There’s Something Fishy About Insiders’ ‘Other’ Trades
Executives and board members must disclose stock purchases and sales, but new research shows opaque coding to be lucrative and flying under the radar.
Looking for patterns.
Photographer: Michael M. Santiago/Getty Images North AmericaRegulators and investors have always had a keen interest in the trades that corporates executives and board members make in their companies’ own shares. The government has to look out for the integrity of financial markets, of course, while investors are eager to ride insiders’ coattails. Unfortunately, it’s never been easy to read the insider tea leaves.
Case in point: A new paper by an influential research group finds that insider trades that are disclosed in an opaque fashion are often, suspiciously, among the most lucrative. When insiders disclose their trades to the Securities and Exchange Commission, they’re often — but not always — coded with a “P” (for purchases) or an “S” (for sales). Any armchair regulator can figure out that something’s fishy when S transactions accumulate just before a negative piece of news that moves the stock. Alas, it’s frequently more complicated than that.