remaining silent is sure a good idea generally, but this seems like one of the rare cases where I don't see the point.
ChuckMcM 5y ago
An interesting question. I was a Technical Director at NetApp which isn't a corporate officer (that is VP and above), and wasn't an identified insider (there are forms to file for that). NetApp had a policy against employees trading stock during "blackout" periods (typically two weeks before and two weeks after the earnings announcement) but were okay with and knew about my 'programmed' trades. I think the SEC could have probably made a case that it was possible for me to know that NetApp's results were going to be better than the street expected (I didn't know that but I did know we weren't hurting like EMC was). And the money involved was small. I expect it was the timing more than the amount that triggered their call. I was surprised I didn't hear from NetApp's general counsel at the time (I'm sure they were notified). So if I said nothing? That would probably trigger a closer inspection. Sure its my right to not speak to them, but doing so would have probably made them more suspicious. And frankly, I have seen so many times when people trying to be "tricky" got into more trouble than if they had just been open with what was what that I have rarely felt tempted to push back on that sort of thing.

sydthrowaway 5y ago

What were your returns on this strategy?

fnord77 5y ago

roughly what kind of netapp volume did your orders trigger the SEC into looking into it? $1000s, $10,000s, ... ?

ChuckMcM 5y ago
It was a while ago, maybe $4,000 - $5,000 ? I was definitely not more than $5,000. As I said above, I think it was more the timing than the amount that got them curious.