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> So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. I am under the impression that this would also be illega

> So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. I am under the impression that this would also be illegal, because trading on the basis of MNPI is itself illegal, irrespective of insider/outsider status.

Mtinie 3y ago
In the specific hypothetical case mentioned, wouldn’t that constitute “public” information if it was overheard in a non-controlled location?
- ojosilva 3y ago
  Overhearing could fall under the "misappropriation theory" of insider trading. If you run into "confidential" (material non-public) information about the security, you still would be committing fraud. [1] But then the passenger could claim that they did not the person next to them was Elon Musk, and that when Elon said over the phone "whoever shorts Tesla stock now will become a billionaire next month" they thought it was some random guy giving his 2c on the trade. [1] https://www.law.cornell.edu/wex/misappropriation_theory_of_insider_trading https://www.law.cornell.edu/wex/misappropriation_theory_of_i... > Before U.S. v. O’Hagan, 521 U.S. 642 (1997), individuals could only be liable for insider trading under the classical theory of insider trading. In U.S. v. O’Hagan, the U.S. Supreme Court faced a scenario where a partner at a large law firm purchased stock futures in a company conducting a tender offer based on inside information that he gleaned from other partners at the firm working on the deal. Although the partner had no fiduciary duty to the companies in whose stock he traded, the Supreme Court found him liable under Rule 10 b-5 on the grounds that he used confidential information to trade securities. The Court reasoned that such insider trading is fraudulent because it is akin to embezzlement; that is, the owner of the confidential information has exclusive use of such information, and the trader misappropriates that information by trading on it and not disclosing the use of the information to the owner of the information.
  - Retric 3y ago
    That partner had privileged access to that confidential information and as such wasn’t an unrelated 3rd party. Where the ‘theft’ line of reasoning is an issue for unrelated 3rd parties is hacking: https://www.justice.gov/usao-edny/pr/former-hedge-fund-manager-sentenced-60-months-imprisonment-and-ordered-pay-144-million https://www.justice.gov/usao-edny/pr/former-hedge-fund-manag...
atkailash 3y ago
Agreed. It absolutely could be if it’s technically non-public information. That’s the entire point of the regulations. Just because you don’t work for the company doesn’t make it not insider trading if you act off information the company didn’t disclose.
- arthurcolle 3y ago
  Always funny when the startup geniuses reinterpret securities and broker-dealer rules
resist_futility 3y ago
How would a random person know if that information was MNPI? How could you possibly prove that someone knew it was?
- arthurcolle 3y ago
  Ignorance of the law is not an excuse for misconduct
  - growse 3y ago
    This has nothing to do with ignorance of the law, it's about intent. You can be fully versed in insider trading law, receive some information that you reasonably assume isn't protected, trade on it, and that's not insider trading. If that weren't the case, every single person who traded a stock after some MNPI was inadvertently broadcast/published would be guilty of insider trading.
tomp 3y ago
> because trading on the basis of MNPI is itself illegal "yes" in Europe, "no" in the US
- Scarblac 3y ago
  What if the plane is in the middle, over the Atlantic?
  - Ekaros 3y ago
    My guess is it is based on where you order the execution of trades. That is physical location of either exchange or your broker.
- arthurcolle 3y ago
  I'm sorry but you are wrong. Russia is the only country that I know of that does not follow "common understanding" of insider trading
  - tomp 3y ago
    Do you ever bother reading? https://en.wikipedia.org/wiki/Insider_trading#Legal_differences_among_jurisdictions https://en.wikipedia.org/wiki/Insider_trading#Legal_differen... > The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known. This is a much broader scope than under U.S. law. The key differences from U.S. law are that no relationship to either the issuer of the security or the tipster is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information
Aerroon 3y ago
But how does this square with rumors? Is trading based on rumors illegal then? "I heard a rumour that their defect rate is very high for this new product." Information that isn't meant to be public might still send up circulating sure to mistakes etc. How would you determine whether trading based on it would be legal or not?
- arthurcolle 3y ago
  Hearing a rumor isn't illegal. Hearing and trading on a specific statement by an insider at a public company, as an outsider, is insider trading. It's not that complicated

Mtinie 3y ago

In the specific hypothetical case mentioned, wouldn’t that constitute “public” information if it was overheard in a non-controlled location?

ojosilva 3y ago
Overhearing could fall under the "misappropriation theory" of insider trading. If you run into "confidential" (material non-public) information about the security, you still would be committing fraud. [1] But then the passenger could claim that they did not the person next to them was Elon Musk, and that when Elon said over the phone "whoever shorts Tesla stock now will become a billionaire next month" they thought it was some random guy giving his 2c on the trade. [1] https://www.law.cornell.edu/wex/misappropriation_theory_of_insider_trading https://www.law.cornell.edu/wex/misappropriation_theory_of_i... > Before U.S. v. O’Hagan, 521 U.S. 642 (1997), individuals could only be liable for insider trading under the classical theory of insider trading. In U.S. v. O’Hagan, the U.S. Supreme Court faced a scenario where a partner at a large law firm purchased stock futures in a company conducting a tender offer based on inside information that he gleaned from other partners at the firm working on the deal. Although the partner had no fiduciary duty to the companies in whose stock he traded, the Supreme Court found him liable under Rule 10 b-5 on the grounds that he used confidential information to trade securities. The Court reasoned that such insider trading is fraudulent because it is akin to embezzlement; that is, the owner of the confidential information has exclusive use of such information, and the trader misappropriates that information by trading on it and not disclosing the use of the information to the owner of the information.
- Retric 3y ago
  That partner had privileged access to that confidential information and as such wasn’t an unrelated 3rd party. Where the ‘theft’ line of reasoning is an issue for unrelated 3rd parties is hacking: https://www.justice.gov/usao-edny/pr/former-hedge-fund-manager-sentenced-60-months-imprisonment-and-ordered-pay-144-million https://www.justice.gov/usao-edny/pr/former-hedge-fund-manag...

atkailash 3y ago

Agreed. It absolutely could be if it’s technically non-public information. That’s the entire point of the regulations. Just because you don’t work for the company doesn’t make it not insider trading if you act off information the company didn’t disclose.

arthurcolle 3y ago
Always funny when the startup geniuses reinterpret securities and broker-dealer rules

resist_futility 3y ago

How would a random person know if that information was MNPI? How could you possibly prove that someone knew it was?

arthurcolle 3y ago
Ignorance of the law is not an excuse for misconduct
- growse 3y ago
  This has nothing to do with ignorance of the law, it's about intent. You can be fully versed in insider trading law, receive some information that you reasonably assume isn't protected, trade on it, and that's not insider trading. If that weren't the case, every single person who traded a stock after some MNPI was inadvertently broadcast/published would be guilty of insider trading.

tomp 3y ago

> because trading on the basis of MNPI is itself illegal "yes" in Europe, "no" in the US

Scarblac 3y ago
What if the plane is in the middle, over the Atlantic?
- Ekaros 3y ago
  My guess is it is based on where you order the execution of trades. That is physical location of either exchange or your broker.
arthurcolle 3y ago
I'm sorry but you are wrong. Russia is the only country that I know of that does not follow "common understanding" of insider trading
- tomp 3y ago
  Do you ever bother reading? https://en.wikipedia.org/wiki/Insider_trading#Legal_differences_among_jurisdictions https://en.wikipedia.org/wiki/Insider_trading#Legal_differen... > The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known. This is a much broader scope than under U.S. law. The key differences from U.S. law are that no relationship to either the issuer of the security or the tipster is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information

Aerroon 3y ago

But how does this square with rumors? Is trading based on rumors illegal then? "I heard a rumour that their defect rate is very high for this new product." Information that isn't meant to be public might still send up circulating sure to mistakes etc. How would you determine whether trading based on it would be legal or not?

arthurcolle 3y ago
Hearing a rumor isn't illegal. Hearing and trading on a specific statement by an insider at a public company, as an outsider, is insider trading. It's not that complicated