Insider Trading?
I am a flight attendant on a private jet and I hear a bank CEO   discussing a merger or a buyout. I proceed to purchase that stock   before the announcement. The CEO did not tell me to buy it, I just   overheard him. If you are a flight attendant on a private jet that is operated by one of the principals, probably including a bank, attorney, consultant, broker, etc., in the merger or buyout, then you probably have a fiduciary duty to safeguard the information and are prohibited from trading. Please see: http://www.kiplinger.com/article/investing/T052-C008-S001-would-you-be-guilty-of-insider-trading.html You’re a janitor at a major company. You hear members of the company’s   board convening outside the room you’re cleaning and decide to hide in   the closet. The board okays a deal to sell the company for a fat   premium to the current share price. You load up on the shares. Illegal   insider trading? Definitely. This is not a public place, and “you’d be in a position to   understand that confidential information was being disclosed, which   changes the calculus,” says Andrew Stoltmann, a Chicago-based   securities lawyer. Also see: http://meyersandheim.com/how-to-win-an-insider-trading-case/ However, between these two extremes of a bystander with no duty to the   corporation and a corporate officer with a clear duty to the   corporation stood a whole group of people such as printers, lawyers   and others who were involved in non-public transactions that did not   necessarily have a duty to the company whose securities they traded.   To address this group of people the courts developed the   misappropriation theory. The misappropriation theory covers people who   posses inside information and who are prohibited from trading on such   information because they owe a duty to a third party and not the   corporation whose securities are traded. Yours is the perfect example. You owe a duty to your employer to operate in its best interests. As for the broader, more common example, where you overhear information in an elevator, restaurant, in line at the coffee shop, etc., trading on such information was found not to be insider trading in SEC v. Switzer: http://law.justia.com/cases/federal/district-courts/FSupp/590/756/2247092/  In this case, Mr. Switzer overheard information at a track meet and traded on it with profits. The court found:  The information was inadvertently overheard by Switzer at the track meet. Rule 10b-5 does not bar trading on the basis of information inadvertently revealed by an insider. On the basis of the above findings of fact and conclusions of law, the   court orders judgment in favor of defendants. "Nope, its not legal. Easy to explain: If you know something that isn't public known (""inside"") it's called insider trading. Hard to prove (impossible), but still illegal. To clarify: If the CEO says it AND its known in public its not illegal. In any case the CEO could face consequences (at least from his company)."
There is normally a policy at the organisation that would restrict trades or allow trades under certain conditions. This would be in accordance with the current regulations as well as Institutions own ethical standards.  Typical I have seen is that Technology roles are to extent not considered sensitive, ie the employees in this job function normally do not access sensitive data [unless your role is analyst or production support]. An employee in exempt roles are allowed to trade in securities directly with other broker or invest in broad based Mutual Funds or engage a portfolio management services from a reputed organisation. It is irrelevant that your company only deals with amounts > 1 Million, infact if you were to know what stock the one million is going into, you may buy it slightly earlier and when the company places the large order, the stock  typically moves upwards slightly, enough for you to make some good money. That is Not allowed. But its best you get hold of a document that would layout the do' and don't in your organisation. All such organisation are mandated to have a written policy in this regard. well you had it a bit backwards. the more liquid a market is, the less important the idea of insider information becomes. this is the opposite in less liquid markets - such as low volatile stocks about to announce earnings. knowing the earnings would net you a much larger percentage than, say, knowing if the ECB will cut rates of not. the change will be a much larger % and as with currencies, it is more important to know what the major players are planning - as in, central banks and reserves, carry trades, etc. To be flippant: it is illegal because it is against the law; there is no considered involved, it just is. To elaborate, part of the illusion of the stock exchange and other market-like entities is that of (apparent) fairness. If I think a stock will go up because it is involved in a growing industry, that is generally public information.  Conversely if I have a dim view of a particular company because of its track record of product launches, that is similarly out in the open. A secret formula is something that I invented or discovered, not (presumably) something that I stole from someone else. To stretch that further: If I notice that Company X stock always moves with Company Y stock, that is indeed something that I have found, that I can try to profit from.  It is secret to me, but not particularly dependent upon information not available to others, just that my interpretation is better. So trading on information in the public domain is fine, as it preserves the principal of fairness I mentioned, whereas inside knowledge breaks that principal. I don't think you can really classify it as front running. Technically, the only information, that the alleged front runner in this case has over the followers is the knowledge of the trade itself. Knowledge of the trade may indeed be share price sensitive information (for some high volume traders or those respected and with many followers) but it's not really like they can't know about it before everyone else; parity isn't possible in this case. If an company/organisation (i.e. the social trading platform say) responsible for disseminating the details/log of a trader to a following (or individuals working for said company/organisation), were to act on the trading data before dissemination then THEY would be guilty of front running. The alleged front runner may profit from the following of course, but that's only really occurring due to the publication of information that is share price sensitive, and such information generally has to be published by law (if it is by law so classified) so it's difficult to find too much fault. There has to be a certain amount of consideration on the part of any trader as to who is more the fool, the fool or the fool that follows them? Well that's because you're trying to apply the same rules that apply everyone else to government officials. Don't be silly.  On a serious note, I find this one of the most offensive abuses of power in America today. Insider trading has been illegal in various forms since 1933. It is an enormous conflict of interest. A government official has the ability to enrich themselves in an almost unlimited way from trading on insider information. I don't believe the average American even realizes this. How there can be any justification of this is beyond me. It is a crime. No question about it. So if stealing is illegal for the general public, how can it be ok for public officials?  And they wonder [public trust in government](http://www.people-press.org/2017/05/03/public-trust-in-government-1958-2017/) is at all-time lows. There usually would be a SEC investigation if this kind of behavior is noticed. One thing that bothers me about this article is that, in the midst of all the fear mongering, the author doesn't mention that quote stuffing is designed to screw over *other HFT algorithms* and doesn't have any real impact on investors. Firms doing HFT frequently report this stuff to the SEC; for all we know, Goldman already did. (yes, this should probably be a comment, not an answer ... but it's a bit long). I don't know what the laws are specifically about this, but my grandfather used to be on the board of a company that he helped to found ... and back in the 1980s, there was a period when the stock price suddenly quadrupled One of the officers in the company, knowing that the stock was over-valued, sold around a third of his shares ... and he got investigated for insider trading.  I don't recall if he was ever charged with anything, but there were some false rumors spreading about the company at the time (one was that they had something that you could sprinkle on meat to reduce the cholesterol).  I don't know where the rumors came from, but I've always assumed it was some sort of pump-and-dump stock manipulation, as this was decades before they were on the S&P 500 small cap. After that, the company had a policy where officers had to announce they were selling stock, and that it wouldn't execute for some time (1? 2 weeks? something like that).  I don't know if that was the SEC's doing, or something that the company came up with on their own. People are trying ideas like this, actually.  Though they generally aren't very public about it.  While keshlam ventures into hyperbole when mentioning Watson, he is certainly correct human language parsing is a extremely hard problem. While it is not always true that the big players will know before the news (sometimes that would qualify as insider trading).  The volume spike that you mention generally comes as the news arrives to the major (and minor) players.  So, if you have an algorithm run after the volume spike the price will likely have adjusted significantly already. You can try to avoid this by constantly scanning for news on a set of stocks however this becomes an even harder problem.  Or maybe by becoming more specific and parsing known important and specific news sources (farm report for instance) and trying to do so faster than anyone else.  These are some methods people use to not be too late. It's quite alright, it's been over a decade since he passed so I'm not particularly sensitive about it any more.  I'll have a look at investopedia, but what I'm mainly interested in is private equity. I wanted to ask directly about that, but I feel that I need a frame of reference to understand what's going on. As in, I doubt I'd be able to really get private equity without first having an understanding of public trading.  Is this subreddit really that reputable? I've learned to not really trust reddit, for the most part. Is there some kind of curation here? Despite the fact that I think there is a litany of inaccuracies and misunderstandings related to quoted price and transaction price and the way prices move and assets transact; if you were able to, under these extremely narrow and very unlikely conditions, affect the prices of these assets that would be market manipulation in the eyes of the SEC. Link to the SEC page about market manipulation. You won't be able to know the trading activity in a timely, actionable method in most cases. The exception is if the investor (individual, fund, holding company, non-profit foundation, etc) is a large shareholder of a specific company and therefore required to file their intentions to buy or sell with the SEC. The threshold for this is usually if they own 5% or greater of the outstanding shares. You can, however, get a sense of the holdings for some of the entities you mention with some sleuthing. Publicly-Traded Holding Companies Since you mention Warren Buffett, Berkshire Hathaway is an example of this. Publicly traded companies (that are traded on a US-based exchange) have to file numerous reports with the SEC. Of these, you should review their Annual Report and monitor all filings on the SEC's website. Here's the link to the Berkshire Hathaway profile. Private Foundations Harvard and Yale have private, non-profit foundations. The first place to look would be at the Form 990 filings each is required to file with the IRS. Two sources for these filings are GuideStar.org and the FoundationCenter.org. Keep in mind that if the private foundation is a large enough shareholder in a specific company, they, too, will be required to file their intentions to buy or sell shares in that company. Private Individuals Unless the individual publicly releases their current holdings, the only insight you may get is what they say publicly or have to disclose — again, if they are a major shareholder. The 10-K language is very specific. And as someone that has worked w/ securities attorneys to write these things, I know it is worded like that for a reason. Regardless, to have that risk factor in there and not disclose executives leaving is really shoddy disclosure. "@sdg - If you can be flippant, I can be pedantic. Insider Trading is not illegal. Any employee of a company can be an insider, yet most of their trades are perfectly legal. What is illegal is trading on Inside Information. Such information may be available to those within a company, or those who have some contact with an employee. In fact, if I am seated at a restaurant table and hear Bill and Warren talking about a purchase they plan to make, I am in possession of inside information and risk prosecution should I purchase shares and profit.  Often, a company will have a ""quiet period"" before earnings reports or potential stock-price-moving-news. During this time, employees are forbidden from buying or selling shares, excluding those that would be automatically bought in their retirement accounts or ESPP." Then I'll cite it as the last paragraph of step 3 in getting started. He says everything is insider trading and that's bullshit; if he had any interest in giving real advice he would define insider trading as trading with material, non-public information as it says in all the statutes.  It's the same meaningless nonsense as the paragraph before that, where he says good investors don't time the market but know when to get in and get out. Those are the same things at the level he has described them; it would take a book with actual investing advice like Ben Graham's The Intelligent Investor or A Random Walk Down Wall Street for an actual view into investment. Victor, Yes the drop in price does completely cancel the dividend at first. However, as others have noted, there are other forces working on the price as well. If dividends were pointless then the following scenario would be true: Let's assume, hypothetically, two identical stocks, only one of which pays a 2% annual dividend quarterly. At the end of the year we would expect the share price of the dividend stock to be 2% lower than the non-dividend stock.  And an equal investment in both stocks would yield exactly the same amount of money. So that is a hypothetical, and here is real market example: I compared, i.e. took the ratio of Vanguard's S&P 500 ETF (VOO) closing price to the S&P 500 Index closing price from sep 9, (2010-2014), after accounting for the VOO 2013 split. The VOO pays a quarterly dividend(about 2%/year), the S&P is an index, hence no dividend. The VOO share price, reduced each quarter by the dividend, still grew more than the S&P each year except 2012 to 2013, but looking at the entire 4yr period the VOO share price grew 80.3987% while S&P grew 80.083% (1/3 of 1% more for VOO). VOO does drop about 1/2% relative to S&P on every ex date, but obviously it makes it up. There are other forces working on VOO. VOO is trade-able, therefore subject to supply/demand pressures, while the S&P 500 is not. So for the VOO ETF the data does not indicate pointless dividends but instead implies dividends are free money. StockCharts.com supports this.  S&P500 for last 1244 days (9/8/2010) shows 90% growth http://stockcharts.com/freecharts/perf.php?%24SPX while VOO for last 1244 days shows 105% growth http://stockcharts.com/freecharts/perf.php?VOO