4 ms·

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 info

by 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?
    - throwaway2037 5y ago
      I assume you mean Renaissance Technologies. I categorise it as pure HFT. They are not taking long-short technical or macro positions in their main fund -- that I know. (Others: Please correct me if they have other funds, or changed strategies in last few years.) That said, RenTech was under intense scrutiny by SEC and IRS for their incredibly aggressive tax strategy. I did not follow it to the end.
      - sydthrowaway 5y ago
        Medallion fund? I thought it was stat-arb.
        throwaway2037 5y ago
        Interesting point/question. First: Yes, Medallion fund is the primary fund of RenTech. Second: To me, stat-arb can be HFT or non-HFT. They were/are doing HFT stat-arb in Medallion fund. AQR, Virtu, and Citadel are probably doing both HFT and non-HFT stat-arb. Twenty years ago stat-arb was called "pairs trading". Today, it is much more complex: basket vs basket.
  - vmception 5y ago
    HFT firms don't care about insider trading. If they get exposed to it anyway, they have to shut down their active trading in that specific security for some time, and exclude it. Its not the only thing many firms do.
    - throwaway2037 5y ago
      In practice, there is no way to reliably know why a stock is changing price. There is lots of insider trading that is so small it does not materially impact the trading prices. As of date, there is no scientifically reliable way to measure "market impact" real-time. I assume the best HFT funds are trying to do this using AI/ML.
      - vmception 5y ago
        Right, and that’s not a factor in insider trading charges. If a firm - that also has an agnostic active trading strategy - gets any inside info they have to cut the active trading strategy for liability reasons. That’s a conclusion some firms have made, not whether the SEC will actually bother them in a quantum reality or whether they can successfully defend it.
hermitdev 5y ago
Hands-off standing orders are typically fine with the SEC and are actually preferred to actively trading if there's even a remote possibility of being exposed to insider info. But, I'm not a lawyer and this isn't advise. Talk to your lawyer and investment advisor about any compliance issues.
- yieldgap 5y ago
  The problem is unless they account for it, their trade could trigger during a 'blackout period' (before earnings) when they shouldn't be executing any trades at all.
  - loeg 5y ago
    Blackout periods have no SEC standing. They're purely a construction by your employer to avoid the appearance of trading on MNPI. Standing order trades (e.g., rule 105b-1) can execute at any time relative to earnings.
    - yieldgap 5y ago
      True
vxNsr 5y ago
Not quite. Most executives and board members have standing orders for their own company (usually sell x amount every y days), this way they can’t be accused of doing something illicit.
- elliekelly 5y ago
  There is a bit of a grey area with respect to insider trading and cancelling a standing 10b5-1 order and the SEC has recently commented that they’ll be looking at those foregone transactions with more scrutiny in the near future: https://corpgov.law.harvard.edu/2021/06/25/gensler-plans-to-freshen-up-rule-10b5-1/ https://corpgov.law.harvard.edu/2021/06/25/gensler-plans-to-...

by hoten 5y ago

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?
  - throwaway2037 5y ago
    I assume you mean Renaissance Technologies. I categorise it as pure HFT. They are not taking long-short technical or macro positions in their main fund -- that I know. (Others: Please correct me if they have other funds, or changed strategies in last few years.) That said, RenTech was under intense scrutiny by SEC and IRS for their incredibly aggressive tax strategy. I did not follow it to the end.
    - sydthrowaway 5y ago
      Medallion fund? I thought it was stat-arb.
      - throwaway2037 5y ago
        Interesting point/question. First: Yes, Medallion fund is the primary fund of RenTech. Second: To me, stat-arb can be HFT or non-HFT. They were/are doing HFT stat-arb in Medallion fund. AQR, Virtu, and Citadel are probably doing both HFT and non-HFT stat-arb. Twenty years ago stat-arb was called "pairs trading". Today, it is much more complex: basket vs basket.
- vmception 5y ago
  HFT firms don't care about insider trading. If they get exposed to it anyway, they have to shut down their active trading in that specific security for some time, and exclude it. Its not the only thing many firms do.
  - throwaway2037 5y ago
    In practice, there is no way to reliably know why a stock is changing price. There is lots of insider trading that is so small it does not materially impact the trading prices. As of date, there is no scientifically reliable way to measure "market impact" real-time. I assume the best HFT funds are trying to do this using AI/ML.
    - vmception 5y ago
      Right, and that’s not a factor in insider trading charges. If a firm - that also has an agnostic active trading strategy - gets any inside info they have to cut the active trading strategy for liability reasons. That’s a conclusion some firms have made, not whether the SEC will actually bother them in a quantum reality or whether they can successfully defend it.

hermitdev 5y ago

Hands-off standing orders are typically fine with the SEC and are actually preferred to actively trading if there's even a remote possibility of being exposed to insider info. But, I'm not a lawyer and this isn't advise. Talk to your lawyer and investment advisor about any compliance issues.

yieldgap 5y ago
The problem is unless they account for it, their trade could trigger during a 'blackout period' (before earnings) when they shouldn't be executing any trades at all.
- loeg 5y ago
  Blackout periods have no SEC standing. They're purely a construction by your employer to avoid the appearance of trading on MNPI. Standing order trades (e.g., rule 105b-1) can execute at any time relative to earnings.
  - yieldgap 5y ago
    True

vxNsr 5y ago

Not quite. Most executives and board members have standing orders for their own company (usually sell x amount every y days), this way they can’t be accused of doing something illicit.

elliekelly 5y ago
There is a bit of a grey area with respect to insider trading and cancelling a standing 10b5-1 order and the SEC has recently commented that they’ll be looking at those foregone transactions with more scrutiny in the near future: https://corpgov.law.harvard.edu/2021/06/25/gensler-plans-to-freshen-up-rule-10b5-1/ https://corpgov.law.harvard.edu/2021/06/25/gensler-plans-to-...