No, it is not. If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information. If you're in the plane when the door blows up, you're just the first person with material public information. You're not trading on material non-public information.
Important clarification: you do not need to have confidentiality obligations with respect to the information or a fiduciary relationship, it need only be information that is material and non-public information that belongs to the company (i.e. only available to those with a fiduciary responsibility or confidentiality obligation to the company). If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading.
The link you referenced also clarifies this point, but it is different from what is written in your comment.
Note: this doesn't change the fact that the answer in this particular case is no, it's not insider trading. You are, as parent mentioned, just the first to know the news.
That’s not quite correct, it depends on the nature of the disclosure.
Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.
> it need only be information that is material and non-public.
I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank.
In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value.
What does "non-public" mean here? If some information gets leaked without authorization by an insider (like when people leak stuff online...), (when) does that become public?
What if you infer it from a person that does have a privilege position.
Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence.
Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?
> If an insider with confidentiality obligations shares material non-public information with a person who has no confidentiality obligation, and that person trades on that information, that would be insider trading.
Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?
You're muddying the waters here, the original poster is correct, but with a few scenarios for outsiders. For example, a company that printed the financial statements of companies, had no NDAs, was trading on the data, and was convicted of insider trading because they knew the data was company confidential information.
Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company.
Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing
EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question
Better question can the flight attendant buy puts? What about the air traffic controller who handled the emergency? It’s the exact same information.
This is where insider trading rules just don’t make sense. Here’s a good example. You can buy credit card data from Bloomberg that will give you near accurate information on revenue. For earnings, you can pay to see if a company will meet expectations and trade off that information. If you work for the company, it’s insider trading. If you work for the credit card companies and get the same info and trade on it, it is also insider trading.
Maybe we should make insider trading, trading off information that isn’t public.
I once saw somebody say something to the effect that in every Hacker News thread, there is always a highly upvoted comment that sounds completely plausible, well argued, made by somebody who appears highly qualified to answer, and that is completely incorrect.
Unfortunately in this case the answer as written is completely wrong. See the top reply.
> If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information.
Specifically this part. One of the first things you learn when doing mandatory insider trading training is you can easily run afoul of the law if you act on non-public info you overheard, or happened to see by accident, even if it has to do with some company with which you are not affiliated. A common example is you’re in a coffee shop and see an upcoming earnings report on someone else’s laptop screen, then trade based on that information.
UK rules differ from the US there is a 3-point test for insider trading:
1. The information has to be specific - Yes - you should sell Boeing
2. Would a reasonable investor take this information into account when making a decision to trade - Yes - this seems quite clear
3. The information must be non public - IIRC disclosure to a large group of people - in this case the perhaps 200ish people on the plane knowing it had a problem would probably count as the information being public and thus this test is not met and you are free to trade - I think the bar is around 30 people
I knew all those hours spent in compliance training would come in handy one day!
There's an interesting real world case of the distinction between US and UK/Europe rules about what is public from a few years ago. Someone acted on information from an overheard phone call on a train and was found guilty by a French court.
The fourth point, which most comments seem to be missing: would a court and appeals court take that same stance?
here in the US, quoting statutes on this topic is not useful because we also don’t have a specific statute, we have a couple of general fraud statutes that the regulator has contorted itself to fit scenarios in
During the film, the terrorist financier Le Chiffre uses a Ugandan warlord's money to short-sell stock in Skyfleet, thus betting the money on the company's failure. The banker plans to bring about said failure by destroying the company's prototype airliner. After his original bomb-maker is killed by James Bond in Madagascar, another is hired to complete the job. The bomb-maker infiltrates Miami International Airport and steals a fuel tanker; attaching a keyring-sized bomb to the vehicle. As he attempts to blow up the prototype with the truck he is intercepted by 007 and a fight ensues on-board. Eventually the terrorist is forced from his vehicle and Bond narrowly prevents the truck from colliding with the plane. With his plan foiled, Le Chiffre is left with a major financial loss and is forced to set up a high-stakes poker tournament at Casino Royale in Montenegro.
Huh, so sabotage of a flight on a plane where it's very plausibly related to ongoing quality control is a viable method of generating profit without suspicion - so long as the mechanic who sabotaged door to low off isn't the same one making playing the stock?
I still don't think it counts as insider trading if an outsider sabotages the airplane and buys the puts. The sabotage itself is probably a dozen federal offenses (gasp, terrorism!) resulting in actual prison time; insider trading only gets a slap on the wrist.
Of course not, because you learned the information yourself as an outsider.
Just like the hedge funds that pay for satellite images of all of the WalMart parking lots in the country and count the cars to estimate year over year sales. It's information they have that no one else does, but they didn't get it from an insider.
Exactly. It's literally called "insider trading". There's nothing "insider" about an customer discovering something about the company's product while using it. The source of the information was not from "inside" the company.
Don't be so quick to assume. In law school in Australia (20+ years ago), they specifically covered this point: third-party/outsider could not legally trade on information that wasn't conceivably available to the wider public (there were more specifics, but that was the gist).
Buying puts inside the plane may very well contravene that law, because there's only a couple of hundred people who theoretically had access to that information. Once it was radioed back to ATC, then it's actually available to the public (irrespective of who is actually listening, much like your satellite imagery).
I'm not saying that's the law in the USA (or that it's still even the law in Australia), but "that's how the law should operate" isn't the same as "that's how the law does operate".
You can still be guilty of insider trading and not be an insider. If you get inside information from an insider and trade on it, even though you are not an insider or even if you didn't know the person you got it from was an insider, you are still in violation of the law in the US
I recall learning in law school that “if there is no tipper there can be no tippee”. In order for there to be a tipper, the person has to have an intent to provide a tip improperly. Imagine there’s a CEO talking in an obscure foreign language in his own backyard, to a colleague on the phone, he is not a tipper — even if someone who happens to speak that obscure language is walking by his fence at that moment. As a result, that person cannot be a “tippee” because there was no tipper in the first place.
I’m not sure that not being a tippee means you’re completely in the clear, since you have material information. But it’s presumably not non-public information since hundreds of people know it, and thousands more are finding out by the minute.
>Imagine there’s a CEO talking in an obscure foreign language in his own backyard, to a colleague on the phone, he is not a tipper
Is that actually true? I could believe it if he were speaking in a cryptographic code, but even an obscure language has more than one speaker so he shouldn't be revealing corporate secrets where he can be overheard even if he's speaking a foreign language.
Technically he wouldn’t be a tipper (vis a vis the stranger on the other side of the fence) even if he were speaking English. To be a tipper one has to have intent to share the information inappropriately. I only included the language bit to make it clear he was taking some level of precaution, and had a reasonable expectation that he was not spreading the information around. Even carelessness does not make one a tipper vis a vis a stranger, IIRC. But it’s been a couple decades since law school, so I could be wrong, laws could have changed, etc.
"if you are just a regular person and you go to McDonald’s and buy a burger and say “this burger tastes bad, I’m gonna short the stock,” that’s fine, that’s legitimate research.
...
People are supposed to go around observing companies’ products and services, evaluating them, and incorporating those evaluations into their investment decisions. That’s how stock prices become efficient and how capital gets allocated to good uses rather than bad ones."
IANAL and it depends by jurisdiction but I don't you can stick whatever you want in those sort of shrink-wrap contracts. And according to this site[1] there's at least one (Finland) where surprising terms specifically are not allowed.
You paid to be in the plane. I doubt anyone paid specifically to be in a plane with the hope that a door would blow off to take advantage of information asymmetry in the aircraft manufacturer's stock (or the airline's stock).
IANAL, but I don't see how. If you're just an ordinary person, you're trading based on an event you witnessed in the course of going about your life. No different I would think than if you witnessed a plane crash. You might be investigated though if the amounts were large enough.
It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.
That sounds like it's not really about insider trading but rather about quality of service and avoiding perverse incentives? So different entities don't get different treatment by ATC.
In particular note that the requirement is about lacking financial interests at all, not merely about avoiding trading.
>It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.
IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?
As a random individual, almost certainly. I can do lots of (legal) things to ferret out information that is theoretically public but which isn't actually widely known.
As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to price the results into the stock. In other word, you couldn't trade based on the results you knew were coming a microsecond after the results hit the wire. (The HFTs would probably beat you anyway but I digress.)
If you're an insider, my understanding is that it's not advisable to trade on material non-public information has become public immediately upon release. You need to wait for it to become widely dissemeniated. I've heard guidance of something like 2 business days after release, although that seems extra cautious.
Like if you were mechanic for the airline and got message that we will be landing with missing door. And then traded stock of airline on that information.
Being in the crew of the plane might get more messy at least when done with airline. Boeing less so.
This is the part which I find really sticky. What about all of the non-Boeing employees who interface with the equipment for their job?
The pilot, flight attendants, air traffic control, EMTs, etc. They have no direction association with Boeing, yet you could make an argument it was part of their responsibilities.
On the other hand, if your employer gives you X-brand wrenches, which frequently fall apart in your hands during routine operation, that seems like actionable information on which you would be justified to act.
>> It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.
I think even a Boeing employee would not be guilty. The event happened in public and it should make no difference since the non employee next to them would not be trading on insider info either. The information did not come from inside the company.
Hmm. So a rouge Meta employee could put a barometric pressure monitor in Messenger or WhatsApp (that people use even without paid in-flight wifi) to detect depressurization and automatically short the airline and aircraft manufacturer.
Readit News
See, e.g.
https://www.law.cornell.edu/wex/misappropriation_theory_of_i...
The link you referenced also clarifies this point, but it is different from what is written in your comment.
Note: this doesn't change the fact that the answer in this particular case is no, it's not insider trading. You are, as parent mentioned, just the first to know the news.
Someone receiving information from an insider needs be independent of personal, financial, and quid pro quo relationships. So a random person that happens to sit next to a CEO on an airplane can trade on whatever they hear. The CEO’s mistress sitting on the other side of them can’t.
I think this is wrong as well. Suppose you are a independent technician repairing cars. Over time you notice, that, say BMW car quality used to be good but has gone to shit. That's not public information, but you would be allowed to short BMW stock in the hopes that, once public catches on, their share price will tank.
In fact half the point of stock trading if for you to do research, including your own investigation and testing. And then use that as an advantage. In the process you are bringing the price close to it's true value.
P.S. nothing against BMW, just an example.
Here’s the scenario. During acquisitions, acquiring company sometimes use market research companies to reach out to former execs at the company as part of their diligence.
Can you trade long if you just receive a bunch of requests from market research firms but never actually talk to the acquiring company?
Is this transitive? If the person with no confidentiality tells a 3rd person and that 3rd person trades, is that still insider trading?
Theft from the company is the central tenet, whether you are an insider, have a fiduciary responsibility, or an outsider who comes across data from inside the company.
Material nonpublic information that isn't taken from the company is fair game, thus all the quant funds that collect detailed market intelligence and trade on it (or the posted example, a passenger on the plane who knew the news ahead of the public). It doesnt matter one whit whether the information was material or public, it matters only that it wasn't taken from Boeing
EDIT: I was involved in the early days of a company that sold data to quant funds, and spent many hours with lawyers on exactly this question
Ok so what if you are a Boeing executive or engineer on said flight?
This is where insider trading rules just don’t make sense. Here’s a good example. You can buy credit card data from Bloomberg that will give you near accurate information on revenue. For earnings, you can pay to see if a company will meet expectations and trade off that information. If you work for the company, it’s insider trading. If you work for the credit card companies and get the same info and trade on it, it is also insider trading.
Maybe we should make insider trading, trading off information that isn’t public.
This is stupid. It disincentivizes people who make a living externally auditing/investigating companies
I once saw somebody say something to the effect that in every Hacker News thread, there is always a highly upvoted comment that sounds completely plausible, well argued, made by somebody who appears highly qualified to answer, and that is completely incorrect.
I don’t think it’s always true, but it often is.
> If you do not have a fiduciary relationship with Boeing and you have no confidentiality obligations with respect to the information, you are not trading on inside information.
Specifically this part. One of the first things you learn when doing mandatory insider trading training is you can easily run afoul of the law if you act on non-public info you overheard, or happened to see by accident, even if it has to do with some company with which you are not affiliated. A common example is you’re in a coffee shop and see an upcoming earnings report on someone else’s laptop screen, then trade based on that information.
1. The information has to be specific - Yes - you should sell Boeing
2. Would a reasonable investor take this information into account when making a decision to trade - Yes - this seems quite clear
3. The information must be non public - IIRC disclosure to a large group of people - in this case the perhaps 200ish people on the plane knowing it had a problem would probably count as the information being public and thus this test is not met and you are free to trade - I think the bar is around 30 people
I knew all those hours spent in compliance training would come in handy one day!
https://www.bloomberg.com/opinion/articles/2019-03-29/deals-... Archive https://archive.ph/Imf75
here in the US, quoting statutes on this topic is not useful because we also don’t have a specific statute, we have a couple of general fraud statutes that the regulator has contorted itself to fit scenarios in
During the film, the terrorist financier Le Chiffre uses a Ugandan warlord's money to short-sell stock in Skyfleet, thus betting the money on the company's failure. The banker plans to bring about said failure by destroying the company's prototype airliner. After his original bomb-maker is killed by James Bond in Madagascar, another is hired to complete the job. The bomb-maker infiltrates Miami International Airport and steals a fuel tanker; attaching a keyring-sized bomb to the vehicle. As he attempts to blow up the prototype with the truck he is intercepted by 007 and a fight ensues on-board. Eventually the terrorist is forced from his vehicle and Bond narrowly prevents the truck from colliding with the plane. With his plan foiled, Le Chiffre is left with a major financial loss and is forced to set up a high-stakes poker tournament at Casino Royale in Montenegro.
And take a long pull from that inhaler of his.
Just like the hedge funds that pay for satellite images of all of the WalMart parking lots in the country and count the cars to estimate year over year sales. It's information they have that no one else does, but they didn't get it from an insider.
Buying puts inside the plane may very well contravene that law, because there's only a couple of hundred people who theoretically had access to that information. Once it was radioed back to ATC, then it's actually available to the public (irrespective of who is actually listening, much like your satellite imagery).
I'm not saying that's the law in the USA (or that it's still even the law in Australia), but "that's how the law should operate" isn't the same as "that's how the law does operate".
I’m not sure that not being a tippee means you’re completely in the clear, since you have material information. But it’s presumably not non-public information since hundreds of people know it, and thousands more are finding out by the minute.
Is that actually true? I could believe it if he were speaking in a cryptographic code, but even an obscure language has more than one speaker so he shouldn't be revealing corporate secrets where he can be overheard even if he's speaking a foreign language.
The answer being no, because as a consumer you have no duty of confidentiality.
[1] https://www.dlapiperintelligence.com/goingglobal/intellectua...
And you’ll get charged a fee for the privilege.
It’s an advantage only a few people have, and you paid something in order to be put in that position.
It gets much more complicated I would think if you were an air traffic controller or otherwise learned about it in a professional capacity.
But regarding Air Traffic controllers, it appears they are barred from owning airline stock https://www.law.cornell.edu/cfr/text/5/6001.104 (b)
In particular note that the requirement is about lacking financial interests at all, not merely about avoiding trading.
It’s a big ask though. Where do you draw the line?
So either that, or I can get Pelosi ETF.
IANAL, but I am curious if ATC radio communications are considered public. My understanding is that it is legal to listen to ATC radio; if that's the case, is the plane crashing "public information" right after you relay the info over the radio?
As an insider it's more complicated as I understand it. A company I worked for had a no trade window around earnings reports. The idea is that not only couldn't you trade on advance information but you also couldn't trade before investors had time to price the results into the stock. In other word, you couldn't trade based on the results you knew were coming a microsecond after the results hit the wire. (The HFTs would probably beat you anyway but I digress.)
It varies by justification. In the UK it is illegal to monitor communications not intended for you ( Wireless Communications Act 1949 ).
Being in the crew of the plane might get more messy at least when done with airline. Boeing less so.
The pilot, flight attendants, air traffic control, EMTs, etc. They have no direction association with Boeing, yet you could make an argument it was part of their responsibilities.
On the other hand, if your employer gives you X-brand wrenches, which frequently fall apart in your hands during routine operation, that seems like actionable information on which you would be justified to act.
I think even a Boeing employee would not be guilty. The event happened in public and it should make no difference since the non employee next to them would not be trading on insider info either. The information did not come from inside the company.
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….which actually kinda seems doable
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