Markets Insider marketed as insider reliable – The meaning of “insider trading” in Spanish “use of privileged information in trading”, that :
In many countries, insider trading is a crime, but the laws that govern it differ enormously between them, as do the consequences of a conviction.
In Spain, using privileged information in the world of investment illegal, and the sentences included in articles 284 and 285 of the Penal Code.
Perhaps the easiest way to explain this idea is through an example.
Example of use of privileged information
Numerous days before Company X releases its annual results, one of its directors reveals to a friend that Company X has far outperformed, exceeding all expectations for yearly earnings.
▶ If this friend then buys shares of Company X with the expectation that the upcoming results will cause the share price to rise before this information made public, both of you would be guilty of insider trading.
Even if the principal in our example inadvertently disclosed the information or left it in a place where it could read, they would still thoroughly investigated and perhaps charged.
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People buy and sell individual stocks each day during the opening hours of the stock market. So how do you find insiders just to place trades on the stock market?
Financial markets are highly regulated, and there teams whose main job is to monitor the calls, looking for anything suspicious or out of the ordinary.
When a publicly traded company makes an announcement that impacts the stock price, these people are likely to return to the stock market beforehand the information and look for any rare transactions that might set off red flags.
Example
Going back to the example from the previous section, once our investor realized that Company X’s annual results would likely drive its stock price up, he bought $100,000 worth of Company X stock before it sold. Publish the report.
If a market regulator sees this significant transaction conveniently done just before the annual results announced, they are likely to take action and investigate. If their investigation discovered that this investor is related to one of Company X’s directors, they would have reason to intensify their studies.
Similarly, if they were to see a significant transaction from someone who never invests or typically invests in small sizes, that would raise suspicions.
So, if you have friends or family who work for publicly traded companies, and from time to time, you may receive inside, non-public information that could influence the stock price, don’t tempted to buy or sell! Actions based on this information!
Why is Insider Trading Illegal?
Simply put, insider interchange is illegal since it is considered unfair to investors who do not have access to the crucial information on which the transaction was made.
Organizations such as the Securities and Conversation Commission (SEC) in the US and the Financial Conduct Authority (FCA) in the UK oversee financial markets and try to maintain a level playing arena.
There was a period when insider trading was totally legal in most markets. Then the thought evolved to consider it a “victimless crime.”
But imagine selling a stock long-term to an insider, right before an announcement that sends the stock price up dramatically, and think for a moment about how you would feel (you probably wouldn’t have sold if you knew the same information and could have achieved high profits). Now it’s more evident that she’s not really a victimless crime.
Can “insiders” buy shares?
Company directors, staffs and people close to both groups are free to buy and sell shares in the company in question; however, in developed markets such as the UK and EU, they must declare their operations to the authority competent. If they later originated to have been in ownership of non-public pricing information, they will be investigated.
Information about the buying and selling a company’s shares by its directors and their close associates is publicly available. It is reported weekly in various financial media, such as the Economic Times or the Depositors’ Record.
There are even crops that take this to the following level. For example, they provide the trading history of individual managers and a ranking for each manager, or “insider”, on how profitable their trades have been in the past. After all, it’s not illegal for insiders to invest; it’s just unfair for them to do so based on sensitive, non-public information.
Who is wary of an “insider”?
“Insiders” are not just those working within a particular corporation. The rules apply to other persons outside the corporation who invented subtle financial information: bankers, fund managers, lawyers, accountants, etc.
A few years ago, there even a case of an insider ring focused on a printing press. This specialized printer often handled sensitive documents such as annual reports and financial prospectuses. One of the employees realized how valuable the information was and organized a group of people around him to take advantage of it. Everything worked fine until they got caught.
Why is it essential for investors to understand the meaning of “Insider Trading”?
You’re probably thinking, “What does this have to do with me? I’m not the director of a publicly traded company, and I don’t have access to any non-public information that could benefit my investments.”
While this may be the case, one problem with insider trading is that it not only results in hefty fines and possible prison sentences for accomplices but can also hurt the actions of the company involved.
Next, we will see an example of how this situation affects the market. You can see the prices in real time with the MetaTrader 5 trading platform; it’s free, so download it in a few seconds!
Amazon: Example of Insider Exchange fashionable Action
A recent sample of insider trading and how it affected the stock price can found at Amazon.
➤ On September 28, 2020, the SEC indicted a former Amazon CFO and two family members with insider trading. This allegedly occurred between January 2016 and July 2018, resulting in approximately $1.4 million in profit.
➤ On November 5, 2020, the husband of the former Amazon financial manager pleaded guilty to the charges. When the market opened the next day, November 6, indicated by the red vertical line in the chart below, Amazon’s share price fell more than 2% to $3,248.11.
Caption Source: Admirals MetaTrader 5 – Amazon M15 Chart. Date range: November 3, 2020 – November 10, 2020. Capture date: January 12, 2021. Past results are not necessarily an indicator of future results. no
The stock price recovered most of its daily losses and closed at $3,308.91. However, when trading resumed on Monday, November 9, Amazon’s share price opened at $3,124.44. A drop of more than 5.5% over the weekend, as seen in the gap. The share value continued its downward trajectory the next day.
Can I use this information to my advantage?
Unfortunately, as with countless pivotal events, it might be too late to take action by the time you learn of insider trading convictions as a shareholder.
However, an insider trading conviction may represent an investment opportunity for those who are not shareholders.
If you interested in buying shares of a company and then an insider trading case involving that company prosecuted, the bad press will likely cause the stock price to drop.
▶ A savvy investor, who sees something of a temporary embarrassment for the company and believes that the stock will surely recover, might take advantage of the falling stock price.
Going back to our Amazon example, if we had bought shares just before the market closed on November 10, 2020, they would have cost about $3,045, up from $3,320 the day before the guilty plea announced in the Amazon case. Use of privileged information.
final thoughts
Opponents of insider trading remaining an illegal activity cite other industries where people can freely benefit from knowledge superior to their peers.
However, as we have seen, aimed at good reason, insider trading in the investment world is illegal in many countries. Market regulators ensure that financial markets remain as fair as possible.
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This material does not comprise and should not construed as containing investment advice, investment recommendations, an offer or solicitation for any transaction in financial instruments. Please note that such business analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decision, you should seek the advice of independent financial advisers to understand the risks.