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."

Comments

Re:Not a "leak" ?

[aleph42]

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

I disagree

[Hemogoblin]

I'm not a financial advisor, but I have taken quite a number of finance and derivative courses. I've read the pdf file at least three times now, as well as some other materials, and it seems to me that the Wikileaks analysis is flawed.

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 ... are really only useful for insiders who anticipate their company shares will decline...(Emphasis added) ... which is misleading. Entering into a collar doesn't necessarily mean that you have insider information, it just means that you don't want any risk at all. I would guess that 99.99% of CEO's with stock options / stock will enter into a collar of this sort to protect the value of their portfolios.

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.