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May 09, 2008


Chris Clark

I take it then that you're also a fan of sportsmen and women betting on their own events?

Simon Winfield

I agree with you Chris- mostly.

There are certainly circumstances where investors should have had access to information within the company- such as the case of EMAP, where directors bought shares after 'talks collapsed', only for the bidder to come back a week later at prices 25% higher. At what price level were those original talks taking place?

But in cases where directors believe the shares have been oversold (Galiform), maybe there is no case for insider trading.

Simon. followthedirectors.co.uk


Chris - I'm no fan at all of sportsmen betting against their own team. But there needn't be a law against it. What stops, say, Rio Ferdinand betting on Manyoo losing isn't a legal sanction, but the danger of losing his career and his friends - and of having Alex Ferguson's boot up his aris. Contracts, implicit and explicit, can be a good substitute for legal prohibition.

Alexander Campbell

Imagine a small firm wins a big contract. Its CEO announces this promptly, and the share price rises. So far so good. But what if less senior managers have a hunch: "we can't deliver this project on budget and on time. We could get hit by penalty clauses and lose money on the contract." Do these have a duty to make an RNS announcement, even though their belief lacks a hard, empirical, quantifiable foundation and would undermine their CEO?

No, of course they don't, because, apart from anything else, less-senior managers can't make RNS announcements off their own bat. They have a duty to report it up the line (in writing, if they have any sense) to the CEO, who then has to decide whether to RNS it or not.

If he takes their criticism seriously, then he has the duty to RNS it - if the contract itself was big enough to RNS, then so is the prospect of delays to the contract.

If he doesn't take their criticism seriously, then he doesn't have to RNS it - but he runs the risk that, if the contract really is delayed, he will face a whistleblower, closely followed by a lawsuit from the shareholders, based on the evidence that he was warned about the delays and didn't report them.

It's the job of the CEO to make better decisions than his underlings - that's why he's the CEO.

Which means that, if insider trading were legal, it would be harmful in this case. If the junior managers present their unfounded worries to the CEO and he rightly pooh-poohs them, and they then go short based on their worries, they are in fact putting erroneous information into the share price.

Alexander Campbell

And as for the "contracts are a good substitute" argument - to an extent, insider trading laws are contractual, in that a lot of companies have the choice on where to list, and could in theory shift to jurisdictions that allowed insider trading. But they don't.


"It's the job of the CEO to make better decisions than his underlings - that's why he's the CEO."

If that were true, there would be no point in having the underlings. There must be some information available to each underling that is not available to his boss. And if you regard the CEO as the Perfect Oracle of All Wisdom and ignore the underlings, you lose that information.


Provided that insider dealing came to light of course.

Laurent GUERBY

One aspect is that insider trading gains do not come from "tangible work", hence moral aspect of it.

Current regulations try to make publicly traded stocks on exchange a "fair" games and avoid pyramidal schemes. For the second bit, is there anything other than regulation that can prevent it?


Well, given that the CEO has the job of deciding what to RNS or not, it is certainly the job of the CEO to make better decisions than his subordinates about whether or not something is RNS-worthy.

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