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JP Morgan's Insider Trading How-To On Wikileaks
An anonymous reader writes "In an internal JP Morgan document published recently, Wikileaks exposes JPM's efforts to circumvent insider trading regulations, enabling their wealthy clients to profit even when others are losing. The document reads like a how-to and explains how to take advantage of SEC Rule 10b5-1, which has long been considered ripe for abuse. Now this abuse is publicly documented and will be hard to ignore."
The 10b5-1 loophole itself apparently consist of making a "plan" to sell your action, and then, when you would have used your insider information, cancel or go with the plan.
It really sounds so obvious like this, that you wonder how the lawmakers could miss it. One hint for them: start compiling with "-Wall".
Don't take my posts literally; it's just code to control my botnet.
On one hand I think this is good. Insider trading should not be illegal. To quote Milton Friedman:
"You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that."
The benefit of insider trading is information enters the markets quicker. That is good for me.
There are also tax lawyers who can help me create complex holding / offshore structures to make me pay less taxes, so from that point of view I fail to see the problem with help how to avoid insider trading regulations. No one would be surprised if these banks helped their clients to avoid paying specific corporate tax, for example. So what's so sacred about the insider trading regulations?
Anyhow, my problem I have with this is bad laws should be rewoked, not left in place to be circumvented with the right know-how.
Screw it being unethical; it is things like this which break the axioms that systems like markets are designed for.
.. so when it happens, it seems pretty obvious to me that you need to change the rules. If somebody is motivated and talented enough to earn wealth, they are the last people on earth who need an FAQ. Markets are intended to reward performance and promote capitalization, not provide and easier way for individuals to make money.
Ultimately, whats important is that if some people can circumvent the risk-reward aspect of an economic, political, judicial, or social system, they're basically saying they're above the protections that western civilization grants them.
I think ethics is a poor way to frame cases like this - the very people who say, "Well, its legal, so there you go" arn't interested in ethics, they're interested in gaming a system. That system would not exist if everyone was able to take advantage of the method of abusing it. Ultimately, they're acting in a way that would destroy the system were everyone able to do what they did. I think the idea of protecting the health of institutions is an easier sell to people than saying, "Hey, that's unethical." Lots of people do unethical things, every day - whats more important is pointing out where unethical behavior is rewarded by an institution rather than punished. These institutions are set up from the very start to attempt to mitigate unethical behavior
"Old man yells at systemd"
I absolutly agree about the fact that this information was interesting, and deserved awareness.
I am just saying that, if what they did boils down to finding the obscure *public* document or webpage which described that service, then they acted just as boinboing when it finds some cool looking roadsing in Japan: intersting, but not a leak.
And by acting as a news website, *even* as a stellarly good one, they would not be fullfying the role they claimed they would.
Which is a problem because what they claimed they would do is the only thing that serves to provide accountability to a service which GREATLY needs it.
Don't take me wrong; I think WIkileak is a wonderful thing; but because it is the embodiment of openess of information. Not because they are good at finding cool stuff
Don't take my posts literally; it's just code to control my botnet.
The more I learn about our economy the more it sounds like really crappy computer code. It's got patches upon patches upon patches and is full of backdoors, rootkits and spyware.
The only information that insider trading gives away, via the trade records, is that someone on the inside is selling a lot of stock - not their personal reasons why.
Insiders - people who typically have tons of stocks - will pump and dump, harming the company itself and leaving the small investors holding the bag.
After a few years of this going on, there won't be a single company out there, no matter how solid it is, that will survive this recurring, erratic cycle of binge & purge. Small investors, who constantly get burned time and time again, will lose faith in the system.
What happens next is fairly obvious.
--- Grow a pair, liberals... stop letting the Republicans bully you!
I think his point is that WikiLeaks should confine itself to highlighting illegal or unethical activities by eliciting internal documents that don't have general public distribution. I, like you don't agree with this, since, companies can often dig themselves into a hole by marketing illegal or unethical services (like this) to certain clients while trying to hide those same services from other clients.
We all know what to do, but we don't know how to get re-elected once we have done it
Except that the CEO of said corporation could then manipulate this lemming mentality to his benefit, at the expense of the little guy (me).
Imagine CEO of XYZ company owns 1,000,000 shares of his company that is trading at $50 per share on Friday. He wants to build a new bungalow by the lake, but has all his capital tied up in his company. What does he do? Calls up his broker on Friday afternoon and sells 900,000 shares for $45,000,000. The media picks up on this, and it is all that is talked about all weekend. Widespread panick ensues. Monday morning opens with XYZ falling through the floor. By Tuesday afternoon, the CEO calls up his broker and buys back his 900,000 shares at $20 each for a total of $18,000,000. The CEO now has $27,000,000 to spend on his cabin. After a couple weeks, everyone realizes that there was nothing wrong with XYZ and share prices begin to climb back up.
But hey, what do I know? I don't own any stock, or have any money to play with, but I am drinking a really fine stout that makes me think I have savvy!
IN fact most issues with insider trading deals with use of insider information and compensation of workers at the expense of stockholder/owners of the company. I have seen this at places where I work. Trades increase, often mostly executives, in the days prior to big deal or a bad report. The workers who knew what was going to happen enrich themselves at the expense of the owners. This behavior is as inappropriate as taking a computer home for personal use. The second big issue with insider trades is that the insiders have the ability to back date the transaction to a time when the price was personally favorable. This also costs the owners money by inflating compensation beyond what was publicly agreed to during the board meeting.
I have mentioned before that if a company voluntarily decides to go public, there are guidelines that go along with that choice. No company is forced to go public, so no company has to follow these guidelines. They can be private, then the employees are freee to engage in any fraudulent activity tolerated by the private owners. But, as has been mentioned so often in the media when defending the government bailouts of irresponsible companies, the stockholder is the companies are common people, retirees, single mothers, etc, and when an insider conducts a fraudulent trade, or a trade the he or she knows primarily is for personal enrichment at the expense of the owners, then such a insider is taking food away form the retiree, children, etc, and I think even the most staunch defender of corporate america will say that is the wrong thing to do. Investors deserve all the money that they should have legitimately earned.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
In itself, the services being offered by JP Morgan are perfectly legal and ethical; they are essentially a "collar", but with different instruments. They're a way of creating a position in which you're mostly immune to changes in the stock price. Wikileaks mentions this briefly by saying The techniques outlined in the 31-page document
So what I'm saying is that there isn't anything wrong with JP Morgan offering these services, period. There is a very practical and ethical reason to enter this sort of contract, and there are a number of safeguards to prevent insiders from large short-selling before things go bad. Nowhere does it even imply in the pdf that JP Morgan "wants to help you inside-trade and beat the market by 6%!"
Unfortunately, the 10b5 rules are not strict enough to prevent inside-traders from also using the services. It's still better than allowing insiders to trading around "blackout" dates.
Anyway, read the businessweek article; it will explain things better than I can. As for this story, it seems to me more of a case of someone offering legitimate services which are being abused by some bad apples.
I thought that the question on point was the following: Does termination of a plan affect the availability of the Rule 10b5-1(c) defense for prior plan transactions? Does canceling one or more plan transactions affect the availability of the Rule 10b5-1(c) defense for prior plan transactions? Termination of a plan, or the cancellation of one or more plan transactions, could affect the availability of the Rule 10b5-1(c) defense for prior plan transactions if it calls into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules within the meaning of Rule 10b5-1(c)(1)(ii). The absence of good faith or presence of a scheme to evade would eliminate the Rule 10b5-1(c) defense for prior transactions under the plan. From what I know the affirmative defense of having a trading plan, according to 10b5-1(c)(1)(i) requires that the person did not exercise any influence on "whether to effect purchases or sales." In other words, putting a plan into writing and then pulling out based on inside information is illegal.
Where is the mainstream media coverage? Why is this not on CNN, Bloomberg, etc?
Point out to me where it says in the source material, "these collars can be canceled at any time". A prepaid forward contract is an obligation to make a future trade, and the only way to cancel it is to enter into an offsetting position. If all trades must be "pre-planned" under this 10b5 rule, I don't see how you can unwind on short-notice once you receive your insider info. Perhaps I'm just missing something, so feel free to point it out.
It's an old mainframe thing (you know, geeky). In the old days devices were controlled by directly embedding control codes in the characters sent to a device. Control H (that is ^H) was/is the code for the backspace key. So if you typed something and wanted to erase it, your character string would look like "John is the the REAL asshole^H^H^H^H^H^H^Hpower behind the scenes." In truth, you didn't really send strings like this for a text printout, at least not for devices like teletypes, because it would be too late for you bub!
In any case, instead of ^W the original poster should have used ^H if he meant to backspace. A Control W is an End of Transmit Block. How a device responded to a End of Transmit block would vary for each device.
I think he expected the imaginary device to erase a word for each control W. However, to know how the device would respond, we would have to know what the output device was.
The NSA: The only part of the US government that actually listens.
You're not getting it, are you? It's very subtle. (Hint: I'm not using one of those old devices in my reply)