How are stock buybacks not considered insider trading?
In fact, buybacks WERE often considered a vehicle for insider trading, especially prior to 1982.  For instance, Prior to the Reagan era, executives avoided buybacks due to fears that   they would be prosecuted for market manipulation. But under SEC Rule   10b-18, adopted in 1982, companies receive a “safe harbor” from market   manipulation liability on stock buybacks if they adhere to four   limitations: not engaging in buybacks at the beginning or end of the   trading day, using a single broker for the trades, purchasing shares   at the prevailing market price, and limiting the volume of buybacks to   25 percent of the average daily trading volume over the previous four   weeks. In most countries there are specific guidelines on buy backs. It is never a case where by one fine morning company would buy its shares and sell it whenever it wants. In general company has to pass a board resolution, sometimes it also requires it to be approved by share holders. It has to notify the exchange weeks in advance. Quite a few countries require a price offer to all. I.E. it cannot execute a market order. All in all the company may have inside information, but it cannot time the market. Companies already have to protect themselves against employees trading the company's shares with insider information. They typically do that in a number of ways: Taken together, this tends to mostly mitigate the risk of employees trading with insider information, though it's probably not perfect. In practice, the company itself's knowledge of insider information is the same as that of its senior management. So it makes sense for a company to be allowed to trade under the same conditions as its senior management. From https://corpgov.law.harvard.edu/2013/03/14/questions-surrounding-share-repurchases/ : If the company is repurchasing outside of a Rule 10b5-1 trading plan,   it should limit its purchases to open window periods when officers and   directors are able to buy and sell securities of the company. In   addition, the company also can choose to disclose any material   non-public information prior to any share repurchase if it is in   possession of material non-public information at a time when it is   seeking to make a share repurchase outside of a Rule 10b5-1 trading   plan. As mentioned in the quote, a company can also set up a trading plan in advance (at a time when it doesn't have inside information) to be executed unconditionally in the future. Then even if the company comes into possession of inside information, it won't be using this knowledge to direct trades. "Another way to look at this is that pure insider trading is an activity with the aim to use secret information to make personal profit or let others make personal profit at the expense of the company shareholders or investors. In buybacks, it is not company managers to get personal gain in this would-be ""insider trading"". The end-winners in this case are the shareholders. So there is nothing inherently bad in buying back stock. Moreover, it is a general practice to buy shares back (as opposed to paying dividends) when the company sees its shares being undervalued (of course, provided that it has the cash/borrowing ability to implement this), since it creates shareholders value, thereby maximising shareholder wealth, which is one of the primary tasks of the company managers." "The reason that stock buybacks are not considered insider trading is because the offers are open to all on equal terms to everyone outside the company. Even if the company knows ""inside"" information, it's not supposed to tell it (and company executives are not allowed to tender shares, unless they had previously set up a ""blind"" selling program on a""schedule."") If that's actually the case, no one investor is better informed than another, and hence there is no insider trading. The issue of inside trading is that ""insiders"" ARE better informed." Buybacks do not increase the company's value. Cash is traded for outstanding shares. This is similar to a dividend, but instead of cash, investors receive a rising share-price. Whether an investor prefers a cash dividend or capital gains is less important than the outcome that their investment is gaining value for them.
To dig a little deeper, a number of analysts within (and without) Reuters are polled for their views on individual stocks and markets on buy-hold-sell. The individual analysts will be a varied bunch of fundamentalists, technical, quant and a mixture of the three plus more arcane methodologies. There may be various levels of rumors that aren't strong enough to be considered insider trading, but all of these will give an analyst an impression of the stock/market. Generally I think there isn't much value there, except from the point of view if you are a contrarian trader, then this will form a part of the input to your trading methodology. "Definitely not what I'm saying, I'm saying that instead of some of these companies spending 70% of their earnings on stock buybacks they should reinvest that money into their employees and pay out larger dividends to shareholders. I understand share repurchases are fine when not done in excess, but right now it's in excess to manipulate EPS and hit targets. You're missing the point, I'm not talking about the  ""NPV of a random project"".   Edit: this article I just found explains perfectly what I'm talking about: https://amp.businessinsider.com/whats-a-buyback-and-why-do-some-investors-hate-them-2016-6" If you are in a position to have information that will impact the shares of a stock or index fund and you use that information for either personal gain or to mitigate the losses that you would have felt then it is insider trading.  Even if in the end your quiet period passes with little or no movement of the stocks in question.  It is the attempt to benefit from or the appearance of the attempt to benefit from inside information that creates the crime.  This is the reason for the quiet periods to attempt to shield the majority of the companies employees from the appearance of impropriety, as well as any actual improprieties. With an index you are running a double edged sword because anything that is likely to cause APPLE to drop 10% is likely to give a bump to Motorola, Google, and its competitors.  So you could end up in jail for Insider trading and lose your shirt on a poor decision to short a Tech  ETF on knowledge that will cause Apple to take a hit.  It is certainly going to be harder to find the trade but the SEC is good at looking around for activity that is inconsistent with normal trading patterns of individuals in a position to have knowledge with the type of market impact you are talking about. What?? What a strange (and horribly wrong) thesis.  Buybacks are economically the same as dividends. They are a way of distributing profits to investors. A company does this when it cannot find any good investment opportunities. It does not cause a lack of those opportunities. This guy has it completely backwards.   After the buyback the previous stockholders now have cash to find opportunities that the firm wasn't itself either wasn't equipped to move on or didn't know about. That buyback distribution doesn't just get incinerated - it gets reinvested as per the previous owners desires.  His example of how previously a firm had to invest since it had no way to return profits to investors is a perfect example of capital misallocation caused by taxation.  This piece should be nominated for worst of the year. All intro econ students should read this and learn to dissect such claims. SEC forms are required when declaring insider activity.  An insider is defined by the SEC to be a person or entity which (i) beneficially owns 10% or more of the outstanding shares of the company, (ii) is an officer or director of the company, or (iii), in the case of insider trading, does so based on knowledge which is not otherwise publically available at the time.  At any rate, the person or entity trading the stock is required to file certain forms. Form 3 is filed when a person first transitions into the status of an insider (by becoming an officer, director, or beneficial owner of a certain percentage of stock). Form 4 is filed when an existing insider trades stock under the company's symbol. Form 5 is filed when certain insider trades of small value are reported later than usual. *More information can be found at the SEC's website. Another possibility is that a large number of options or derivatives were exercised by an officer, director, or lending institution.  In the cases of officers or directors, this would need to be declared with an SEC form 4.  For an institution exercising warrants obtained as a result of a lending agreement, either form 3 or 4 would need to be filed. In addition to the above possibilities, username passing through pointed out a very likely scenario in his answer, as well. "These people are pretty off. Insider trading cases, outside of a tender offer context, require some sort of a breach of duty. It's not simply ""non-public material information"". You have to trade securities in interstate, based on or while in possession of the material non-public information, and in doing so is a breach of duty owed to the company or to the information source.  Now simply saying ""personal info"" about an executive does not tell me much about its materiality. So assuming it passes the materiality test, and assuming you yourself aren't a corporate insider, then the only thing left to discuss is whether or not it is misappropriation. To be misappropriation you need to be breaching some duty owed to your information source. Now this isn't just principal-agent duty, this can extend to friends and family if there is a pattern of keeping confidences. So unless you're this guys brother or doctor there really isn't a strong claim against you." I actually disagree that it is unethical or even wrong, and I think allowing insider trading to occur again would help increase confidence in markets for several reasons.  It's still not a good look for the politicians though. "In *[United States vs. O'Hagan](https://en.wikipedia.org/wiki/United_States_v._O%27Hagan)* the Supreme Court established the precedent of interpreting SEC rule 10(b) using the ""misappropriation theory"". The theory establishes that:  &gt; misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to disclose or abstain.   You're correct that from a legal perspective the rules are anything but clear outside of company insiders. However, your own admission is consistent with what anyone in the securities industry knows is true - if you trade on material non-public information, you risk being charged.  I think most would conclude that it's unethical irrespective of the letter of the law. It damages the integrity and functioning of markets. Furthermore, if the law was clarified, I think it's highly unlikely it would state ""trading on material non-public information is permissible for anyone who is not a company insider"". Instead, I would expect it to be consistent with ""Trading on material non-public information is illegal. If in doubt, abstain."" And this is exactly what the government officials should be doing - abstaining." "Since doodle77 handled arbitrage, I'll take goodwill.  Goodwill is an accounting term that acts much like a ""plug"" account: you add/subtract to it the amount that makes everything balance.  In the case of goodwill, it generally only applies to mergers &amp; acquisitions.  The theory (and justification) is this: firms buy other firms at prices other than the market price (usually higher), and it is assumed that this is because the acquirer values its acquisition more than other people do.  But whether you use historical prices or market prices when you add (subtract) assets and liabilities to to (from) your balance sheet, this will never add up, because you paid more (less) than the assets are worth in the market, so more (less) cash flowed out than assets flowed in.  The difference goes into the goodwill account, so firms with a large goodwill account are ones that have made lots of acquisitions." Insiders (those who are aware of non-public material information, not necessarily employees) are the ones who actually cannot sell once they learned about whatever, by law. Martha Stewart went to jail for that. Any such deviation from the norm triggers abnormal response and avalanche of rumors, so by default investors assume something bad and try to minimize the loss. When dealing with a tiny company (market cap of less than 15M) with a tiny market volume (6.2M), the swings can be very significant. For such a small company, it is safe to assume that something happened that lead them to delay the conference call, and since they didn't tell what happen, investors assume the worst. It might end up as the CEO and CFO having bad stomach after celebrating 100% growth in revenue they were going to announce, but you'll have to wait and see.... "You have to read some appeals court cases see scholar.google.com , as well as SEC enforcement actions on sec.gov to get an understanding of how the SEC operates. http://www.sec.gov/spotlight/insidertrading/cases.shtml There are court created guidelines for how insider trading would be proven There is no clear line, but it is the ""emergency asset injunctions"" (freezing your assets if you nailed a suspiciously lucrative trade) you really want to avoid, and this is often times enforced/reported by the brokers themselves since the SEC does not have the resources to monitor every account's trading activities. There are some thin lines, such as having your lawyer file a lawsuit, and as soon as it is filed it is technically public so you short the recipient's stock. Or having someone in a court room updating you on case developments as soon as possible so you can make trades (although this may just be actually public, depending on the court). But the rules create the opportunities Also consider that the United States is the most strict country in this regard, there are tons of capital markets and the ideals or views of ""illegal insider trading"" compared to ""having reached a level of society where you are privileged to obtain this information"" vary across the board contains charts of countries where an existing insider trading prohibition is actually enforced: http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1053&context=articles https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2005/BD_The_world.pdf Finally, consider some markets that don't include equities, as trading on an information advantage is only applicable to things the SEC regulates, and there are plenty of things that agency doesn't regulate. So trying to reverse engineer the SEC may not be the most optimal use of energy" In the United States, when key people in a company buy or sell shares there are reporting requirements.  The definition of key people includes people like the CEO, and large shareholders. There are also rules that can lock out their ability to buy and sell shares during periods where their insider knowledge would give them an advantage. These reporting rules are to level the playing field regarding news that will impact the stock price.  These rules are different than the reporting rules that the IRS has to be able to tax capital gains. These are also separate than the registration rules for the shares so that you get all the benefits of owning the stock (dividends, voting at the annual meeting, voting on a merger or acquisition). "Actually there is no law that makes insider trading illegal, except for actual company insiders (people working at the company). Insider trading as you describe is just a court precedent set in the 80s (I think it was the 80s) and it's based on the concept of ""fraud"", whereby you are misappropriating information that you should not have.  So no, insider trading isn't ""illegal"" in that sense, and the jury is out as to whether it's even bad or not for the markets. That doesn't mean I would recommend doing it or really anything even closely resembling it, since they're pretty aggressive about pursuing those cases." An oxymoron is something that contradicts itself. Inside trading is sharing information that isn't public. How the fuck do you think these hedge funds and investment banks can offer almost 50% returns during these times in our economy??? Oh yea it's called inside trading. Reason why it's an oxymoron is because trading information is considered ilegal yet that what everyone does on the market, rules are made to give off fear but past that it's all open roads and deep pockets.    And if you really don't believe that stock market isn't rigged then there is no reason for me to explain myself on that because it would be like taking to a wall. And I thank you for being one of those people that thinks it's not rigged because you help my portfolio look good from your dumb investments. 1) Yes, buyouts are always higher than the trading price. 2) ANYTHING can be negotiated. There is no rule saying buyouts have to be higher.