A holding company is a corporation that owns shares of stock of companies. Companies issue new shares and do stock buy-backs all the time, so I think it can “trade” its own shares.
But the corporation has insider knowledge of its own operations, so when it does a buy back or new stock issuance, that’s a lot like insider trading, no?
Could a corporation “profit” by strategically timing its own press releases against the buying and selling of its own stock?
I’m far from an expert in these matters, but don’t companies have to declare publically when they are buying back stock or issuing new shares? In which case, the announcement that said firm is about to sell a shedload of stock would act as a heads-up to the market that bad news might be afoot and so drive the price down (as well as increasing supply and so reducing demand).
A corporation may own its own stock, as many corporations do. And as with any other legal entity, trading a stock using information not available to the general public is prohibited. Should a corporation profit due to circumstances out of their control (say sell short just before a huge earthquake hits its production line), they are free to profit from it.
ETA: Also, as Colophon mentioned, most stock markets require major share holders and those with access to inside information to publicly report sales and buys of its own stock. This is to discourage insider trading, and as best possible to avoid stock manipulation (so that an entity can’t dump a stock’s price by issuing a ton of low buy orders without making it obvious who’s doing it).
In short:no.
And it’s much more likely you’d be found out because the patterns of trading might be obvious. There’s a bit of a fine line between having a great feeling about a new product and having ‘material inside knowledge’ but the advice I’ve always seen is to err on the side of caution.
Many companies have a ‘quiet period’ where employees (and the company) can’t trade in the stock. Generally this is when the quarterly or yearly results are available internally but haven’t yet been made public.
SD
This is absolutely spot-on. I work for a large, publicly traded company. We do indeed have “blackout” periods where trading company stock is prohibited. These are announced company-wide as many employees have company stock in their 401ks. In addition, any trading of company stock by either the company itself or any of its executives is publicly reported in quarterly earnings statements.
Acting on any inside information is illegal and any employee or division of a company doing so would more than likely get caught and as this is a federal crime, penalties can be severe.
Bri2k
Same here. I worked for a large international corporation for a while, and by the 90’s they would peroidically be announcing “from now until quarterly/annual results are formally announced, you may not trade your company stock”. Of course, from time to time they would also spring takeovers and massive re-org and layoff plans with no warning to us peons. Presumably people in the know were told privately they could not trade if they were privy to price-altering information.
The point is, once the authorities started taking insider-trading seriously, common sense says “don’t do anything that will even look suspicious”. (Of course, common sense is not universal) You could probably spend more on lawyers than you would make on a stock trade, no matter how innocent you are, plus at very least if they find you guilty the minimum action seemed to be paying a fine of all the profits.
As others have mentioned, companies can buy their own stock and they have to announce it. Such a move is a clear signal that the company feels that its stock is undervalued.
I’m pretty sure that a company can’t sell its stock in the open market like you or I can, just call a broker and tell him to sell a few million shares. They have to do a public offering, which has all kinds of regulations around it and is in no way a surprise or secret.
There are all sorts of rules related to companies buying back stock. The most common guideline is SEC Rule 10b-18, which states the various restrictions. For example, companies can’t trade at the market opening, in the last 10 minutes, on an uptick and no more than 25% of the avg. daily trading volume (except for “block” repurchases).
Caviat: When my company’s capital structure was healthier, I executed the share buybacks. But I haven’t over the last 5 years, so some of the above rules may have changed.
If rules haven’t changed much, companies also have the option of executing accelerated buybacks through a 3rd-party. The gist of this is that by outsourcing the buyback, with the understanding that a specific number of shares or dollars will be used over the specified time period, repurchasing can be performed even through “quiet” periods.
Oftentimes, when there is material insider information, companies must cease their buyback program (even when it’s not a “quiet” period). This action (or lack thereof) is a strong signal to investors that something is happening. For example, XYZ was regularly buying back 1 million shares per week, but then they suddenly stopped.
In one of the Jack Ryan novels (Patriot Games), Jack gets a tip (from his buddy and later VP, Robbie Jackson) about a company which was going to be awarded a government contract. Jack does some research (pre-Google), and finds that the company is buying back its own stock. He takes this as confirmation of Robbie’s tip, and buys the stock.
During this scene, he contemplates whether or not this action is legal. He assumes the original tip *might *have been considered insider information – although I’m not sure where the “might” part comes in – but contends that his decision to purchase was based on his independent research and his evaluation of the research results based on his experience as a stock trader, Hence, he asserts, it was legal.
I do not know enough about this subject to have even the slightest valid option, but this has always struck me as bogus, as much so as the pre-signed pardons in Teeth of the Tiger.
Jack had better hope that he happens to have one of those pre-signed pardons hanging around for when the SEC finds out.
I read an interview with Tom Clancy, where he stated that he had been wrongly advised by an expert that such a trade would be perfectly legal. After the book was published, he found out he was wrong.