Meta-Information In Addition To Insider Trading

This is a interrogation that pops upwardly from fourth dimension to time. But I volition exercise it past times stylised example.

A small-scale cap miner has announced a real pregnant golden find. The stock has moved from 10c per part to a dollar per share. 

The work is that if the regain actually is every bit described it is obvious that stock is worth $5 per share. 

It doesn't merchandise at $5 per part because at that spot is such a widespread history of small-scale cap miners overstating (or fifty-fifty apartment lying about) golden deposits. If yous regularly bought the stock of small-cap miners announcing big finds yous would likely become broke. 

Now imagine yous are the drilling contractor who drilled the gold. So yous know precisely where the drill samples were taken amongst certainty. 

And suppose yous took those golden samples to the lab run past times your blood brother without whatever tertiary political party intervention. And together with hence betwixt yous you know amongst certainty that the drill samples are existent together with the golden inwards them was accurately measured. 

The results receive got been completely announced to the market. So the marketplace position has been fully informed. 

But yous know i matter amongst certainty that other people don't know. You know the results receive got non been faked.

So yous purchase the stock together with it is a 5 bagger. 

Note that every slice of data yous receive got is world except i piece. The i slice is that the companionship is telling the truth.

Your data is meta-information. It is data nearly the lineament of information.

So are yous guilty of insider trading?

This is non an idle question. At the 2nd Herbalife (to alternative a controversial example) is a inexpensive stock if the companionship is telling the truth. (And that is where my enquiry has been focused.)

If yous knew amongst certainty that the companionship was telling the truth yous would purchase the stock.

This province of affairs comes upwardly regularly amongst controversial stocks together with is inwards background inwards almost all stocks I purchase or short.

I pass a fair chip of my fourth dimension trying to operate out the lineament of data given to me. A lot of the fourth dimension spent stock-picking is spent on the search for meta-information. 

Discussion wanted both every bit to where legality begins together with ends together with (if anyone is game) on methods of assessing the lineament of information.





John Hempton


PS. I am fascinated past times edge-cases inwards insider trading. This i illustrates the divergence betwixt American together with Australian law.

A golden explorer operating on their ain privately owned tenement makes a big golden discovery. 

The regain is alas correct on the boundary of their tenement together with it is opened upwardly together with spreads (pretty obviously) into the neighbours' tenement. 

The neighbours tenement is owned past times a listed companionship (in this instance a penny stock).  

They become together with purchase this penny stock aggressively whilst the bulk holder of the penny stock sells aggressively thinking zip is there.

Under Australian constabulary this was constitute to hold upwardly insider trading. Under American constabulary I suspect it would hold upwardly fine. The someone owning the individual tenement is clearly non an insider inwards the penny stock - just they exercise receive got cloth non-public information.

Okay - lets extend this. Suppose the drilling contractor plant all this out too. And they bring together inwards the trading just the possessor of the tenement (who hired the drilling contractor) has non freed the contractor to merchandise the (third party) penny stock. Is the drilling contractor okay nether American law?