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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#281

Post by eastdakota »

tptacek wrote: post #143
eastdakota wrote: post #100

Earlier quoted context omitted.

Yes. The one bit you’re missing is that a call option is the right to buy a stock at a certain price typically on or before a certain date. To make the numbers simple, imagine a stock trades at $10/share. If someone came to you and said: how much would you be willing to pay to have an option to buy the stock for $100/share? The correct answer is: it depends. If it’s the right to buy the stock for $100/share at any po…

This is great, and as good a place as any for the thread to sprawl from, so I'll ask: it depends on how you know the stock is going to shoot up the next day, right? Trading on private information isn't illegal, and there's a huge variety of ways to acquire private information at varying levels of confidence, and in a sense the purpose of the markets is to aggregate everyone's private information to estimate a price.…

Think the super unsatisfying answer is:

¯\_(ツ)_/¯

I think a lawyer would advise that that trade would come with a ton of risk. But the law isn’t clear. Generally, the SEC’s goal is to make sure markets are “fair.” What makes a market fair is hard to define.

If you do a ton of work to launch satellites to fly over Walmart parking lots and then model the correlation of how full they are to what the company’s next earnings will be: that seems like you worked hard and earned an edge you can trade on without getting in trouble. Feels like anyone has a theoretically equal opportunity to do the same work you did and get the same trading edge. That feels fair.

Your hypothetical feels less fair. Is it unfair? Maybe? So unfair that it’d be prosecuted? Probably depends on a number of things, including how much you made on the trade. At a minimum it’s an area of unsettled law. And you would almost certainly be in for serious scrutiny and a legal fight.

Supposedly one idea for Google’s business model early on was that they should use search query data to trade equities. After they researched it they concluded it would be considered insider trading. Though it’s hard to distinguish from overhearing something on the train, which (not legal advice) generally has not been. Think the difference at some level is scale and intention. And, I’d guess, if you made it your business to ride the Acela every day between Greenwich and NYC, bought special hearing aides that let you better eavesdrop on conversations, and made significant profits trading on the information then you’d be more likely to be successfully prosecuted.

But… how is that different from flying satellites over Walmart parking lots?

¯\_(ツ)_/¯

Sometimes the law is intentionally a bit unclear. Usually in areas like this where you care about a general concept of fairness and want some caution and buffer at the margins.

Re: Insider trade on Splunk acquisition?

#282

Post by jandrese »

kevinmchugh wrote: post #261
jandrese wrote: post #184

Earlier quoted context omitted.

I feel like the SEC must have already taken into account the possibility of a "Strangers on a Train" situation where an insider tracks down an anonymous third party to commit the crime with the expectation of being paid back a percentage at some later date.

There are convictions for golf buddies swapping tips. In the perfect strangers situation, the tip receiver has no incentive to ever pay back the tipper. There's no legal recourse

Except the guy knows where you live and has already shown a willingness to break the law in ways where he thinks he won't be caught. If the top receiver suddenly finds himself dead there is nothing pointing back towards the original inside trader.

This is the stuff of tawdry crime thrillers, but it's certainly not so far out of the realm of possibility that the SEC can just ignore it.

Re: Insider trade on Splunk acquisition?

#283

Post by mrb »

kolbe wrote: post #256
mrb wrote: post #173

The screenshots demonstrate the trader purchased only $1,040 worth of options, not "$22,000" as claimed in the tweet. So the trader turned $1k into $475k. See the first photo in the tweet, the top left chart (45-day volume on the SPLK 127 C 09/22/2023 options) shows a volume of about 260 options was bought. The second photo confirms a volume of 260 (see "volume" column, first row). Options are for 100 shares. So 260…

This is correct. I can independently verify that there are a total of 420 contracts of open interest, and this tweet is fake news.

Thank you. I am shocked everyone blindly trusts the "$22,000" amount without actually reading the screenshots.

Re: Insider trade on Splunk acquisition?

#284

Post by tjrgergw »

kasey_junk wrote: post #133
kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…

But.... if you're trading options you're not stealing from the shareholders, right? The person on the other side is also trading options, not a shareholder.

Re: Insider trade on Splunk acquisition?

#285

Post by ghaff »

shortrounddev2 wrote: post #278
thisisit wrote: post #225

Earlier quoted context omitted.

insider trade? Maybe not. Unethical? Yes. IANAL but this can be grounds for firing and potentially DataDog can sue for misusing what is effectively their confidential information.

What's unethical about it

You’re using confidential information obtained in the course of your work duties for personal gain. I’m pretty sure my employer would consider that a business conduct violation.

Re: Insider trade on Splunk acquisition?

#286

Post by kevinmchugh »

eastdakota wrote: post #281
tptacek wrote: post #143

Earlier quoted context omitted.

This is great, and as good a place as any for the thread to sprawl from, so I'll ask: it depends on how you know the stock is going to shoot up the next day, right? Trading on private information isn't illegal, and there's a huge variety of ways to acquire private information at varying levels of confidence, and in a sense the purpose of the markets is to aggregate everyone's private information to estimate a price.…

Think the super unsatisfying answer is: ¯\_(ツ)_/¯ I think a lawyer would advise that that trade would come with a ton of risk. But the law isn’t clear. Generally, the SEC’s goal is to make sure markets are “fair.” What makes a market fair is hard to define. If you do a ton of work to launch satellites to fly over Walmart parking lots and then model the correlation of how full they are to what the company’s next earni…

So since you mention Wal-Mart. They have, probably, a better idea of Proctor&Gamble's quarterly sales than anybody but P&G, right? Like Walmart makes some massive double digit percentage of sales of p&g products, and knows about it possibly in real-time. If I was some data analyst at Walmart,I couldn't trade on that, that's misappropriation. But Walmart could potentially spin up a hedge fund and trade (against) their suppliers, until their suppliers threaten to pull product, I think?

Presumably there's a contract between Walmart and p&g that they won't trade in each other's stocks, specifically to prevent this?

Re: Insider trade on Splunk acquisition?

#287

Post by shortrounddev2 »

ghaff wrote: post #285
shortrounddev2 wrote: post #278

Earlier quoted context omitted.

What's unethical about it

You’re using confidential information obtained in the course of your work duties for personal gain. I’m pretty sure my employer would consider that a business conduct violation.

I'm sure it's against the rules but why is it unethical

Re: Insider trade on Splunk acquisition?

#288

Post by kasey_junk »

tjrgergw wrote: post #284
kasey_junk wrote: post #133

Earlier quoted context omitted.

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…

But.... if you're trading options you're not stealing from the shareholders, right? The person on the other side is also trading options, not a shareholder.

Yeah. This is a philosophical point that the law contemplates. Your option’s position is a theoretical position against the shareholders. I’m not convinced us insider trading laws are particularly logical or valuable (like most economists I think we shouldn’t have them) but you can usually back out the SEC position by figuring out how a shareholder was harmed.

Re: Insider trade on Splunk acquisition?

#289

Post by [deleted] »

mason55 wrote: post #195
wanderingstan wrote: post #148

Earlier quoted context omitted.

This obligation-centric view is in conflict with my understanding and the above investopedia link: > Material nonpublic information is data relating to a company that has not been made public but could have an impact on its share price. It is against the law for holders of nonpublic material information to use the information to their advantage in trading stocks. Edit: or would a leak on a webpage be considered “publ…

> It is against the law for holders of nonpublic material information to use the information to their advantage in trading stocks. The US and Europe differ on how exactly this should work. In Europe, your view is correct. In the US, it's about obligation. You can trade on material non-public info if you discovered it on your own without doing anything illegal .

[deleted]
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