Insider Trading is back as BIG NEWS
Its BIG NEWS because Insiders make such BIG MONEY!
Are you an Insider??
* Do you work in a company?
* Do you have friends and family that work in a company?
If you answered yes, and that pretty well covers the entire population of Australia, YES you are an insider!
So if everyone is an insider and many of us trade (buy and sell shares, cars, old christmas gifts) Why is insider trading a problem?
It is an offense, under the Australian Corporations Act, to trade on the Australian Securities Exchanges using inside information, or communicate inside information to others who will, or are likely to, trade using that inside information.
Insider Trading isn’t about who is on the inside, it is about what comes from the inside and how it is used.
Nearly everyone knows a work secret – it is often part of doing our everyday jobs – especially if you work for the Australia Bureau of Statistics who are busy collecting and collating data, all day every day, from all over the country, to regularly report economic changes.
Everyone is an insider and Everyone is a trader and Everyone knows secrets – how can this be bad?
“Insider trading” is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. But, when corporate insiders trade in their own securities, they must report their trades, or only do so during deemed – information block-out periods
Having information isn’t a problem, working for a company isn’t a problem so what is the problem?
The problem is USING confidential information in a regulated market to get a financial benefit that others are not able to make.
A few key points here – if you use your knowledge and/or position for a financial benefit it isn’t necessarily illegal; your neighbour has been sitting on a valuable piece of land that you would love to subdivide – there is no problem you two doing a deal just between the two of you without using a real estate agent or advertising sale – especially if both parties end up happy and brokerage fees are saved. The residential property market is good example of where “off market trades” happen daily.
BUT if you have having dinner with your friend, who happens to be a stockbroker, and that friend tells you one of his clients who is the CEO of ABC Co. is dumping his ABC Co. stock as fast as possible, and you also own shares in ABC Co. AND then you go and dump your shares too then that is totally illegal – as Martha Stewart found out in 2004.
There are arguments for and against regulating markets; in Australia our financial markets are regulated by ASIC “because insider trading undermines investor confidence in the fairness and integrity of the securities markets”. And everyone in financial markets knows that getting access to the market-moving data produced by official statisticians, treasuries and central banks before this information becomes public is the Holy Grail of risk-adjusted bets.
I was asked to do a piece on Insider Trading this week for Channel 10 TV’s program The Project
I haven’t cut it yet, so you do need to fast forward to 25 minutes into the program to see the piece, but if you want a light-hearted explanation see this link:
About the Author
Eve Blackall the small business answer to The Supernanny.
At Smart Accounting you work one-on-one with Eve who has already assisted hundreds of business owners increase cash-flow, grow profits, and ensuring businesses fetch the highest price when it comes time to sell.