Actually, the real legal insider trading is the trades that you _don’t_ place based on insider knowledge. Eg, if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it when otherwise you may not have cared. There’s no way to prove illegality for _not_ placing a trade.
https://en.wikipedia.org/wiki/Omission_bias probably? "Omission bias is the moral judgement in which people prefer omission (inaction) over commission (action), and tend to believe harm as a result of commission more negatively than harm as a result of omission."
> if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it
This is what executives with stock based compensations can an usually do.
we only regulate the sell side (or buy side), but not the inaction side (where you hold your existing position). I have not thought of a good way to make the market aware of these choices, in a way that enables market efficiency.
There's already hedge funds that scrape the insider selling data for the executives.
You can then build a statistical arbitrage alpha based on the difference between an ordinary amount of selling (conditioned on a bunch of stuff) and a lack of selling/accelerated selling.
For the top execs of public companies you can see what their holdings and transactions are anytime you like. You can also easily see when they haven’t sold. Any advantage here is already mined by people that price stocks for a living unfortunately.
Now if you could see the buying and selling for the next level below them somehow, that would be a great advantage (and also very illegal).
> Now if you could see the buying and selling for the next level below them somehow, that would be a great advantage (and also very illegal).
You could probably estimate this if the company has a trading window for employees (which I think almost all of them do).
Sum up the exec sales, then use the previous accounting data to estimate shares held by employees, and then create an index based on what direction employee sales are trending.
Because RSU grants track level (sortof), then you might be able to get a good sense for this, even though there would be lots of noise.
Warning: not investment advice (though if you're taking investment advice from a random HNer then you're probably doomed anyway).
Knowing that a new competitor has entered the market with a superior product is not inside information. The iPhone was public knowledge (that is how the Nokia engineers, who were not Apple insiders, knew about it). Nokia's existing offering was also public knowledge. Sure, some members of the public might have speculated that maybe Nokia was about to respond with its own killer smartphone, and Nokia insiders knew that wasn't the case. But that's not concrete information. Not to mention that "we can't compete with Apple" is ultimately a matter of opinion/prediction, not concrete information.
This has nothing to do with inside information or insider trading, it is just "if your company is bad, maybe you should go work for a better company".
You kind of hand wave off the thing the article describes was the insider information.
> and Nokia insiders knew that wasn't the case. But that's not concrete information.
This is concrete, if I'm in a leadership or shareholder meeting and I'm authoritatively saying "look, we're done here, everyone thinks we can respond but we can't because of X and Y" then those people now have insider knowledge with gravity.
Valuable inside information isn't a thing everyone at a company knows.
Yeah, it's a really bad take. And there is no proof that what killed Nokia was iPhone... I've seen a pretty solid argument that what killed Nokia was Elop / the Microsoft deal.
Absolutely. Even when it had been abundantly clear that WP was a flop, many people including me were hoping Nokia would just pivot to Android, which they didn't (until HMD; too little too late).
It was almost like Elop had the assignment to run Nokia into the ground, and I'm still wondering why no one of the shareholders cried wolf.
IMHO WP or alternatively their own OS (but Nokia famously sucked at software so hardly a viable option) was their only chance. They couldn’t compete with Samsung and later on Chinese manufacturers of Android phones. HTC, LG and a bunch of others failed despite of pivoting to Android “in time”, why would have Nokia done any better?
I watched "Enron: The smartest guys in the room" documentary, and I think Lou Pai is the most fascinating character in the story.
As quoted online:
Lou Pai was a senior executive at Enron who, after having an affair with a stripper, to satisfy his divorce settlement, cashed out $250 million of his Enron stock just before the company's stock price collapsed and it filed for bankruptcy protection.
I don't know if he ever knew about the stuff that was going down at Enron, but that guy managed to leave the ship in a nice boat before it sank.
If he structured a divorce, with a judge signed cash settlement to manufacture an insider trade to cash out before the stock went to 0 ... he deserves the title "The smartest guy in the room".
This is a bad analogy because it perpetuates a misconception of the basis of insider trading law (in the US).
Insider trading has nothing to do with having an information advantage. The markets and their regulators encourage those with an information advantage to use it to as full advantage as they can.
Insider trading is based on having an economic obligation to someone else. If you use your knowledge to make money and you don’t share that equitably with the people you have that obligation to, that’s insider trading (in the US).
You’d have to torture that definition for it to make sense in the job market and none of the examples in the article match.
You'd have to tell all shareholders and potential shareholders the same information you have, i.e. make the information public, then it's no longer inside information.
but public implies public to non-shareholders too.
What if there's a secret communications channel for all current shareholders? Do these current shareholders offloading shares (to future shareholders) count as insider trading under this scenario?
but you don't have any obligation to all potential shareholder as an insider, just the current shareholders. Which is what i was trying to get at with my comments.
It’s a complicated legal area and it changes. The SEC prior to the current Trump administration took an extremely broad view of it and included all kinds of unintuitive relationships.
But the obvious one is if you are an employee of a company you owe the shareholders of the company due to your employment.
This is not only is obviously AI writing, it feels like it is the output of a single prompt completely unedited. With some AI generated comics thrown in.
Yep, this is why I couldn't stomach reading all the way through it. I get paid to read this type of garbage all day long. Why would I do it in my own time for free? It's sh*t. I'm not reading any AI articles, and I'm not watching AI-scripted videos unless I'm getting paid a fair wage for it.
Maybe if it wasn't so damn shameless. This article did absolutely nothing to try and conceal the fact that it's pure AI slop.
I think the major reason the Nokia engineers didn't jump ship to Apple/Google is that they did not want to move to another country.
The article is written like it assumes the Nokia HQ was next door to Apple/Google.
There is another type of insider trading: If an engineer had stayed at Nokia but bought a lot of shares in Apple after Apple launched the iPhone, would that still be considered insider trading when the engineer did not have any non-public information about Apple, only in which way the general market was moving?
A lot of people laughed at smart phones in 2007-2010, the market majority did not value them and did not predict Apple's stock would grow.
I think “about Apple” was the operative part. For example, if you know that Nokia had a bad quarter, then perhaps you might infer that Apple had a good one. I believe this is also illegal but obviously harder to prove.
This is information asymmetry. The nokia engineers knew something that the rest of the world didn't and were able to use it to their advantage.
In any transaction if you know less than the other party, you're at a disadvantage. I was just thinking this morning I could've negotiated a much higher comp for my current job if I knew just some of things about the company I know now.
There are explicit insider trading forms such as SEC forms 3, 4, and 5. Insiders are allowed to trade as long as it is declared to the government. The issue is with trading while having material non public information. Frequently trades are executed on an explicit schedule with rule 10b5-1 to act as a defense against accusations of trading on MNPI.
The first paragraph of the article drove me insane for that reason. MNPI is one of the bedrocks
For a stable market system. If you trust, on some level, that the people who are counterparty to your trade and not pulling one over on you you’re more likely to participate in the market. The more that trust degrades, the less likely people are to want to interact with the market. The fewer people, the worse prices/spreads get.
Efficient and tight markets are almost entirely predicated on being able to determine that any informational asymmetry is irrelevant over differing time horizons.
Really stretching the language to make it meaningless. Changing a job is now insider trading? While there's no actual trading of anything? No shares being bought or sold. No insider information being leaked out.
I’ve done some “insider trading” that I don’t know if was illegal or not.
I was in an aisle seat on a plane and the person up one row on the other aisle was the CEO of a small public company typing or reading their upcoming quarterly report in Word on their laptop.
You are good! You had no obligation to keep that to yourself. The person in the wrong here was the CEO who failed to take basic steps to protect private information.
"Initial drummer Carruthers was replaced after Mustaine and Ellefson decided they could not trust him. Carruthers had chosen to hide his black heritage from them by claiming he was Spanish, and they could not understand why he would deceive them.Brett Frederickson joined the band in November 1983 as their next drummer."
That move probably hasn't aged well. Pretty nasty.
Edit:
I can't recall which podcast I heard this, but ismtbhebthe guy that was sad that his band didn't sell as many records as Metallica?
I don't understand what happened, he hid the fact that he was black from them, they couldn't understand why he'd hide it, and they fired him? Isn't this kind of exactly why he'd hide it from them?
> Unfortunately, some artists are not offended by their work being used to torture. "If the Iraqis aren't used to freedom, then I'm glad to be part of their exposure," James Hetfield, co-founder of Metallica, has said.
Note that this was a question about the CIA literally using Metallica songs blasted continuously at high volume as a torture technique.
That, paired with his recent claims of "no politics", which is the standard reboubt of people who know their politics are shitty, and don't want to be criticized for them, while still taking people's money.
I read the article and I’m far more interested in talking about actual legal insider trading in the equities market
You may not be able to trade your company’s stock, or a competitor’s if you have knowledge that was under an employer agreement, but you can trade your sector and correlated assets
I assume you mean things like trade secrets that you cannot disclose? That is legal because it is not information that is confidential the same way as say financial results are. It is confidential, but for different reasons. It also tends to be much more long term information so people cannot make a quick profit from it. Its also impractical to regulate.
You understand of course that those numbers show a very mediocre trading strategy. The sharpe ratio and beta on that would get you fired at any professional equity shop.
Graph that congress long/short strategy against qqq and you’ll see why. The very rich in congress are tech investors by and large. They hold outsized bets in Nvidia mostly. You didn’t need any insider knowledge to make outsized returns if you are willing to have a risk on Nvidia position cherry picked from 2020 to today.
Unfortunately doesn't work that smoothly everywhere because outcomes are often tied to larger unknowns whether it is will AI bubble pop or will the global economy take a dip.
On the flip side, even if the company is on the way up and you're on some team that's at the center of it and you'll never benefit from it if your manager doesn't like you. All the opportunity to do all the things that lead toward career growth and compensation will go to other people.
Actually, the real legal insider trading is the trades that you _don’t_ place based on insider knowledge. Eg, if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it when otherwise you may not have cared. There’s no way to prove illegality for _not_ placing a trade.
There should be a name for this cognitive bias, not accounting for what someone is not doing.
https://en.wikipedia.org/wiki/Omission_bias probably? "Omission bias is the moral judgement in which people prefer omission (inaction) over commission (action), and tend to believe harm as a result of commission more negatively than harm as a result of omission."
It just isn't provable, I think it it is technically illegal.
I think the law says evidence needs a purchase or sale. Relatedly, the failure to purchase is not evidence.
Holding stock knowing it might go up is illegal? I don't think that's technically illegal.
If you were going to sell but learned something non public, then letter of the law says you can't make a decision to no longer sell.
*because of insider knowledge
> if you know that the iPhone is years ahead of everything else and you happen to be holding Apple stock, then you won’t let whoever is managing your portfolio sell any of it
This is what executives with stock based compensations can an usually do.
we only regulate the sell side (or buy side), but not the inaction side (where you hold your existing position). I have not thought of a good way to make the market aware of these choices, in a way that enables market efficiency.
There's already hedge funds that scrape the insider selling data for the executives.
You can then build a statistical arbitrage alpha based on the difference between an ordinary amount of selling (conditioned on a bunch of stuff) and a lack of selling/accelerated selling.
For the top execs of public companies you can see what their holdings and transactions are anytime you like. You can also easily see when they haven’t sold. Any advantage here is already mined by people that price stocks for a living unfortunately.
Now if you could see the buying and selling for the next level below them somehow, that would be a great advantage (and also very illegal).
> Now if you could see the buying and selling for the next level below them somehow, that would be a great advantage (and also very illegal).
You could probably estimate this if the company has a trading window for employees (which I think almost all of them do).
Sum up the exec sales, then use the previous accounting data to estimate shares held by employees, and then create an index based on what direction employee sales are trending.
Because RSU grants track level (sortof), then you might be able to get a good sense for this, even though there would be lots of noise.
Warning: not investment advice (though if you're taking investment advice from a random HNer then you're probably doomed anyway).
Knowing that a new competitor has entered the market with a superior product is not inside information. The iPhone was public knowledge (that is how the Nokia engineers, who were not Apple insiders, knew about it). Nokia's existing offering was also public knowledge. Sure, some members of the public might have speculated that maybe Nokia was about to respond with its own killer smartphone, and Nokia insiders knew that wasn't the case. But that's not concrete information. Not to mention that "we can't compete with Apple" is ultimately a matter of opinion/prediction, not concrete information.
This has nothing to do with inside information or insider trading, it is just "if your company is bad, maybe you should go work for a better company".
Also it reeks of AI.
You kind of hand wave off the thing the article describes was the insider information.
> and Nokia insiders knew that wasn't the case. But that's not concrete information.
This is concrete, if I'm in a leadership or shareholder meeting and I'm authoritatively saying "look, we're done here, everyone thinks we can respond but we can't because of X and Y" then those people now have insider knowledge with gravity.
Valuable inside information isn't a thing everyone at a company knows.
Yeah, it's a really bad take. And there is no proof that what killed Nokia was iPhone... I've seen a pretty solid argument that what killed Nokia was Elop / the Microsoft deal.
Absolutely. Even when it had been abundantly clear that WP was a flop, many people including me were hoping Nokia would just pivot to Android, which they didn't (until HMD; too little too late).
It was almost like Elop had the assignment to run Nokia into the ground, and I'm still wondering why no one of the shareholders cried wolf.
IMHO WP or alternatively their own OS (but Nokia famously sucked at software so hardly a viable option) was their only chance. They couldn’t compete with Samsung and later on Chinese manufacturers of Android phones. HTC, LG and a bunch of others failed despite of pivoting to Android “in time”, why would have Nokia done any better?
I watched "Enron: The smartest guys in the room" documentary, and I think Lou Pai is the most fascinating character in the story.
As quoted online:
Lou Pai was a senior executive at Enron who, after having an affair with a stripper, to satisfy his divorce settlement, cashed out $250 million of his Enron stock just before the company's stock price collapsed and it filed for bankruptcy protection.
I don't know if he ever knew about the stuff that was going down at Enron, but that guy managed to leave the ship in a nice boat before it sank.
If he structured a divorce, with a judge signed cash settlement to manufacture an insider trade to cash out before the stock went to 0 ... he deserves the title "The smartest guy in the room".
he shouldn’t have settled with the SEC after the movie came out
Next level avoiding the Twin Towers on 9/11 day.
so he might have been the trigger then
This is a bad analogy because it perpetuates a misconception of the basis of insider trading law (in the US).
Insider trading has nothing to do with having an information advantage. The markets and their regulators encourage those with an information advantage to use it to as full advantage as they can.
Insider trading is based on having an economic obligation to someone else. If you use your knowledge to make money and you don’t share that equitably with the people you have that obligation to, that’s insider trading (in the US).
You’d have to torture that definition for it to make sense in the job market and none of the examples in the article match.
> you don’t share that equitably with the people you have that obligation to, that’s insider trading (in the US).
so if you simply tell the other shareholders to also participate in the insider trading, you'd be free of charges?
You'd have to tell all shareholders and potential shareholders the same information you have, i.e. make the information public, then it's no longer inside information.
but public implies public to non-shareholders too.
What if there's a secret communications channel for all current shareholders? Do these current shareholders offloading shares (to future shareholders) count as insider trading under this scenario?
Everyone is potentially a shareholder.
but you don't have any obligation to all potential shareholder as an insider, just the current shareholders. Which is what i was trying to get at with my comments.
what does "having an economic obligation to" mean in this context?
It’s a complicated legal area and it changes. The SEC prior to the current Trump administration took an extremely broad view of it and included all kinds of unintuitive relationships.
But the obvious one is if you are an employee of a company you owe the shareholders of the company due to your employment.
This is not only is obviously AI writing, it feels like it is the output of a single prompt completely unedited. With some AI generated comics thrown in.
Yep, this is why I couldn't stomach reading all the way through it. I get paid to read this type of garbage all day long. Why would I do it in my own time for free? It's sh*t. I'm not reading any AI articles, and I'm not watching AI-scripted videos unless I'm getting paid a fair wage for it.
Maybe if it wasn't so damn shameless. This article did absolutely nothing to try and conceal the fact that it's pure AI slop.
I think the major reason the Nokia engineers didn't jump ship to Apple/Google is that they did not want to move to another country.
The article is written like it assumes the Nokia HQ was next door to Apple/Google.
There is another type of insider trading: If an engineer had stayed at Nokia but bought a lot of shares in Apple after Apple launched the iPhone, would that still be considered insider trading when the engineer did not have any non-public information about Apple, only in which way the general market was moving?
A lot of people laughed at smart phones in 2007-2010, the market majority did not value them and did not predict Apple's stock would grow.
“did not have any non-public information”
Why would that be considered insider trading
I think “about Apple” was the operative part. For example, if you know that Nokia had a bad quarter, then perhaps you might infer that Apple had a good one. I believe this is also illegal but obviously harder to prove.
This is not an “insider trading”, it is an insider’s knowledge (affinity to knowledge) and ability to use it.
This is information asymmetry. The nokia engineers knew something that the rest of the world didn't and were able to use it to their advantage.
In any transaction if you know less than the other party, you're at a disadvantage. I was just thinking this morning I could've negotiated a much higher comp for my current job if I knew just some of things about the company I know now.
There are explicit insider trading forms such as SEC forms 3, 4, and 5. Insiders are allowed to trade as long as it is declared to the government. The issue is with trading while having material non public information. Frequently trades are executed on an explicit schedule with rule 10b5-1 to act as a defense against accusations of trading on MNPI.
The first paragraph of the article drove me insane for that reason. MNPI is one of the bedrocks For a stable market system. If you trust, on some level, that the people who are counterparty to your trade and not pulling one over on you you’re more likely to participate in the market. The more that trust degrades, the less likely people are to want to interact with the market. The fewer people, the worse prices/spreads get.
Efficient and tight markets are almost entirely predicated on being able to determine that any informational asymmetry is irrelevant over differing time horizons.
A founder at my company does this. Sells $$$ of shares every few weeks.
Amusing the press report the sales as if he's selling due to something that's happening to the company that week.
Really stretching the language to make it meaningless. Changing a job is now insider trading? While there's no actual trading of anything? No shares being bought or sold. No insider information being leaked out.
I’ve done some “insider trading” that I don’t know if was illegal or not.
I was in an aisle seat on a plane and the person up one row on the other aisle was the CEO of a small public company typing or reading their upcoming quarterly report in Word on their laptop.
You are good! You had no obligation to keep that to yourself. The person in the wrong here was the CEO who failed to take basic steps to protect private information.
Headline is misleading. It does not talk about trading securities at all. Not worth a read if you actually were interested in the headline.
Better headline: Using Insider Information to Advance (Save?) Your Career.
Also see the famous case of
https://en.wikipedia.org/wiki/Dave_Mustaine
who left Metallica to found Megadeth.
Genuine question, what inside info did he have?
Also
"Initial drummer Carruthers was replaced after Mustaine and Ellefson decided they could not trust him. Carruthers had chosen to hide his black heritage from them by claiming he was Spanish, and they could not understand why he would deceive them.Brett Frederickson joined the band in November 1983 as their next drummer."
That move probably hasn't aged well. Pretty nasty.
Edit: I can't recall which podcast I heard this, but ismtbhebthe guy that was sad that his band didn't sell as many records as Metallica?
I don't understand what happened, he hid the fact that he was black from them, they couldn't understand why he'd hide it, and they fired him? Isn't this kind of exactly why he'd hide it from them?
Yeah, especially given what we know about Metallica now.
What do we know about Metallica?
> Unfortunately, some artists are not offended by their work being used to torture. "If the Iraqis aren't used to freedom, then I'm glad to be part of their exposure," James Hetfield, co-founder of Metallica, has said.
[1] https://www.theguardian.com/world/2008/jun/19/usa.guantanamo
Note that this was a question about the CIA literally using Metallica songs blasted continuously at high volume as a torture technique.
That, paired with his recent claims of "no politics", which is the standard reboubt of people who know their politics are shitty, and don't want to be criticized for them, while still taking people's money.
Completely unrelated to the article claims.
How many people think this way, jump ship, and end up being wrong?
Good article. I feel this way about my job :/
I read the article and I’m far more interested in talking about actual legal insider trading in the equities market
You may not be able to trade your company’s stock, or a competitor’s if you have knowledge that was under an employer agreement, but you can trade your sector and correlated assets
You can have an edge, it’s not a legal issue.
I assume you mean things like trade secrets that you cannot disclose? That is legal because it is not information that is confidential the same way as say financial results are. It is confidential, but for different reasons. It also tends to be much more long term information so people cannot make a quick profit from it. Its also impractical to regulate.
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https://pelositracker.app/
https://www.quiverquant.com/strategies/s/Congress%20Long-Sho...
You understand of course that those numbers show a very mediocre trading strategy. The sharpe ratio and beta on that would get you fired at any professional equity shop.
Graph that congress long/short strategy against qqq and you’ll see why. The very rich in congress are tech investors by and large. They hold outsized bets in Nvidia mostly. You didn’t need any insider knowledge to make outsized returns if you are willing to have a risk on Nvidia position cherry picked from 2020 to today.
Unfortunately doesn't work that smoothly everywhere because outcomes are often tied to larger unknowns whether it is will AI bubble pop or will the global economy take a dip.
Access to internal data isn't a crystal ball
On the flip side, even if the company is on the way up and you're on some team that's at the center of it and you'll never benefit from it if your manager doesn't like you. All the opportunity to do all the things that lead toward career growth and compensation will go to other people.
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