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Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

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Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#21

Post by ghaff »

antasvara wrote: post #13
ghaff wrote: post #4

IANAL, but I don't see how. If you're just an ordinary person, you're trading based on an event you witnessed in the course of going about your life. No different I would think than if you witnessed a plane crash. You might be investigated though if the amounts were large enough. It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.

>It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity. IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?

As a random individual, almost certainly. I can do lots of (legal) things to ferret out information that is theoretically public but which isn't actually widely known.

As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to price the results into the stock. In other word, you couldn't trade based on the results you knew were coming a microsecond after the results hit the wire. (The HFTs would probably beat you anyway but I digress.)

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#23

Post by dataflow »

colinmorelli wrote: post #18
KieranMac wrote: post #9

No, it is not. If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information. If you're in the plane when the door blows up, you're just the first person with material public information. You're not trading on material non-public information. See, e.g. https://www.law.cornell.edu/wex/misappropriation_theor…

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…

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?

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#24

Post by ClumsyPilot »

colinmorelli wrote: post #18
KieranMac wrote: post #9

No, it is not. If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information. If you're in the plane when the door blows up, you're just the first person with material public information. You're not trading on material non-public information. See, e.g. https://www.law.cornell.edu/wex/misappropriation_theor…

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…

> 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.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#25

Post by tsimionescu »

eschneider wrote: post #7

It's not if you don't have a fiduciary duty to Boeing.

That's not correct. If you trade on information tipped to you by insiders, you are also guilty of insider trading, even though you didn't have any fiduciary duty towards the company.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#26

Post by ghaff »

ClumsyPilot wrote: post #24
colinmorelli wrote: post #18

Earlier quoted context omitted.

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…

> 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 trad…

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.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#27

Post by dataflow »

ghaff wrote: post #21
antasvara wrote: post #13

Earlier quoted context omitted.

>It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity. IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?

As a random individual, almost certainly. I can do lots of (legal) things to ferret out information that is theoretically public but which isn't actually widely known. As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to p…

IANAL but I imagine corporate policies are stricter than the law here. I have a hard time imagining people getting prosecuted for "insider trading" based on earnings reports half an hour after they become public, but trading windows still generally prohibit that.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#28

Post by colinmorelli »

ClumsyPilot wrote: post #24
colinmorelli wrote: post #18

Earlier quoted context omitted.

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…

> 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 trad…

"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.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#29

Post by kevinmchugh »

philwelch wrote: post #17

This is a good opportunity to point out that insider trading is a victimless crime. If you sell stock with insider knowledge, you sell it to someone who would have happily bought it at the same price or possibly a higher price from someone else anyway. The same is true if you buy stock with insider knowledge. The only net effect of insider trading is to make the market more efficient by pricing in otherwise inaccessi…

If I work for Apple and I'm on the special secret new Apple Glasses project, I reasonably know that when the product is announced the stock is going to go up. That information belongs to Apple, not me. Apple could sell more shares to capitalize on the announcement. By buying shares before the announcement, I'm capturing some of the gain that should be Apple's.

Re: Is it insider trading if I bought Boeing puts while inside the wrecked airplane?

#30

Post by MichaelNolan »

philwelch wrote: post #17

This is a good opportunity to point out that insider trading is a victimless crime. If you sell stock with insider knowledge, you sell it to someone who would have happily bought it at the same price or possibly a higher price from someone else anyway. The same is true if you buy stock with insider knowledge. The only net effect of insider trading is to make the market more efficient by pricing in otherwise inaccessi…

That might be true in some abstract sense, but it sets up some really perverse incentives. No one, especially investors, wants to legalize insider trading.
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