Insider Trading Question

safvan

Established member
515 34
I had a question regarding insider trading. It is illegal and has serious consequences but I think it cannot be prevented.

For example in an accounts department of a public company how can one prove that the person or group of people recording sales and expenses of a company are NOT investing in the same company?

They have stock options but who is stop them from investing or buying or selling shares using someone else.

They would be the first ones to know the balance sheets of the company and they can buy and sell accordingly.

In this way how can a person who does not have access to this valuable information invest in a public company with confidence?
 

anley

Senior member
2,730 229
But most people are honest and aren't idiots. For example, if you're in a well paying job in accounts with benefits etc, why risk trading the company's shares (you or a friend) to make probably less than £50k in profits?

Better to keep your nose clean, keep your job and don't go to prison. Plus, it's normally the small time insider traders that get caught as they're easy meat versus the big time insiders who are normally very rich, well connected and with expensive lawyers.
 

BeginnerJoe

Senior member
3,329 350
You assume the person knows the precise reaction of market from any particular news. You also assume the directors of the company are predictable in what they choose to release to the market. If the person is that good at predicting what everyone else does, why is he a wage slave ?
 

Doomberg

Established member
960 75
It certainly goes on, there are policies in place where you have to sign to say that you will not use any info etc etc.. but obviously they use family or friends trading accounts, money talks
 

safvan

Established member
515 34
It certainly goes on, there are policies in place where you have to sign to say that you will not use any info etc etc.. but obviously they use family or friends trading accounts, money talks
:devilish::devilish:
 

enragedcow

Active member
211 15
"chinese walls" and various other measures of separating duties helps - according to my AIS lecturer

i agree with anley, the risk is much greater than a rational person would enjoy therefore they are unlikely to do so

less serious: is it insider trading if the governor of the reserve bank (or the fed) buys and sells currency :p
 

safvan

Established member
515 34
"chinese walls" and various other measures of separating duties helps - according to my AIS lecturer

i agree with anley, the risk is much greater than a rational person would enjoy therefore they are unlikely to do so

less serious: is it insider trading if the governor of the reserve bank (or the fed) buys and sells currency :p
Actually good question. How can we prove that the Governor does not have any interest in the money market?

It is so simple now days and very hard to prove. The point is that the big guys would always have an edge. It is the small guys they are after.
 

rsh01

Experienced member
1,184 299
For example in an accounts department of a public company how can one prove that the person or group of people recording sales and expenses of a company are NOT investing in the same company?

They would be the first ones to know the balance sheets of the company and they can buy and sell accordingly.

yep......accts dept wld have a heads up on the expenses & sales, & yep they are key to pnl and bal sheet, but you have made a massive assumption that these are the main drivers of pnl (which in the vast majority of listed companies is a wrong assumption) & then share price. also plc's provide quarterly key financial statement updates to the mkts so e'ees have a max of 3mths 'unknown' knowledge (for the UK, at least when i was involved) which the mkt doesn't. plus your ignoring cashflow - where lack of cash has sunk many a decent company.

some other potential pnl / bal sheet drivers which the accounts dept may not be privy too: capital costs (cost of funding e.g. by debt), regulatory adjustments, tax adjustments, investment income, treasury risk exposures, off balance sheet positons, long term liabilities (e.g. rent), asset sales.....and there are many more, unfort it's a long time since i cared much about a b/s.

also its imp to note that even in small companies sales & costs are often split within accounts departments (bought & sales ledgers), so the only person privy to both sales & expenses is the financial controller & above (the FD, MD), the poss additional drivers listed above will form part of the consolidated accts / bal sheet report & prob won't available to anyone below an FC. moreso in larger listed companies.

also you make another assumption that the past is the main determinant in the future price (as you didnt mention anything about sales dep't). deals are being negotiated constantly, pre sales contracts are signed etc which wld never even pass the acccts dept til they were being realised, plus these deals are often made public real time - so the public wld poss know more about it than accts assistants.

however, lets say they did know smthg, e.g. say at a fast growing high tec dildo producing company, the petit accts assistant to the FC had a little peak, when leaning over the desk (blouse open), at the prelim qtr reports and saw profit up 20%. interesting. however, she was also knobbing this wide boy geezer sales rep who had just landed a big $$$ long term contract with a global bongo retailers. naughtily, the little minx was also screwing the mktg manager & had overheard him chatting to a leading bongo magazine director over their recently revised massively reduced advertising campaign, & at the xmas party whilst flirting with the R&D manager got a heads up test on their new fangled toy which also goes out & makes money when you sleep........all of which is v key info. however, only the increase in profit & the R&D info was private, and increased profit was expected cos the new business deals were widely publicised & they had just outsourced payroll & call centres to lala lala land; also they release pre-quarterly budgets, which includes these projections. at least she gets discounted products.

this is also ignoring, as the op did, macro economic influences on share price - so your are still affectively taking a punt. i worked at a property company on an IPO years ago, and pretty much every e'ee loaded up on share options, buying as many as they cld as sales were through the roof, the company was doubling in revenue each year, & everyone wanted a part of it. yet soon after the float the US real estate mkt collapsed, and the share price crashed - the low was 9p i believe, from a float price of c£2. e'ees were stuck with them anyway for a few years - makes them work harder!

agree though, its def not a free mkt, and there is a lot of insider trading going on, but most damagingly at a much more senior level - & involves directors, merger & acquisitons consultants etc etc. all of which is so very hard to police.
 

scose-no-doubt

Veteren member
4,630 954
Why risk trading in the company you work for when you can have "drinks" with people who are employed in a similar capacity for other companies?
 

scose-no-doubt

Veteren member
4,630 954
Yes. Its still insider trading but thats how I personally believe its mostly done.

By the way in response to your PM. No problem at all. I hate PM so don't really respond.
 
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