4 ms·

> Well, in the article the make clear that there is case law that this is illegal and considered "misappropriation" insider trading. I'm not sure that is the

> Well, in the article the make clear that there is case law that this is illegal and considered "misappropriation" insider trading. I'm not sure that is the exact same thing. These guys had to do some research. Consider, for example, a large pork supplier. If they see orders from Chipotle trend up by (say) 30% over a quarter, are they free to buy call options on CMG? What if you're a feed supplier to this pork supplier, and you know that Chipotle is their biggest customer, and see that this pork supplier's demand for feed has gone up by 30%; can you then buy call options? This is a gray area, and I'm not sure the line is really that clear cut.

will_brown 12y ago
>This is a gray area, and I'm not sure the line is really that clear cut. Your examples are not novel issues, certainly there would be case law on point. I can not cite the case law, but I would tend to believe your examples fall within the classification of insider trading (i.e. trading based on a companies non-public information). I know for example as an attorney if I am working on a merger and I buy/sell stock or inform someone else who buys/sells the stock that would be insider trading. Generally, think of the Martha Stewart allegations, she was informed by a friend/corporate officer that the FDA was rejecting the companies cancer drug. Based on that non-public information her brother sold the stock and then the FDA decision became public and the stock dropped. It is a stretch from your hypothetical, but the non-public information paradigm would seemingly still apply.
- lmm 12y ago
  I don't think that example is insider trading. Insider trading is trading on material nonpublic information that was obtained in violation of a duty of confidence (and for a benefit). Do Chipotle's suppliers have a duty of confidence regarding their order sizes? I suspect either it's explicit in the contract, or they don't.
  - mkehrt 12y ago
    Is that ("that was obtained in violation of a duty of confidence") true? I don't think it is. I'm pretty sure you can't trade on information you overhear in a bar, for example.
    - lmm 12y ago
      The SEC might argue that bar patrons have such a duty of confidence - they have previously done so for roommates, and golfing partners. Or they might charge the person you overheard with violating the Reg FD selective disclosure rules. Or they might let you both away with it (IANAL). But yes, it absolutely is part of the law; http://www.law.cornell.edu/cfr/text/17/240.10b5-2 http://www.law.cornell.edu/cfr/text/17/240.10b5-2 is the detailed version.
    - discardorama 12y ago
      > I'm pretty sure you can't trade on information you overhear in a bar, for example. Apparently, you can. Read the following: http://sloanreview.mit.edu/article/when-is-it-legal-to-trade-on-inside-information-2/ http://sloanreview.mit.edu/article/when-is-it-legal-to-trade...

will_brown 12y ago

>This is a gray area, and I'm not sure the line is really that clear cut. Your examples are not novel issues, certainly there would be case law on point. I can not cite the case law, but I would tend to believe your examples fall within the classification of insider trading (i.e. trading based on a companies non-public information). I know for example as an attorney if I am working on a merger and I buy/sell stock or inform someone else who buys/sells the stock that would be insider trading. Generally, think of the Martha Stewart allegations, she was informed by a friend/corporate officer that the FDA was rejecting the companies cancer drug. Based on that non-public information her brother sold the stock and then the FDA decision became public and the stock dropped. It is a stretch from your hypothetical, but the non-public information paradigm would seemingly still apply.

lmm 12y ago
I don't think that example is insider trading. Insider trading is trading on material nonpublic information that was obtained in violation of a duty of confidence (and for a benefit). Do Chipotle's suppliers have a duty of confidence regarding their order sizes? I suspect either it's explicit in the contract, or they don't.
- mkehrt 12y ago
  Is that ("that was obtained in violation of a duty of confidence") true? I don't think it is. I'm pretty sure you can't trade on information you overhear in a bar, for example.
  - lmm 12y ago
    The SEC might argue that bar patrons have such a duty of confidence - they have previously done so for roommates, and golfing partners. Or they might charge the person you overheard with violating the Reg FD selective disclosure rules. Or they might let you both away with it (IANAL). But yes, it absolutely is part of the law; http://www.law.cornell.edu/cfr/text/17/240.10b5-2 http://www.law.cornell.edu/cfr/text/17/240.10b5-2 is the detailed version.
  - discardorama 12y ago
    > I'm pretty sure you can't trade on information you overhear in a bar, for example. Apparently, you can. Read the following: http://sloanreview.mit.edu/article/when-is-it-legal-to-trade-on-inside-information-2/ http://sloanreview.mit.edu/article/when-is-it-legal-to-trade...