Insider trading
Insider trading, the use of insider information for stock exchange transactions and is a term of the financial market, especially the stock market. Insider trading is a criminal offense in Germany and most of the Member States of the European Union.
Legal Regulation
Prohibition of insider trading in Germany
Insider Trading operates, who granted a securities order or triggers, thereby exploiting insider information. According to § 14 Securities Trading Act ( WpHG), it is prohibited:
- To acquire using insider information insider securities for his own account or for one or the other or to sell,
- Tell another insider information without authorization or making it accessible,
- To recommend to others, on the basis of inside information to acquire or dispose of insider securities or to induce another person in any other way to do so.
These offenses are punishable in accordance with § 38 section 1 WpHG each with imprisonment up to 5 years or fines.
Insider
Insider is someone who has a price-sensitive information about an insider security or its issuer before this information has become publicly known.
Insiders as defined in the Securities Trading Act are persons who
- Are involved in a company or a related company capital
- Misleading because of their work in the company knowledge (for example, board members, supervisory board members)
- Because of their profession or task knowledge gain (for example, lawyers, notaries, accountants, tax advisers, business consultants ).
- Insider information have gained due to the preparation or commission of offenses.
These so -called primary insiders who get as intended price-sensitive, non-public information known, there is the category of secondary insiders. These are all the other people who possesses inside information.
Insider information
Insider information is according to § 13 WpHG concrete information is not publicly known facts that relate to an issuer insider securities, or the insider securities themselves and which are likely in the event of their being divulged to influence the exchange or market price of insider securities.
Examples of such events are takeover bids, a research success of the company, unexpected increases in profits or bulk orders (these usually lead to price increases), an unexpected drop in profits, for insolvency due to illiquidity or over-indebtedness ( in this case the course is regularly fall ) as well as corporate mergers, changes in personnel and the like.
In the 2004 revised definition clarifies that the performing of own orders by utilizing the knowledge already placed customer orders (so-called front-running ) is the recycling of insider information, and therefore translated at the criminal act of insider trading.
As the term previously used in German law the " inside information " includes insider information are not mere opinions and value judgments. The concept of inside information also fall accurate information relating to existing or future with some certainty entering facts.
The so-called " scalping " does not always meet the criminal offense of insider trading. Will trade orders issued in regard to a later public recommendation is after the Bundesgerichtshof considers an illegal price manipulation according to § 20a WpHG before (BGH NStZ 2004, 286). Such a violation is improperly usually can in actual effect on the market price but also punishable by law (§ 38 para 2 German Securities Trading Act ). The Supreme Court justified its result by arguing that " self-created facts " are no insider information, as this presuppose a " third terms ". The Supreme Court may also rely on the fact that his considered opinion that the provisions of the Market Abuse Directive in the result, which classifies the " scalping " in the aforementioned way as price manipulation. In the literature, however, partly a basic validity of internal factors is assumed to be inside information.
The Supreme Court has, in its decision of 27 January 2010 ( Az: 5 StR 224/ 09) expressed on criteria relating to insider information as price sensitive. After that fixed thresholds were not set. The key is an individual assessment of the information from view at that time (ex ante). On the determination of such price-sensitive circumstances no extravagant demands are likely to be asked for proof, given the number of regularly participating in the price formation in addition to the act constituting the offense factors. It was not necessary to consult market participants. Tenor: It is sufficient in principle to take the price development and turnover in the view.
Insider security
Insider securities are securities in which insider trading is prohibited.
According to § 12 WpHG are in insider securities, financial instruments,
In the concept of integrated are also
- Rights to subscribe for, purchase or sale of securities ( options trading )
- Rights to payment of a differential amount, measured against the performance of securities ( contracts for difference )
- Futures contracts and rights to futures contracts on stock or bond indices or interest rate futures and other futures contracts, the obligation to purchase or sell securities (futures ).
After extended by the Investor Protection Improvement Act in 2004, the definition of insider securities are now even those financial instruments whose price depends on exchange-traded financial instruments. So also are not traded on a stock exchange values if their price is determined by exchange-traded financial instruments, recorded as insider securities.
Monitoring of insider trading
The task of insider monitoring is to prevent insider trading. For this purpose, in the Western States national stock exchanges and securities regulators operate. Their goal is also to ensure the operability of fair markets for securities and compliance with the legal requirements. One element of their monitoring tasks is that of tracking the illicit insider trading.
The shops in insider securities daily with the help of special computer programs automated by the German Federal Financial Supervisory Authority (BaFin ) as well as manually examined for unusual price movements or suspicious transactions to go. They filter out the daily turnover on the stock exchanges and OTC transactions abnormalities. Investment services company, for example, banks and savings banks, shops, a reasonable suspicion that was in violation of the insider trading prohibition or the prohibition of price manipulation, show that authority must.
Even the stock market in the U.S. is closely monitored. There is the 1934 founded Securities and Exchange Commission (SEC), an independent federal agency in Washington ( DC), in addition to the admission to trading of securities and investor protection also responsible for the discovery of illegal insider trading. On gentle pressure of this authority, the rules have been tightened up in Europe in the 80s.
Preventive measures against insider trading
Listed companies are obliged to publish inside information in a timely manner (so-called ad hoc publicity) to forestall a possible dissemination of insider information to third parties and to prevent insider trading with it. As a further measure to prevent insider trading legal duty was from 1 July 2002 to § 15a WpHG introduced to inform businesses of the Management Board and supervisory directors of listed companies and their family members immediately in securities of their own company and this announcement ( by the company ) to publish ( directors' dealings ).
European Union
In the Member States of the European Union is the use and disclosure of inside information - with little difference - to the same extent as prohibited in Germany. Because the Market Abuse Directive (Directive 2003/6/EC ) requires nation-states to adopt appropriate prohibitions and sanctions for violations.
USA
The U.S. is seen as the "mother country " prohibition of insider trading. Back in the early 1930s was perceived as part of the capital market legislation and the insider trading as a regulatory problem and discussed. With the Securities Exchange Act of 1934, the ban was first normalized. The the U.S. ban on insider trading underlying regulatory approaches, however, still be distinguished from the European concept. According to the European concept of the prohibitions serve the capital market protection. In the U.S. so far, the prevailing theory, the exploitation of insider knowledge constitutes a breach of trust in relation to the rest of the competition is ( "fiduciary duty theory" ). Recently, following the American legal insider the " misappropriation theory", according to the insider trading is an unfaithful similar action: The Insider " misappropriated " the insider information to the issuer. With this approach, the American prohibition of insider trading is aligned to company law.
Source: Facts on File. World News Digest in 1990.
Insider Trading in practice
In practice striking price movements before the official disclosure of inside information on the stock markets are frequently observed. Rarely, however, the investigations of the BaFin lead to convictions in courts. In addition, the boundaries between price sensitive and not price sensitive information are fluid and are often incorrectly assessed by the insiders.
One of the few and at the same time known examples of detected insider trading was the utilization of an information advantage by the then IG Metall leader Franz Steinkühler in 1993. As a board member of the Daimler -Benz AG was known to him, that a switch of Mercedes- shares in Daimler shares was imminent. It was foreseeable to him that by becoming aware of this information, the price of Mercedes- share will increase significantly. He recommended therefore relatives buying this stock. Judicial consequences did not support this action, because only from 1 August 1994, the utilization of information benefits was made in stock trading is punishable. About one year after the entry into force of the penal provision, the first method because of insider trading trial became public in Germany.
The largest so far known insider trading was uncovered in October 2009 in the United States, when the FBI after three years of telephone wiretaps six alleged accomplices arrested, which should have earned through insider trading around 20-25 million U.S. dollars. Those arrested were senior employees of large listed companies, among them Robert Moffat (IBM Global System and Technology Board and Senior Vice President ), Rahiv Goel (Intel ), the two hedge fund manager Danielle Chiesi and Mark Kurland ( Bear Stearns ), the billionaire Raj Rajaratnam (hedge fund Galleon ( alleged main perpetrator ) ) and Anil Kumar ( a director of McKinsey & Company). It should have been utilized insider information on companies such as Google, Sun Microsystems, IBM, AMD, Moody's, Hilton Hotels, People Support and Polycom. Rajaratnam was convicted of conspiracy and, therefore, and set the sentence in October 2011 to eleven year prison sentence. Prior to May 2011, 34 accomplices had already been convicted.
A well-known case of insider trading in Germany was concerned in 2000, the company Infomatec.