Assume I’m standing on the street corner outside QWERT Corporation waiting for a bus. I happend to see Joe Blow (The head of Microsoft acquisitions) go into their offices. In the 10 minutes that follow, Steve Ballmer and Bill Gates also happen to arrive. Anyone could have witnessed this if they had been there. I conclude that QWERT corporation might be a takeover target and I call my broker and buy 20000 shares of QWERT.
Or how 'bout this: I’m driving to work when I witness Bill Gates being hit by a truck, so I immediately sell short 20000 shares of Microsoft.
No, that is not insider trading. For one thing, you are not an insider. As you say, anyone could see it and make the same assumption.
Now, suppose you are posting news to the CNBC web site, and you get a news release from Microsoft that Bill Gates is stepping down as Chairman. Rather than posting it, you call your broker with a sell order, wait 5 minutes then post it. That would be insider trading. See the difference?
I understand all the words, they just don’t make sense together like that.
Acually neither is insider trading. What you are referring to is trading on “inside information.” which is defined as both material and nonpublic information.
Bizerta, neither is insider trading - you’re just acting on public information more quickly than the public.
The CNBC thing probably isn’t illegal, but it’s very unehtical. CNBC would probably fire you if they found out and the SEC could sanction CNBC because CNBC is in a position to influence markets based on its role in the news economy. The SEC probably would consider it insider trading depending on the other details of the test.
“More quickly than the rest of the public at large.” i.e. you just found out more quickly than everyone else but you didn’t find out because you were in some sort of privileged position.