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Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to

Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to close sometime this week (you're not working on the deal, you just heard through the grapevine that it's happening). Is that considered insider trading?

meindnoch 3y ago
>Is that considered insider trading? Yes.
- ryanSrich 3y ago
  Legally speaking then, it's best to never make trades on any company that you currently or have previously (because you could still have friends that work there) worked for?
  - WJW 3y ago
    If you are in the USA, rule 10b5-1 of the SEC [1] "allows insiders of publicly-traded corporations to set up a trading plan for selling stocks they own". Despite the description in the link, as I understand it you can also buy more stock as long as you announce it well in advance. It is explicitly meant to allow people who cannot avoid having non-public information about a stock to still trade in that stock. By forcing them to publicly announce well in advance what they intend to trade and when, the idea is that they then cannot do the short term high risk trading that you need to really profit from insider trading. https://www.investopedia.com/terms/r/rule-10b5-1.asp https://www.investopedia.com/terms/r/rule-10b5-1.asp
  - IKantRead 3y ago
    Have you never worked for a publicly traded company where part of your compensation is in RSUs? You are only able to trade share's during specific windows of time typically 1 week after earnings are released. Additionally virtually every company I've known has explicit policies stating that you cannot buy/sell any derivatives related to the company stock (which is a shame since buying put options is a legitimate way to insure your compensation). Further more, even these rules are only this lax for non-executive or other high level employees. If you're higher up in the company you have much more access to non-public material information. The solution to this is usually to set up a 10b5-1 that automatically liquidates shares based on a schedule approved by the board. In regards to the "previously" question. I wouldn't worry about legitimate trades, but if you are trading based on insider information and looking to gain a lot of money, then trading would, by definition, be "insider trading"
    - alasdair_ 3y ago
      >You are only able to trade share's during specific windows of time typically 1 week after earnings are released. As a practical matter, you can set up a 10b5-1 to get around this restriction if all you want to do is regularly sell your RSUs when you get them or at certain fixed periods.
    - outworlder 3y ago
      > You are only able to trade share's during specific windows of time typically 1 week after earnings are released. Just having RSUs doesn't mean that you are trade restricted. That depends on your job function and you can confirm with HR (I had to). In addition, like you say, there are further restrictions if you are sufficiently high up. Yeah, some companies have restrictions on derivatives, most have restrictions on shorting.
riffraff 3y ago
> Is that considered insider trading? AFAIU, the use of material non-public information always qualifies as insider trading. It does not matter how you got it, and it does not even matter if you work at the company. See https://www.investopedia.com/terms/m/materialinsiderinformation.asp https://www.investopedia.com/terms/m/materialinsiderinformat...
- piyh 3y ago
  Unless you're a congressman
- lokar 3y ago
  Oh, but it does matter. Insider trading is a kind of theft. A theft from the person or company that had the info and (generally) whose trust you violated. If you develop the info yourself (say, monitoring how full parking lots are at a store to predict earnings), that is fine. Insider trading is about theft of information, not fairness.
  - paganel 3y ago
    I wonder what would happen were those stores to say: “hey, those parking lots are ours and such they are private, as a result any information related to them is ours and hence private”?
  - riffraff 3y ago
    if you develop it yourself, by definition you are doing it based on public information, so it does not apply.
- mason55 3y ago
  > It does not matter how you got it Well, it sort of does. In fact, that's almost all that matters. Insider trading is all about obligations. If someone who had the obligation to keep the info secret gave it to you and then you went and traded on it, then yes, you're breaking the law. But if, say, you figure it out by accidentally stumbling on a draft Splunk web page that has a Cisco copyright buried in the code, you don't have any obligation to not trade on that. It's the same information but the only thing that's different is how you got it. The company and its shareholders are the ones who are harmed by insider trading, so if you're entrusted with the info and trade then you're basically breaching your duty to the company (or the chain of people who shared the info with you). But if the company fucks up and leaks the info then you don't have any obligation to not use it.
htss2013 3y ago
IANAL, but probably comes down to whether you had access to material non public information. Ie, what gave you a hunch? If it's anything non public that could have also given others a hunch, had they known like you did, it's probably material non public information. There's no safe harbor for probabilistic insider trading.
SamBam 3y ago
How strong is the hunch? This person spent $22,000 on buying the options. Unless you are a person who regularly trades this kind of money, the SEC will ask why you felt so confident in it that you made that bet. If you're a regular "low level Splunk or Cisco employee" who honestly has no access to insider information and you honestly just have a "hunch," you're probably not making a bet at the level that the SEC cares about.
IKantRead 3y ago
I've never heard of a publicly traded company that allows employees to buy/sell options on their stock, and I'm willing to bet that the fine print at most places includes companies you're soon to acquire/be acquired from. > you just heard through the grapevine that it's happening Is that "grapevine" public? If not, it is by definition material non-public information. In general in finance if you think you've found some clever exploit in the system that you're surprised no one else is taking advantage of, it's a good idea to double and triple check that it is in fact a legal exploit. Especially if you stand to gain millions off of something that seems easy to do.

meindnoch 3y ago

>Is that considered insider trading? Yes.

ryanSrich 3y ago
Legally speaking then, it's best to never make trades on any company that you currently or have previously (because you could still have friends that work there) worked for?
- WJW 3y ago
  If you are in the USA, rule 10b5-1 of the SEC [1] "allows insiders of publicly-traded corporations to set up a trading plan for selling stocks they own". Despite the description in the link, as I understand it you can also buy more stock as long as you announce it well in advance. It is explicitly meant to allow people who cannot avoid having non-public information about a stock to still trade in that stock. By forcing them to publicly announce well in advance what they intend to trade and when, the idea is that they then cannot do the short term high risk trading that you need to really profit from insider trading. https://www.investopedia.com/terms/r/rule-10b5-1.asp https://www.investopedia.com/terms/r/rule-10b5-1.asp
- IKantRead 3y ago
  Have you never worked for a publicly traded company where part of your compensation is in RSUs? You are only able to trade share's during specific windows of time typically 1 week after earnings are released. Additionally virtually every company I've known has explicit policies stating that you cannot buy/sell any derivatives related to the company stock (which is a shame since buying put options is a legitimate way to insure your compensation). Further more, even these rules are only this lax for non-executive or other high level employees. If you're higher up in the company you have much more access to non-public material information. The solution to this is usually to set up a 10b5-1 that automatically liquidates shares based on a schedule approved by the board. In regards to the "previously" question. I wouldn't worry about legitimate trades, but if you are trading based on insider information and looking to gain a lot of money, then trading would, by definition, be "insider trading"
  - alasdair_ 3y ago
    >You are only able to trade share's during specific windows of time typically 1 week after earnings are released. As a practical matter, you can set up a 10b5-1 to get around this restriction if all you want to do is regularly sell your RSUs when you get them or at certain fixed periods.
  - outworlder 3y ago
    > You are only able to trade share's during specific windows of time typically 1 week after earnings are released. Just having RSUs doesn't mean that you are trade restricted. That depends on your job function and you can confirm with HR (I had to). In addition, like you say, there are further restrictions if you are sufficiently high up. Yeah, some companies have restrictions on derivatives, most have restrictions on shorting.

riffraff 3y ago

> Is that considered insider trading? AFAIU, the use of material non-public information always qualifies as insider trading. It does not matter how you got it, and it does not even matter if you work at the company. See https://www.investopedia.com/terms/m/materialinsiderinformation.asp https://www.investopedia.com/terms/m/materialinsiderinformat...

piyh 3y ago
Unless you're a congressman
lokar 3y ago
Oh, but it does matter. Insider trading is a kind of theft. A theft from the person or company that had the info and (generally) whose trust you violated. If you develop the info yourself (say, monitoring how full parking lots are at a store to predict earnings), that is fine. Insider trading is about theft of information, not fairness.
- paganel 3y ago
  I wonder what would happen were those stores to say: “hey, those parking lots are ours and such they are private, as a result any information related to them is ours and hence private”?
- riffraff 3y ago
  if you develop it yourself, by definition you are doing it based on public information, so it does not apply.
mason55 3y ago
> It does not matter how you got it Well, it sort of does. In fact, that's almost all that matters. Insider trading is all about obligations. If someone who had the obligation to keep the info secret gave it to you and then you went and traded on it, then yes, you're breaking the law. But if, say, you figure it out by accidentally stumbling on a draft Splunk web page that has a Cisco copyright buried in the code, you don't have any obligation to not trade on that. It's the same information but the only thing that's different is how you got it. The company and its shareholders are the ones who are harmed by insider trading, so if you're entrusted with the info and trade then you're basically breaching your duty to the company (or the chain of people who shared the info with you). But if the company fucks up and leaks the info then you don't have any obligation to not use it.

htss2013 3y ago

IANAL, but probably comes down to whether you had access to material non public information. Ie, what gave you a hunch? If it's anything non public that could have also given others a hunch, had they known like you did, it's probably material non public information. There's no safe harbor for probabilistic insider trading.

SamBam 3y ago

How strong is the hunch? This person spent $22,000 on buying the options. Unless you are a person who regularly trades this kind of money, the SEC will ask why you felt so confident in it that you made that bet. If you're a regular "low level Splunk or Cisco employee" who honestly has no access to insider information and you honestly just have a "hunch," you're probably not making a bet at the level that the SEC cares about.

IKantRead 3y ago

I've never heard of a publicly traded company that allows employees to buy/sell options on their stock, and I'm willing to bet that the fine print at most places includes companies you're soon to acquire/be acquired from. > you just heard through the grapevine that it's happening Is that "grapevine" public? If not, it is by definition material non-public information. In general in finance if you think you've found some clever exploit in the system that you're surprised no one else is taking advantage of, it's a good idea to double and triple check that it is in fact a legal exploit. Especially if you stand to gain millions off of something that seems easy to do.