Insider Trading UK v US law

[dcwife]

According to wikipedia, the UK has stricter insider trading laws than the US: "The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known [in the UK]. No relationship to the issuer of the security is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information."

So let's say an investigative journalist discovers that company X is involved in serious human rights abuses / environmental damage that will affect the company's share price once it becomes common knowledge. Just before he publishes his article on these abuses, if he places a spread bet or sells some shares he has in the company, could he fall foul of this law? After all, it would be "material nonpublic information" that is "not generally known."

 

[brettus]

According to wikipedia, the UK has stricter insider trading laws than the US: "The principle is that it is illegal to trade on the basis of market-sensitive information that is not generally known [in the UK]. No relationship to the issuer of the security is required; all that is required is that the guilty party traded (or caused trading) whilst having inside information."

So let's say an investigative journalist discovers that company X is involved in serious human rights abuses / environmental damage that will affect the company's share price once it becomes common knowledge. Just before he publishes his article on these abuses, if he places a spread bet or sells some shares he has in the company, could he fall foul of this law? After all, it would be "material nonpublic information" that is "not generally known."

I think this would be considering insider trading in the US as well. In the US, if you tell your hairdresser about the material information and he/she acts on it, then your hairdresser could get done for insider trading. If you have shares in the company and you sell them on the basis of the material information then you could get done as well.

 

[glyder]

I think it would be insider info. The journalists best defence might be that it was available information if anyone could be bothered to carryout the due diligence. Might not be convincing in this situation.
EDIT: thats speaking from a UK perspective. I have no idea of US law.


An example often given in textbooks for discussion: You are on a train, from the window in a remote location you see the main production plant of a major FTSE company go up in flames.
If you ring up and sell before this is published news are you trading on inside info? ?

Noone knows the answer - the exact scenario has not been tested in the courts. Perhaps if you are the firms broker on the way to visit then it would be more 'inside' info - but if you are an investor who happens to be passing by perhaps its just a fortuitous occurence.

 

[new_trader]

I think it would be insider info. The journalists best defence might be that it was available information if anyone could be bothered to carryout the due diligence. Might not be convincing in this situation.
EDIT: thats speaking from a UK perspective. I have no idea of US law.


An example often given in textbooks for discussion: You are on a train, from the window in a remote location you see the main production plant of a major FTSE company go up in flames.
If you ring up and sell before this is published news are you trading on inside info? ?

Noone knows the answer - the exact scenario has not been tested in the courts. Perhaps if you are the firms broker on the way to visit then it would be more 'inside' info - but if you are an investor who happens to be passing by perhaps its just a fortuitous occurence.

Whilst these are interesting academic discussions I don’t think it would be worth worrying about unless you are trading huge volumes of shares. How many retail traders make money on sheer dumb luck by selling or buying before a market moving announcement? I doubt every one of these trades would be investigated on the remote possibility of insider trading.

 

[glyder]

Whilst these are interesting academic discussions I don’t think it would be worth worrying about unless you are trading huge volumes of shares. How many retail traders make money on sheer dumb luck by selling or buying before a market moving announcement? I doubt every one of these trades would be investigated on the remote possibility of insider trading.

Yes, Of course these are academic testers and the law and fact get mixed up more in real life to create difficult scenarios. But in terms of being caught / investigated you'd be surprised how may enquiries stockbrokers get from FSA about this trade or that, and what do they know of the client, their previous trading patterns, profession, known contacts, connected accounts etc. Its regular. And thats without the suspicion reports that go the other way. Of course like you say most turn out to be sheer luck, but the one thing with insider dealing is, firms involved have to create such detailed audit trails of 'insiders' so with resources there's a good chance the insider can be caught and the source traced.
This is why since the crash and the FSA feeling they need to prove themselves they have time after time gone after insiders, just look at their record of fining them pre and post 2008 - a total change from hardly ever to almost monthly.. Not all of them have made huge amounts. For most (or all even) the risk is not nearly worth the reward.

 

[dcwife]

Thanks guys for these replies. It is an interesting one - in my example it's obviously unethical at least for the journo to sell just before his story runs, but if he didn't publish the story, just sat on the information but still sold, judging by your example he still could be done for it, even though what he's done is just, as you say, research that anyone could have done... Wikipedia (not much of an authority perhaps) says that in the US it has to be "in violation of some duty of trust" which would probably include the journo if he was to publish, but not if he didn't..

 

[scose-no-doubt]

Insider trading relates to insider information so it would depend on how the journo came about said in the first instance.

 

[glyder]

Handy link
http://www.sfo.gov.uk/media/99234/insider dealing web 1.pdf

 

[dcwife]

Thanks for the link.

I'm guessing that the following -- “information may also be treated as being made public even though it can only be acquired by persons exercising diligence or expertise even though ... it can be acquired only by observation” -- means that the journalist would not be liable if he found it out himself (by visiting the site of the company's operations, for example), but would be if he was just told it by a director.

You could argue that he is liable because "a person has information from an inside source if and only if he has it through: b) Having access to the information by virtue of his employment, office or profession" but I don't think the information would be counted as 'inside', unlike an accountant checking the books, for example.

Also, I found this suprising: “An individual is not guilty of an insider dealing offence unless he was within the United Kingdom at the time when he is alleged to have done any act constituting or forming part of the alleged dealing.” So correct me if I'm wrong, but this means a director can't tip off a friend in London about an upcoming profit warning or takeover bid, but if he's holidaying in France - no problem?? Surely that can't be right..?

 

[glyder]

this was an interesting case...

http://www.telegraph.co.uk/finance/...-sentence-for-millions-in-insider-trades.html

 

[scose-no-doubt]

Thanks for the link.

I'm guessing that the following -- “information may also be treated as being made public even though it can only be acquired by persons exercising diligence or expertise even though ... it can be acquired only by observation” -- means that the journalist would not be liable if he found it out himself (by visiting the site of the company's operations, for example), but would be if he was just told it by a director.

You could argue that he is liable because "a person has information from an inside source if and only if he has it through: b) Having access to the information by virtue of his employment, office or profession" but I don't think the information would be couldn't as 'inside', unlike an accountant checking the books, for example.

this is about right

 

[brettus]

Whilst these are interesting academic discussions I don’t think it would be worth worrying about unless you are trading huge volumes of shares. How many retail traders make money on sheer dumb luck by selling or buying before a market moving announcement? I doubt every one of these trades would be investigated on the remote possibility of insider trading.

I know someone who got investigated for doing 4 gbp a point.