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Important clarification: you do not need to have confidentiality obligations with respect to the information or a fiduciary relationship, it need only be inform

Important clarification: you do not need to have confidentiality obligations with respect to the information or a fiduciary relationship, it need only be information that is material and non-public information that belongs to the company (i.e. only available to those with a fiduciary responsibility or confidentiality obligation to the company). If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading. The link you referenced also clarifies this point, but it is different from what is written in your comment. Note: this doesn't change the fact that the answer in this particular case is no, it's not insider trading. You are, as parent mentioned, just the first to know the news.

dataflow 3y ago
What does "non-public" mean here? If some information gets leaked without authorization by an insider (like when people leak stuff online...), (when) does that become public?
- bwilliams18 3y ago
  There's no bright line. But jurisprudence puts it somewhere below 375 subscribers to a newsletter. https://www.bloomberg.com/opinion/articles/2023-11-02/the-banks-are-where-the-money-isn-t https://www.bloomberg.com/opinion/articles/2023-11-02/the-ba... (Journalism Section)
ClumsyPilot 3y ago
> it need only be information that is material and non-public. I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank. In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value. P.S. nothing against BMW, just an example.
- colinmorelli 3y ago
  "Public" doesn't mean the company has publicly announced it - just that the information is available to the public. The situation you're describing is very similar to the Boeing situation above. You just happen to be the first person aware of the news, because your job provides you the ability to see a bunch of cars and understand how their quality is trending. Nor is it any different than you buying, say, one of the first Rivans, thinking the QC was horrible, and shorting the stock. Regardless of when you learned it, the quality of BMW's cars (in this example) became public information when they started selling them to the public. Now, however, if an internal employee told the technician that BMW had removed all QA checks from their line, and (s)he should expect quality to fall precipitously in the years ahead, that would be different.
- ghaff 3y ago
  Just because Car and Driver hasn't published an expose doesn't mean the information isn't public. Presumably lots of other independent (and non-independent) technicians have noticed the same thing. Your observation may be sampling error or not something that is sufficiently noteworthy to have percolated up to all the car forums out there en masse.
- jasode 3y ago
  >I think this is wrong as well. The gp's wording is a little confusing but he's just trying to explain the transitive logic of non-public information transferring from a "true insider" to an outsider is also "insider trading" and thus illegal. Think of it as the provenance of information coming from an insider. E.g. Martha Stewart is an "outsider" and not an insider of drug company ImClone but she was found guilty of insider trading because she did get confidential information from insiders at the Merrill Lynch brokerage that handled stock trades for the ImClone CEO: https://www.sec.gov/news/press/2003-69.htm https://www.sec.gov/news/press/2003-69.htm Your scenario of a mechanic repairing cars, or somebody counting the number of cars in various Walmart parking lots, or a hacker that discovers a serious website vulnerability that may cause embarrassment and stock price drop ... none of those situations have a corporate insider in that information disclosure loop.
  - 3y ago
paulsutter 3y ago
You're muddying the waters here, the original poster is correct, but with a few scenarios for outsiders. For example, a company that printed the financial statements of companies, had no NDAs, was trading on the data, and was convicted of insider trading because they knew the data was company confidential information. Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company. Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question
- colinmorelli 3y ago
  It does seem quite odd to say "it doesn't matter one whit whether the information was material or public" when insider trading is defined as: the trading of a company’s securities by individuals with access to confidential or material non-public information about the company. Further, I struggle to understand how one could learn information which is non-public without "theft" of that information. It would seem that, by definition, if the organization begins sharing that information with individuals who have no confidentiality obligation, they have now made that information public. What does tend to happen often is that others assume "public" means "written in the news" and that is certainly not the case. There are plenty of things that are knowable by the public but not obvious, and it's perfectly fine to trade on that.
  - paulsutter 3y ago
    You're thinking too narrowly. Example: logs of search queries that suddenly trend with adverse information about companies. Those logs are not public, in fact you need to buy them, but they have real signal (thus material and nonpublic), and are perfectly legal to buy and use. Satellite photos to estimate material stacking up outside a factory, or how many cars are in the parking lots of retail stores. Mobile data that has been statistically tied to foot traffic in stores. Credit card purchase data (not public! very material! perfectly ok!) I could go on forever Go ask a lawyer this is a big space EDIT: Yes exactly, ITS HAS TO BE CONFIDENTIAL TO THE COMPANY AND THUS TAKEN FROM THE COMPANY LIKE I SAID ABOVE. Your explanation implicated all the cases I described. You haven't seen how explicitly rich are the sources that I mentioned above, they are very very definitely information about the companies that are traded
porphyra 3y ago
What if you are on a plane and door blows out but the only other passenger on the plane happens to be a Boeing exec by sheer coincidence?
- colinmorelli 3y ago
  Anyone could have been on that plane provided they bought a ticket. The fact that nobody else was is irrelevant. The information was not only knowable to those with a fiduciary or confidentiality obligation to the company.
- devortel 3y ago
  If you're traveling as a regular passenger, you still would not have a fiduciary relationship with Boeing and you have no confidentiality obligations regardless of who else is on the plane.
- vintermann 3y ago
  I know what you're thinking, but no, you still can't push him out.
  - deleted 3y ago
    [deleted]
  - rezonant 3y ago
    Ayyoooo
- lostlogin 3y ago
  There is a chance that the plane crashing would improve Boeing's management.
adrr 3y ago
What if you infer it from a person that does have a privilege position. Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence. Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?
- ls612 3y ago
  Depends on how well connected you are to the establishment whether a prosecutor would try to bring charges on more novel fact patterns. Rule by law vs rule of law and all that.
- helsinkiandrew 3y ago
  If you infer it, rather than being told by the research company then it’s probably on the “not” end of the “insider trading” spectrum. The SEC could still charge you but it would be hard to prove how you inferred the information
- WoahNoun 3y ago
  There's an ongoing insider trading case where an executive at Company A learned that Company A by might acquired. He then bought call options on his closest competitor assuming that the news of Company A being acquired would cause the value of the competitor to also increase. https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summary-judgment-bid-in-shadow-insider-trading-case/ https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summa...
Retric 3y ago
That’s not quite correct, it depends on the nature of the disclosure. Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.
- jeffbee 3y ago
  This exact scenario happened to me. I was flying United business class SFO to EWR and the guy next to me was writing a Powerpoint slide in 9000-point bold type "BUY XYZ CORP FOR 880 MILLION" and when I got to work a few hours later our counsel advised me that it was not at all improper to trade on that information, which we did.
  - flipbrad 3y ago
    The absolute first thing I ever do when publicly working on a doc like that (if I absolutely must) is Ctrl+r any trademarks, swapping them for [#x].
    - jeffbee 3y ago
      Seems good. But I also feel like if you're the kind of person who can command the disposition of a billion dollars, just stop writing slides. Stand up in front of the board and say what you came to say and then sit back down.
  - evan_ 3y ago
    Well, I’ve figured out how I’m spending my spring break- buy a ton of cheap stock in some random startup, dress head-to-toe in Microsoft swag, and then spend a few days hanging out in various SFO lounges working on fake PowerPoints declaring intent to buy the startup
    - jeffbee 3y ago
      Sounds fun. You'll also need to hack your photograph into the "about us" page of a major corporation, though.
jazzdev 3y ago
> If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading. Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?

dataflow 3y ago

What does "non-public" mean here? If some information gets leaked without authorization by an insider (like when people leak stuff online...), (when) does that become public?

bwilliams18 3y ago
There's no bright line. But jurisprudence puts it somewhere below 375 subscribers to a newsletter. https://www.bloomberg.com/opinion/articles/2023-11-02/the-banks-are-where-the-money-isn-t https://www.bloomberg.com/opinion/articles/2023-11-02/the-ba... (Journalism Section)

ClumsyPilot 3y ago

> it need only be information that is material and non-public. I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank. In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value. P.S. nothing against BMW, just an example.

colinmorelli 3y ago
"Public" doesn't mean the company has publicly announced it - just that the information is available to the public. The situation you're describing is very similar to the Boeing situation above. You just happen to be the first person aware of the news, because your job provides you the ability to see a bunch of cars and understand how their quality is trending. Nor is it any different than you buying, say, one of the first Rivans, thinking the QC was horrible, and shorting the stock. Regardless of when you learned it, the quality of BMW's cars (in this example) became public information when they started selling them to the public. Now, however, if an internal employee told the technician that BMW had removed all QA checks from their line, and (s)he should expect quality to fall precipitously in the years ahead, that would be different.
ghaff 3y ago
Just because Car and Driver hasn't published an expose doesn't mean the information isn't public. Presumably lots of other independent (and non-independent) technicians have noticed the same thing. Your observation may be sampling error or not something that is sufficiently noteworthy to have percolated up to all the car forums out there en masse.
jasode 3y ago
>I think this is wrong as well. The gp's wording is a little confusing but he's just trying to explain the transitive logic of non-public information transferring from a "true insider" to an outsider is also "insider trading" and thus illegal. Think of it as the provenance of information coming from an insider. E.g. Martha Stewart is an "outsider" and not an insider of drug company ImClone but she was found guilty of insider trading because she did get confidential information from insiders at the Merrill Lynch brokerage that handled stock trades for the ImClone CEO: https://www.sec.gov/news/press/2003-69.htm https://www.sec.gov/news/press/2003-69.htm Your scenario of a mechanic repairing cars, or somebody counting the number of cars in various Walmart parking lots, or a hacker that discovers a serious website vulnerability that may cause embarrassment and stock price drop ... none of those situations have a corporate insider in that information disclosure loop.
- 3y ago

paulsutter 3y ago

You're muddying the waters here, the original poster is correct, but with a few scenarios for outsiders. For example, a company that printed the financial statements of companies, had no NDAs, was trading on the data, and was convicted of insider trading because they knew the data was company confidential information. Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company. Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question

colinmorelli 3y ago
It does seem quite odd to say "it doesn't matter one whit whether the information was material or public" when insider trading is defined as: the trading of a company’s securities by individuals with access to confidential or material non-public information about the company. Further, I struggle to understand how one could learn information which is non-public without "theft" of that information. It would seem that, by definition, if the organization begins sharing that information with individuals who have no confidentiality obligation, they have now made that information public. What does tend to happen often is that others assume "public" means "written in the news" and that is certainly not the case. There are plenty of things that are knowable by the public but not obvious, and it's perfectly fine to trade on that.
- paulsutter 3y ago
  You're thinking too narrowly. Example: logs of search queries that suddenly trend with adverse information about companies. Those logs are not public, in fact you need to buy them, but they have real signal (thus material and nonpublic), and are perfectly legal to buy and use. Satellite photos to estimate material stacking up outside a factory, or how many cars are in the parking lots of retail stores. Mobile data that has been statistically tied to foot traffic in stores. Credit card purchase data (not public! very material! perfectly ok!) I could go on forever Go ask a lawyer this is a big space EDIT: Yes exactly, ITS HAS TO BE CONFIDENTIAL TO THE COMPANY AND THUS TAKEN FROM THE COMPANY LIKE I SAID ABOVE. Your explanation implicated all the cases I described. You haven't seen how explicitly rich are the sources that I mentioned above, they are very very definitely information about the companies that are traded

porphyra 3y ago

What if you are on a plane and door blows out but the only other passenger on the plane happens to be a Boeing exec by sheer coincidence?

colinmorelli 3y ago
Anyone could have been on that plane provided they bought a ticket. The fact that nobody else was is irrelevant. The information was not only knowable to those with a fiduciary or confidentiality obligation to the company.
devortel 3y ago
If you're traveling as a regular passenger, you still would not have a fiduciary relationship with Boeing and you have no confidentiality obligations regardless of who else is on the plane.
vintermann 3y ago
I know what you're thinking, but no, you still can't push him out.
- deleted 3y ago
  [deleted]
- rezonant 3y ago
  Ayyoooo
lostlogin 3y ago
There is a chance that the plane crashing would improve Boeing's management.

adrr 3y ago

What if you infer it from a person that does have a privilege position. Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence. Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?

ls612 3y ago
Depends on how well connected you are to the establishment whether a prosecutor would try to bring charges on more novel fact patterns. Rule by law vs rule of law and all that.
helsinkiandrew 3y ago
If you infer it, rather than being told by the research company then it’s probably on the “not” end of the “insider trading” spectrum. The SEC could still charge you but it would be hard to prove how you inferred the information
WoahNoun 3y ago
There's an ongoing insider trading case where an executive at Company A learned that Company A by might acquired. He then bought call options on his closest competitor assuming that the news of Company A being acquired would cause the value of the competitor to also increase. https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summary-judgment-bid-in-shadow-insider-trading-case/ https://corpgov.law.harvard.edu/2023/12/17/sec-defeats-summa...

Retric 3y ago

That’s not quite correct, it depends on the nature of the disclosure. Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.

jeffbee 3y ago
This exact scenario happened to me. I was flying United business class SFO to EWR and the guy next to me was writing a Powerpoint slide in 9000-point bold type "BUY XYZ CORP FOR 880 MILLION" and when I got to work a few hours later our counsel advised me that it was not at all improper to trade on that information, which we did.
- flipbrad 3y ago
  The absolute first thing I ever do when publicly working on a doc like that (if I absolutely must) is Ctrl+r any trademarks, swapping them for [#x].
  - jeffbee 3y ago
    Seems good. But I also feel like if you're the kind of person who can command the disposition of a billion dollars, just stop writing slides. Stand up in front of the board and say what you came to say and then sit back down.
- evan_ 3y ago
  Well, I’ve figured out how I’m spending my spring break- buy a ton of cheap stock in some random startup, dress head-to-toe in Microsoft swag, and then spend a few days hanging out in various SFO lounges working on fake PowerPoints declaring intent to buy the startup
  - jeffbee 3y ago
    Sounds fun. You'll also need to hack your photograph into the "about us" page of a major corporation, though.

jazzdev 3y ago

> If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading. Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?