I want to see how CFA Charterhold view this. I am a charterholder myself.
Much of the media coverage on insider trading is very clear cut. There was advanced information for a particular security and the individual acted upon by trading the security or derivatives directly related to the security.
However, how do the SEC or other organization ever catch the smarter investors who do use insider information. There are many examples but here are two simple ones (there are many more ways to be creative here).
- An individual know there’s a merger for the Royal Dutch Shell BG, the dumb inside trader will go and buy the underlying shares. The smart insider trader can buy into the ETF which tracks oil companies or something else indirectly related.
- An insider knows that there’s a negative news earning for a particular company which will affect the market. He/she can go and buy VIX indices or short related companies around the world.
There are many more examples but as long as the insider trades smartly, how can he/she ever be caught? Perhaps SEC and other regulators know about it but can’t do anything and just focus on the dumb inside traders.
Much of the media coverage on insider trading is very clear cut. There was advanced information for a particular security and the individual acted upon by trading the security or derivatives directly related to the security.
However, how do the SEC or other organization ever catch the smarter investors who do use insider information. There are many examples but here are two simple ones (there are many more ways to be creative here).
- An individual know there’s a merger for the Royal Dutch Shell BG, the dumb inside trader will go and buy the underlying shares. The smart insider trader can buy into the ETF which tracks oil companies or something else indirectly related.
- An insider knows that there’s a negative news earning for a particular company which will affect the market. He/she can go and buy VIX indices or short related companies around the world.
There are many more examples but as long as the insider trades smartly, how can he/she ever be caught? Perhaps SEC and other regulators know about it but can’t do anything and just focus on the dumb inside traders.