Definition of a Stock:In plain and simple, stock is share in the ownership of acompany. Stock represents a claim on the co...
computers where trades can be made electronically. We should distinguish betweenthe "primary" and "secondary" market. The ...
So, why do stock prices change? The best answer is that nobody really knows forsure. Some believe that it isnt possible to...
as the dollar/taka amount on each stock own divided by the current per stock pricetimes 100 that is called dividend yield....
worth of dividends and earns $10,000 income end of the year, then it’s payout ratiois10% ($1,000/$10,000 income times 100)...
and blue chips companies stock according to their earnings. Lets say, there are 20blue chips companies and how much their ...
determined in the secondary market similar to individual stocks. Investors can also execute eitherlimit or stop trade orde...
The author is an Assistant Professor of Finance at State University of New York Institute ofTechnologyGuidelines for Capit...
o NRB & Foreign Investors may choose to appoint a Custodian to ensure tradeexecution and safe custody of shares.Why NITA &...
Why BRAC Bank Limited?Being your One-Stop Capital Market service provider, you can avail the followingservices from BRAC B...
passport (with noobligations seal fromBangladesh Embassy)Photographs (Accountholder)3 copies PP size (Attestedby introduce...
From Wikipedia, the free encyclopediaJump to: navigation, searchCriminal lawPart of the common law seriesElement (criminal...
Sexual assaultHomicide crimesMurderFelony murderManslaughterNegligent homicideVehicular homicideCrimes against propertyArs...
ObstructionPerjuryMalfeasance in officePerverting the course of justiceDefenses to liabilityDefense of selfDefence of prop...
TortsWills, trusts and estatesPortalsCriminal justiceLawvteInsider trading is the trading of a corporations stock or other...
Contents1 Legal insider trading2 Illegal insider tradingo 2.1 Definition of "insider"o 2.2 Liability for insider tradingo ...
Illegal insider tradingRules against insider trading on material non-public information exist in most jurisdictionsaround ...
Misappropriation theoryA newer view of insider trading, the "misappropriation theory," is now part of US law. It statestha...
Securities and Exchange Commission (SEC) summarize the development of U.S. insider tradinglaws.[11]Insider trading has a b...
In 1909, the Supreme Court of the United States ruled in Strong v. Repide that a director uponwhose action the value of th...
The "misappropriation theory" holds that a person commits fraud "in connection with" asecurities transaction, and thereby ...
theory.[25]This information may include non-material nonpublic information as well as materialpublic information, which ma...
the price of that commodity) and then purchases that commodity before executing the clientsorder in order to benefit from ...
See what insiders are buying, earlier than everybody else!For Real-time insider transactions. Enter Stock Symbol: (e.g. IB...
By PETER LATTMAN and AZAM AHMEDRobert Stolarik for The New York Times“It was a club where everyonescratched everyone else’...
Related LinksThe complaintOn Wednesday, federal prosecutors announced criminal charges against Mr. Goyal and sixothers, de...
Another pair of former SAC Capital traders, David Ganek and Mr. Chiasson, started LevelGlobal, which closed last year. Mr....
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Ben Protess contributed reporting.More details revealed on inside tradersjailingEnglish.news.cn 2012-05-22 15:01:40File ph...
Also known as Wong Kwong-yu, he was once the richest man in Chinas mainland and the legalrepresentative of both Gome and B...
information that has not yet been made public. Because the information is not available to otherinvestors, a person using ...
misappropriation theory of insider trading cases, certain other relationships automatically giverise to confidentiality. I...
Home | Previous PageInsider Trading"Insider trading" is a term that most investors have heard and usuallyassociate with il...
The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insidertrading issues where the courts have disagreed. Rule 10b...
moneyback guarantee on annual subscriptions only and isobliged to give a refund if requested by any new subscriber ifthe r...
This stockbroker consensus data is supplied by ThomsonFinancial Ltd and may be used for personal and non-commercial purpos...
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In Australia a similar prohibition is covered under Sections 1041A of the Corporations Act 2001.Types of Market Manipulati...
The reason being that company insiders have the best insight into the workings of their company.
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Definition of a stock

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Definition of a stock

  1. 1. Definition of a Stock:In plain and simple, stock is share in the ownership of acompany. Stock represents a claim on the companys assets and earnings. As youacquire more stock, your ownership stake in the company becomes greater. Whetheryou say shares, equity or stock, it all means the same thing.Why does a company issue stock? A company could keep the profits and earningsto the owners of the company. It is only possible if a company does not extend itsmarket share and stays in minimum profits limit. In order to extend market share orbe market leader or get bigger asset, at some point every company needs to raisemoney. To do so, companies can either borrow it from somebody or raise it byselling part of the company, which is known as issuing stock. A company can borrowby taking a loan from a bank or by issuing bonds and both methods are called debtfinancing. Conversely issuing stock in the market is called equity financing. Theadvantages in issuing stock is a company does not require to pay back the loan orinterest payments along the way. No chances involving into debt and creatingobstacle in expanding market share or adapting the advancement. However, it onlyleaves shareholder on hope the company will achieve its target profit and earningper share which leads the capital gains on holding a stock. If the trend showsnegative growth shareholder can sell instantly without having big loss. The first saleof stock by a company is called the initial public offering (IPO).Risk Involvement in a Stock: this is a very important factor believing in Risk whenyou want to invest in the stock market. There is no guarantee what percentage youcan get capital gain, where and when the stock price stops in up-end or low-endand how long it takes to get the profits. It is true, no company or institute canguarantee. However, you can measure the risk various ways. Thats why, it isessential to do some "Home Work" on a company before you invest. The "Homework" should be calculating earning per share, total debt, relative price strength,profit margins, volumes, industry leader and so on. You can also reducing the riskby diversifying the portfolios ( selecting stocks from different industries) andmeasuring the correlation between a stock and market index. A less risk taker hasoptions to invest in Bond ( fixed returns) or a company who provides dividends atthe end of year. However, investors need to measure "expected rate of returns"first, and it should be high enough to compensate the investors for the perceivedrisk of the investment. Risk is contrary to the positive profit, but there is alsobright side. Taking-on greater risk demands a greater return on the investment.This is the reason why stocks have historically outperformed other investments suchas bonds or savings accounts.How Stocks Trade: most stocks are traded on exchange, which are places wherebuyers and sellers meet and decide on a price. Some exchange are physicallocations where transactions are carried out on a trading floor. Two trading floorare located in Bangladesh, DSE which is located in Dhaka, CSE is located inChittagong. Chittagong stock exchange is expanded to compose of a network of
  2. 2. computers where trades can be made electronically. We should distinguish betweenthe "primary" and "secondary" market. The primary market is the first phase ofstock where securities created before trading at the floor which is called IPO. Inthe secondary market, investors trade previously issued securities without theinvolvement of the issuing companies. The secondary market is what people arereferring to when they talk about "the stock market."What causes prices to change: stock prices change everyday by market forces. Bythis we mean that share prices change because of supply and demand. Any singletime, if more people want to buy a stock (demand) than sell it (supply), then theprice moves up. Conversely, if more people want to sell a stock than buy it, whichis a greater supply than demand, then the price falls.Understanding supply and demand is pretty much easy. What is difficult tocomprehend is what makes people like a particular stock and dislike another stock.This comes down to figuring out what news is positive for a company and whatnews is negative. There are many answers to this problem and just about anyinvestor you ask has their own ideas and strategies.That being said, the principal theory is that the price movement of a stockindicates what investors feel a company is worth. The companys value is differentthan its stock price. The value of a company is its market capitalization, which isthe stock price multiplied by the number of shares outstanding. For example, acompany that trades at $100 per share and has 1,000,000 shares outstanding ($100x 1,000,000 = $100,000,000)has a lesser value than a company that trades at $50but has 5,000,000 shares outstanding ($50 x 5,000,000 = $250,000,000). To furthercomplicate things, the price of a stock doesnt only reflect a companys currentvalue--it also reflects the growth that investors expect in the future.The most important factor that affects the value of a company is its earnings.Earnings are the profit a company makes, and in the long run no company cansurvive without them. It makes sense when you think about it. If a company nevermakes money, they arent going to stay in business. Public companies are requiredto report their earnings four times a year. Many analysts forecast earning per sharefour times a year. If a companys results surprise (are better than expected), theprice jumps up. If a companys results disappoint (are worse than expected), thenthe price will fall.Of course, its not just earnings that can change the sentiment towards a stockprice. It would be a rather simple world if this were the case! During the dot-combubble, for example, dozens of Internet companies rose to have marketcapitalizations in the billions of dollars without ever making even the smallestprofit. As we all know, these valuations did not hold, In fact they are corrected bymarket value. There are factors other than current earnings that influence stocks.Investors have developed literally hundreds of these variables, ratios andindicators.
  3. 3. So, why do stock prices change? The best answer is that nobody really knows forsure. Some believe that it isnt possible to predict how stocks will change in pricewhile others think that by drawing charts and looking at past price movements, youcan determine when to buy and sell. The only thing we do know as a certainty isthat stocks are volatile and can change in price extremely rapidly.The important things to grasp about this subject are the following:1. At the most fundamental level, supply and demand in the market determinestock price.2. Price times the number of shares outstanding (market capitalization) is the valueof a company. Who is the market leader in terms of growth and has most relativestrength and profit margin.3. Theoretically earnings are what affect investors valuation of a company, butthere are other indicators that investors use to predict stock price. Remember, it isinvestors sentiments, attitudes, and expectations that ultimately affect stockprices.4. There are many theories that try to explain the way stock prices move the waythey do. Unfortunately, there is no one theory that can explain everything.The Bulls, the Bears, and the Farm: On Wall Street, the bulls and bears are in aconstant struggle. If you havent heard of these terms already, you undoubtedly willas you begin invest. The Bulls: a bull market is when everything in the economy isgreat, people are finding jobs, GDP is growing and stocks are rising. Things are justplain rosy, picking stocks during a bull market is easier because everything is goingup. Bull markets cant last forever though, and sometimes they can lead todangerous situations if stocks become overvalued. If a person is optimistic,believing that stocks will go up, he or she is called a bull and said to have a bullishoutlook. The Bears: a bear market is when the economy is bad, recession islooming, and stock prices are falling.All About Dividends:One of best way to invest in dividend stocks is the buy-and-hold strategy. Thatmeans you buy a dividend paying stock and hold it until you find another companypaying higher-yield dividend for enough period of time. Basically you will havefixed income as dividends in addition to stock price gain or loss.What you should consider to own a dividend stock forever, you want three thingsfrom that stock:1. High yield dividends.2. Continued payment history.3. Payout ratio follows less than 70% on Net-income.Dividend payments: when a company declares dividend usually quoted either as aDollar/Taka amount or as a percentage. The Dollar/Taka amount is how much youwill get paid per year on each share of stock you own. The percentage is calculated
  4. 4. as the dollar/taka amount on each stock own divided by the current per stock pricetimes 100 that is called dividend yield.Yield explained: by looking at the percentage you can easily compare betterinvestments strategy and grasp which stock will pay you most on your amount ofinvestment. You will learn why dividends yield is crucial factor of choosing dividendpaying stocks.For example: if you purchase 100 shares of stock at $10 per share, you will haveinvested a total of $1,000 (100 shares X $10 per share = $1,000 invested)How much you will get on every share of stock you own?Let’s say a company is paying 8% dividend yield, so there will be $80 earnings onyour investment of $1,000 (1,000 invested X 8% = $80) $80 dividends per year.This means that this stock pays you $.80 for every shares of stock you own (earnings$80/100 shares). Now, if another stock also paying $.80 per share, but the stockprice of that stock is $20 per share. In your $1,000 investment you will have 50shares a price of $20 per share. On your $1000 investment, on this second companyyou will earn ($.80 X 50) $40 every year.Let’s calculate the yield of second stock, it pays $.80 per share, and its share priceis $20. So, the yield is (.80X100/20) 4%. Your plan is to get highest return on a fixedof $1,000 investment, keeping this strategy well-planned you can see that you get100 shares on a first stock and 50 shares on a second stock, but both pay youexactly $.80 per share you own. In this scenario, you can comprehend which stockwill pay more earnings with the $1,000 investments because of highest yield withsame amount of payment per share.Only your yield matters: note that the only thing matter is the yield for the pricethat you bought at. Even if the price of the stock goes up or down after you havebought it. You will earn same amount of money because you still own the samenumber of shares. So, the key is to compare their yields.Trend of continued payment: your only concern is to minimize the risk on everypenny you investment. Then you research high-yield paying dividend stocks thosecompanies have record of paying dividends for at least 4/5 years. History ofdividends payment in the past for years most likely will continue to pay in comingyears. Owning a share of stock is the same as owning a piece of a company. Thedividends are paid out of what a company earns in Net-income and have savings. Ifa company does not have growth in net-income or enough cash savings in balance-sheet how long will a company continue to pay dividends? So, it is important that acompany is able to pay dividends based on their profits over a year, and you wantto make sure their payout is less than they earn in income. One way to determinethis is by checking the stock’s payout ratio.Payout Ratios explained: the payout ratio is the amount a company pays individends divided the company’s income. Let’s say a company pays out $1,000
  5. 5. worth of dividends and earns $10,000 income end of the year, then it’s payout ratiois10% ($1,000/$10,000 income times 100).Now, if a company’s payout ratio greater than 100% means that the company ispaying out more in dividends than they make in income. Think carefully about howlong a company could continue to stay in business if they spend more money thanthey make. Obvious answer is not very long. And definitely not forever, which ishow long you expect to own the stock.Sustainable Payout Ratio: a sustainable payout ratio is generally considered lessthan 75%. That means a company pays dividends to investors out of 75% its incomeand remaining 25% of income is going to company’s reinvestment plan. A companyneeds enough cash to create new products, advertise to new customers, newbusiness plant, and generally just keep continuous business growth. If noreinvestment is made then the company’s income could shrink over time.What would happen when company’s income shrinks? How much would it hurtkeeping business same phase of expansion? It shows that if company’s income slowsdown that will lead the payout ratio for the stock to go up. Let’s say that the abovecompany’s income drops to $5,000 from $10,000 over year and its payout paymentis same $1,000 as before.$1,000 dividends / $5,000 income = 20%.So it is very important for a company to maintain growth in business expansion andits net-income by reinvesting in itself.There should be a cap to maintain reasonable payout ratio which is standard formost companies. A payout ratio of 75% or less also provides a cushion for thecompany in case of hard times arrives. As economy slows down, most companies’income also go down. If a company is paying 100% of the previous income asdividends, then they will have to lower the total dividends payment to match thecurrent income.What is P/E and why investors often calculate companys P/E?Many successful investors use P/E ratio to find out what the market is paying for acompanys earnings at any given time. Any one can understand easily and calculateP/E as a companys price-per-share divided by its earnings-per-share. Lets sayBATASHOE is trading at 160 taka per share in the market, for instance, and earningscame in at 8 taka a share over the year, its P/E would be 20 (160/8). That meansinvestors are paying 20 taka for every 1 taka of the companys earnings. In thisexample, investors are willing to pay extra 20 taka every one taka in BATASHOEsearning. It is some point crucial to find out how much investors willing to pay a best
  6. 6. and blue chips companies stock according to their earnings. Lets say, there are 20blue chips companies and how much their stocks are selling at current market andhow much their earnings per share that will give us to calculate P/E which could bean industry standard market paying based on companys earnings.About Mutual Funds Right Issues & Bonus Shares, Close-End and Open-End MutualFundsTHE SEC implemented revised mutual fund regulations on July 22. According to the amendedrule, mutual funds are prohibited from issuing new shares either in the form of right or bonusshares to increase their capital bases. The SEC also imposed restrictions on mutual funds askingthem not to offer pre-emptive rights shares or private placement. This implies that mutual fundshares should be offered and sold to the public through brokers/dealers but not to a pre-selectedbuyer or a group of buyers.The SECs decision to amend fund rules brought numerous investors into the street as most of themutual funds lost value (in some cases more than 20% in a single trading session) during thatvolatile market (late June to mid-July) and worried investors began demonstrating against theofficials of SEC.The SEC was forced to suspend mutual fund trading several times during that market turmoil. Agroup of investors filed a petition against SECs decision to change mutual fund rules. As such,the High Court asked fund managers not to distribute dividends until the SEC resolves the issue.To date, the total number of mutual funds in Bangladesh is below 20 and they account for lessthan 3% of our market capitalization. The US is the largest mutual fund market in the world withapproximately 25,000 funds and $12 trillion assets under management.By definition, mutual funds are portfolios of different securities such as stocks, bonds, treasuries,derivatives, etc. Mutual funds pool money of both individual and institutional investors allowingthe funds to achieve: (i) economies of scale by reducing costs and increasing investment returns;(ii) divisibility and diversification; (iii) active management with superior stock picking andmarket timing; (iv) reinvestment of dividends, interest and capital gains; (v) tax-efficiency; and(vi) buying and selling flexibility. There might be varieties of mutual funds that differ in terms oftheir investment objectives, underlying portfolios of shares, risks and returns, fees and expenses,etc.It should be noted here that mutual funds are widely known as open-end mutual funds in globalcapital markets. But most of the mutual funds in Bangladesh are close-end mutual funds. Aclose-end fund differs from an open-end fund mainly due to the fact that the number of shares ina close-end fund is fixed at its inception. Moreover, a close-end fund, unlike the open-end fund istraded in the stock exchange and priced intra-day. As such, price of a close-end fund is
  7. 7. determined in the secondary market similar to individual stocks. Investors can also execute eitherlimit or stop trade order in close-end funds transactions.On the other hand, the price of an open-end fund is its net asset value (NAV) which is computedonce after the close of the stock exchange each trading day by taking the closing market value ofall underlying securities of a fund plus other assets (usually cash) and subtracting all liabilities ofthe fund, and dividing the total net assets of the fund by total number of outstanding shares.Thus, there is only one price (i.e. NAV) for open-end mutual fund. Total net assets and thenumber of outstanding shares of an open-end fund may vary because of inflows (purchases offund by investors) and outflows (redemptions of fund by investors) of money from the fund. Thissuggests that the number of shares in an open-end fund is not fixed.It is worthy to mention here that a new type of security, widely known as "Exchange-TradedFund" or ETF (a blend between open-end and close-end funds), was introduced in the US in late1990s. ETFs are similar to close-end funds as these are exchange traded and priced intra-day andallow investors to buy or sell shares based on the collective performance of an entire portfolio.Since the prices of ETFs do not deviate much from NAV, they have greater advantages over theclose-end funds. As such, many close-end funds were converted to ETFs. Since our capitalmarket does not offer ETF as an investment vehicle, we will leave its discussion here and focuson close-end fund, the predominant source of mutual funds in Bangladesh, and its recent glitch.Theoretically, a close-end fund neither redeems its existing shares nor issues new shares after itsinitial public offering. As such, a fixed number of close-end fund shares are traded in the stockexchange. Due to this fixed capital structure, fund managers do not worry about inflows andoutflows of money from funds. Accordingly, a close-end fund manager concentrates in long-termcapital investment and higher yields. However, under special circumstances, close-end funds arepermitted to raise capital either by issuing preferred stock or taking short-term loans which arecollateralised by the funds original portfolio. The issuance of either right offerings, or bonusshares, or secondary offerings, or dividend reinvestments to increase the capital base of a close-end fund is considered to be detrimental to the fund as it may dilute fund returns.Since close-end mutual funds in Bangladesh were previously allowed to issue new shares(whether in terms of right, bonus, or dividend reinvestments), this was inconsistent with the truedefinition and objective of a close-end fund. It is apparent that SEC took the right decision byamending the mutual fund rules. However, this raises some questions and concerns about thequality of our financial securities and capital market.Finally, our capital market also lacks professional portfolio managers because of SECsfavoritism toward ICB and lack of private mutual funds. An ADB audit team in 2004 reportedthat ICB enjoys enormous facilities (e.g. non-payment of SEC fees, unlimited borrowing,undisclosed daily NAV, etc).These extra-ordinary facilities are major impediments to the growth of private investmentcompanies and a competitive mutual fund market in Bangladesh. As such, we also see no light atthe end of the tunnel for a market for derivative securities.
  8. 8. The author is an Assistant Professor of Finance at State University of New York Institute ofTechnologyGuidelines for Capital Market Investment in Bangladesh through BRAC BankLimited Prepared for Non-Resident Bangladeshis (NRBs) & Foreign InvestorsBangladesh Capital Marketo Bangladesh Capital Market consists of the Dhaka Stock Exchange (DSE) & theChittagong Stock Exchange which were incorporated in 1954 & 1995 respectively.o Both are members of South ASIAN Federation of Exchanges (SAFE), a forum inSouth Asia to promote the development of securities markets in the region.o The Securities & Exchange Commission (SEC) supervises activities of the boursesand its members.o Automated trading facilities available at both bourses since 1998.o The Central Depository Bangladesh Limited (CDBL) introduced its first electronicbook entry in 2004.o Market Intermediaries include 238 members of DSE, 135 members of CSE, 28 Full-Fledged Merchant Banks, 6 Asset Management Companies and 5 Custodians6 (Six)Bangladeshi Companies have been added to Dow Jones Safe-100 Index.Why should you invest in Bangladesh Capital Market?o 100% repatriation of capital, dividend and investment profits.o Reinvestment of repatriable dividend treated as new investment.o No tax on capital gainso 10% of all IPOs are reserved for NRBs.o World’s Bank Investor Protection Ranking for Bangladesh 19th, Pakistan 25th, India38th & Sri Lanka 70th.o Bangladesh was considered as one of the Goldman Sachs Next 11 countries for ahigh potential of becoming the world’s largest economies in the 21st century along withthe BRICs (Brazil, Russia, India and China).o Easy access to ownership of Infrastructure Development companies, high net worthprivate banks and companies through Capital Market. Requirements for NRBs &Foreign Investors to invest in Bangladesho A Foreign Currency (FC) Account is needed for inward and outward remittance.o A Non-resident Investor’s Taka Account (NITA) is required for converting foreigncurrency into Taka.o All Capital Market investors are required to conduct trading through a Stock BrokingAccounto maintained with any Stock Broker/Member of the respective Stock Exchange.o In order to trade dematerialized shares listed with the Stock Exchanges, investorsmust have a Beneficiary Owners (BO) Account with CDBL.
  9. 9. o NRB & Foreign Investors may choose to appoint a Custodian to ensure tradeexecution and safe custody of shares.Why NITA & Stock Broking AccountsAccording to Chapter 14 9Sec-1 of Vol-1) of the Bangladesh Bank’s Foreign ExchangeTransaction Regulations, 1947:o Non-resident persons/institutions including NRBs may buy securities in Bangladeshagainst freely convertible foreign currency remitted from abroad through the bankingchannel.o Non-resident investors shall open a NITA with any Authorized Dealer (AD) inBangladesh (i.e. an authorized commercial bank/ bank branch)o Balances in NITA may freely be used to buy Bangladeshi shares and such balanceincluding dividend and sale proceeds is freely remittable abroad in equivalent foreignexchange.o Purchase and sale of shares listed in Bangladesh Stock Exchanges shall be madeonly through a member /registered broker of the Stock Exchange & purchase of newpublic issues not yet listed with the stock exchange may be made directly from theissuing company.o No local funds except dividend/interest earning on securities, share sale proceeds &freelyo convertible foreign currency remitted from abroad can be credited to NITA.o No loan facilities shall be allowed in NITA.How to invest through a Custodian in Bangladesh?o Open a FC account and NITA with any AD of the Bangladesh Bank.o Open a Custodian Account with any of the SEC registered Securities Custodian.o Your Custodian will open a Stock Broking Account with any member of the StockExchange.o Custodian will act as an Operator of your Stock Broking Account.o The Custodian will also open a BO Account with CDBL in order to tradedematerialized shares and act as a POA to your BO Account.o Remit foreign currency in the local FC Account from abroad with instruction to theCustodian for crediting NITA.o The Custodian will arrange payment to the member for crediting Stock BrokingAccount.o Send securities trading instruction to your Custodian through e-mail or fax.o Receive securities transaction statement through e-mail or fax from your Custodian.o Instruct your Custodian for remitting fund from Bangladesh to you.o You can open FC Account, NITA, BO Account & Custodian Account with the samebank and your Stock Broking Account can be opened at the same place provided thebank has Custodian license, Subsidiary Brokerage & Authorized Dealership for one-stop solution.
  10. 10. Why BRAC Bank Limited?Being your One-Stop Capital Market service provider, you can avail the followingservices from BRAC Bank Limited under One-Umbrella:1. NITA & FC Account opening2. Stock Broking Account opening through its subsidiary BRAC EPL Stock BrokerageLtd.3. BO Account opening4. Custodian Account openingDocument ChecklistsRequired documents forNITA and FC A/CNRBs Foreign Nationals Foreign InstitutionsPhotocopy of passport BangladeshiPassportForeign Passport Passport of the CEOPhotographs (Accountholder)4 copies PP size(Attested byintroducer)4 copies PP size(Attested byintroducer)4 copies PP size photos ofall signatories & authorizedpersonsPhotographs (Nominee) 2 copies PP size(Attested byAccount holder)2 copies PP(Attested byAccount holder)Not ApplicableEmployee Statement/Business DocumentRequired Required Not ApplicableResident Permit Required Not Applicable Not ApplicableMemorandum &article ofAssociation, TaxCertificate & TradeLicenseNot Applicable Not Applicable RequiredApproval from the Boardof Directors for Investment& Authorized Person, ifanyNot Applicable Not Applicable RequiredRequired documents forStock Broking and BOA/CNRBs Foreign Nationals Foreign InstitutionsApproval from the Boardof Directors forInvestment & AuthorizedPersonNot Applicable Not Applicable RequiredPhotocopy of Passport Bangladeshi passport(with valid visa), ForeignForeign Passport Passport of the Authorizedperson
  11. 11. passport (with noobligations seal fromBangladesh Embassy)Photographs (Accountholder)3 copies PP size (Attestedby introducer)3 copies PP size(Attested by introducer)Not ApplicablePhotographs (AuthorizedPerson)2 copies (Attested byAccount holder)2 copies (Attested byAccount holder)3 copies PP sizePower of Attorney(Photographs of POA)Required (2 copies PPsize Attested by Accountholder)Not required Not requiredPhotographs (Nominee) 1 copy PP size (Attestedby Account holder)1 copy PP size (Attestedby Account holder)Not ApplicableBank A/c numbercertificate/statementFC account FC account & NITA FC account & NITAMemorandum & Article ofAssociationNot Applicable Not Applicable RequiredRequired documents forCustodian A/CNRBs Foreign Nationals Foreign InstitutionsApproval from the Board ofDirectors for Investment &Authorized PersonNot Applicable Not Applicable RequiredPhotocopy of Passport Bangladeshi passport Foreign Passport Passport of the AuthorizedpersonPhotographs (Accountholder)3 copies pp size 3 copies pp size Not ApplicablePhotographs (Authorizedperson)2 Copies pp size (attestedby account holder)2 Copies pp size(attested by accountholder)3 copies pp size (authorizedperson by board)Photographs (Nominee) 1 copy PP size (Attestedby Account holder)1 copy PP size (Attestedby Account holder)Not ApplicableBank A/C No.Certificate/StatementFC account & NITA FC account & NITA FC account & NITAMemorandum & Article ofAssociationNot Applicable Not Applicable RequiredWork Permit Required Not Applicable Not ApplicableInsider trading
  12. 12. From Wikipedia, the free encyclopediaJump to: navigation, searchCriminal lawPart of the common law seriesElement (criminal law)Actus reusMens reaCausationConcurrenceScope of criminal liabilityComplicityCorporateVicariousInchoate offensesAttemptConspiracySolicitationOffence against the personAssaultBatteryFalse imprisonmentKidnappingMayhem
  13. 13. Sexual assaultHomicide crimesMurderFelony murderManslaughterNegligent homicideVehicular homicideCrimes against propertyArsonBlackmailBurglaryEmbezzlementExtortionFalse pretensesFraudLarcenyPossessing stolen propertyRobberyTheftCrimes against justiceCompoundingMisprision
  14. 14. ObstructionPerjuryMalfeasance in officePerverting the course of justiceDefenses to liabilityDefense of selfDefence of propertyConsentDiminished responsibilityDuressEntrapmentIgnorantia juris non excusatInfancyInsanityIntoxication defenseJustificationMistake (of law)NecessityLoss of Control (Provocation)Other common law areasContractsEvidenceProperty
  15. 15. TortsWills, trusts and estatesPortalsCriminal justiceLawvteInsider trading is the trading of a corporations stock or other securities (e.g. bonds or stockoptions) by individuals with potential access to non-public information about the company. Inmost countries, trading by corporate insiders such as officers, key employees, directors, and largeshareholders may be legal, if this trading is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to a practice in which an insideror a related party trades based on material non-public information obtained during theperformance of the insiders duties at the corporation, or otherwise in breach of a fiduciary orother relationship of trust and confidence or where the non-public information wasmisappropriated from the company.[1]In the United States and several other jurisdictions, trading conducted by corporate officers, keyemployees, directors, or significant shareholders (in the U.S., defined as beneficial owners of tenpercent or more of the firms equity securities) must be reported to the regulator or publiclydisclosed, usually within a few business days of the trade. Many investors follow the summariesof these insider trades in the hope that mimicking these trades will be profitable. While "legal"insider trading cannot be based on material non-public information, some investors believecorporate insiders nonetheless may have better insights into the health of a corporation (broadlyspeaking) and that their trades otherwise convey important information (e.g., about the pendingretirement of an important officer selling shares, greater commitment to the corporation byofficers purchasing shares, etc.)Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasingoverall economic growth.[2]However, it is relatively easy for insiders to capture insider-trading like gains through the use oftransactions known as "open market repurchases." Such transactions are legal and generallyencouraged by regulators through safeharbours against insider trading liability. [3][4]
  16. 16. Contents1 Legal insider trading2 Illegal insider tradingo 2.1 Definition of "insider"o 2.2 Liability for insider tradingo 2.3 Misappropriation theoryo 2.4 Proof of responsibilityo 2.5 Trading on information in generalo 2.6 Tracking insider trades3 American insider trading lawo 3.1 Common lawo 3.2 SEC regulationso 3.3 Court decisionso 3.4 Insider trading by members of Congress4 Security analysis and insider trading5 Arguments for legalizing insider trading6 Legal differences among jurisdictions7 By nationo 7.1 Norway8 See also9 Notes10 References11 External linksLegal insider tradingLegal trades by insiders are common, as employees of publicly traded corporations often havestock or stock options. These trades are made public in the United States through Securities andExchange Commission filings, mainly Form 4. Prior to 2001, U.S. law restricted trading suchthat insiders mainly traded during windows when their inside information was public, such assoon after earnings releases.[5]SEC Rule 10b5-1 clarified that the prohibition against insidertrading does not require proof that an insider actually used material nonpublic information whenconducting a trade; possession of such information alone is sufficient to violate the provision,and the SEC would infer that an insider in possession of material nonpublic information used thisinformation when conducting a trade. However, SEC Rule 10b5-1 also created for insiders anaffirmative defense if the insider can demonstrate that the trades conducted on behalf of theinsider were conducted as part of a pre-existing contract or written binding plan for trading in thefuture.[5]For example, if an insider expects to retire after a specific period of time and, as part ofhis or her retirement planning, the insider has adopted a written binding plan to sell a specificamount of the companys stock every month for two years and later comes into possession ofmaterial nonpublic information about the company, trades based on the original plan might notconstitute prohibited insider trading.
  17. 17. Illegal insider tradingRules against insider trading on material non-public information exist in most jurisdictionsaround the world, though the details and the efforts to enforce them vary considerably. Sections16(b) and 10(b) of the Securities Exchange Act of 1934 directly and indirectly address insidertrading. Congress enacted this act after the stock market crash of 1929. [6]The United States isgenerally viewed as having the strictest laws against illegal insider trading, and makes the mostserious efforts to enforce them.[7]Definition of "insider"In the United States and Germany, for mandatory reporting purposes, corporate insiders aredefined as a companys officers, directors and any beneficial owners of more than ten percent ofa class of the companys equity securities. Trades made by these types of insiders in thecompanys own stock, based on material non-public information, are considered to be fraudulentsince the insiders are violating the fiduciary duty that they owe to the shareholders. Thecorporate insider, simply by accepting employment, has undertaken a legal obligation to theshareholders to put the shareholders interests before their own, in matters related to thecorporation. When the insider buys or sells based upon company owned information, he isviolating his obligation to the shareholders.For example, illegal insider trading would occur if the chief executive officer of Company Alearned (prior to a public announcement) that Company A will be taken over, and bought sharesin Company A knowing that the share price would likely rise.In the United States and many other jurisdictions, however, "insiders" are not just limited tocorporate officials and major shareholders where illegal insider trading is concerned, but caninclude any individual who trades shares based on material non-public information in violationof some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases ofwhere a corporate insider "tips" a friend about non-public information likely to have an effect onthe companys share price, the duty the corporate insider owes the company is now imputed tothe friend and the friend violates a duty to the company if he or she trades on the basis of thisinformation.Liability for insider tradingLiability for inside trading violations cannot be avoided by passing on the information in an "Iscratch your back, you scratch mine" or quid pro quo arrangement, as long as the personreceiving the information knew or should have known that the information was companyproperty. It should be noted that when allegations of a potential inside deal occur, all parties thatmay have been involved are at risk of being found guilty.For example, if Company As CEO did not trade on the undisclosed takeover news, but insteadpassed the information on to his brother-in-law who traded on it, illegal insider trading wouldstill have occurred (albeit by proxy by passing it on to a "non-insider" so Company As CEOwouldnt get his hands dirty).[8]
  18. 18. Misappropriation theoryA newer view of insider trading, the "misappropriation theory," is now part of US law. It statesthat anyone who misappropriates (steals) information from their employer and trades on thatinformation in any stock (either the employers stock or the companys competitor stocks) isguilty of insider trading.For example, if a journalist who worked for Company B learned about the takeover of CompanyA while performing his work duties, and bought stock in Company A, illegal insider tradingmight still have occurred. Even though the journalist did not violate a fiduciary duty to CompanyAs shareholders, he might have violated a fiduciary duty to Company Bs shareholders(assuming the newspaper had a policy of not allowing reporters to trade on stories they werecovering).[9]Proof of responsibilityProving that someone has been responsible for a trade can be difficult, because traders may try tohide behind nominees, offshore companies, and other proxies. Nevertheless, the U.S. Securitiesand Exchange Commission prosecutes over 50 cases each year, with many being settledadministratively out of court. The SEC and several stock exchanges actively monitor trading,looking for suspicious activity.Trading on information in generalNot all trading on information is illegal insider trading, however. For example: if, while dining ata restaurant, you hear the CEO of Company A at the next table telling the CFO that thecompanys profits will be higher than expected, and then you buy the stock, you are not guilty ofinsider trading unless there was some closer connection between you, the company, or thecompany officers. However, information about a tender offer (usually regarding a merger oracquisition) is held to a higher standard. If this type of information is obtained (directly orindirectly) and there is reason to believe it is non-public, there is a duty to disclose it or abstainfrom trading.[10]Tracking insider tradesSince insiders are required to report their trades, others often track these traders, and there is aschool of investing which follows the lead of insiders. This is of course subject to the risk that aninsider is making a buy specifically to increase investor confidence, or making a sell for reasonsunrelated to the health of the company (e.g. a desire to diversify or pay a personal expense).American insider trading lawThe United States has been the leading country in prohibiting insider trading made on the basisof material non-public information. Thomas Newkirk and Melissa Robertson of the U.S.
  19. 19. Securities and Exchange Commission (SEC) summarize the development of U.S. insider tradinglaws.[11]Insider trading has a base offense level of 8, which puts it in Zone A under the U.S.Sentencing Guidelines. This means that first-time offenders are eligible to receive probationrather than incarceration.[12]Members of the U.S. Congress are not exempt from the laws that ban insider trading, however,they generally do not have a confidential or fiduciary relationship with the source of theinformation they receive and accordingly, do not meet the definition of an "insider".[13]Common lawU.S. insider trading prohibitions are based on English and American common law prohibitionsagainst fraud. In 1909, well before the Securities Exchange Act was passed, the United StatesSupreme Court ruled that a corporate director who bought that company’s stock when he knew itwas about to jump up in price committed fraud by buying while not disclosing his insideinformation.Section 15 of the Securities Act of 1933[14]contained prohibitions of fraud in the sale ofsecurities which were greatly strengthened by the Securities Exchange Act of 1934.[15]Section 16(b) of the Securities Exchange Act of 1934 prohibits short-swing profits (from anypurchases and sales within any six month period) made by corporate directors, officers, orstockholders owning more than 10% of a firm’s shares. Under Section 10(b) of the 1934 Act,SEC Rule 10b-5, prohibits fraud related to securities trading.The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities FraudEnforcement Act of 1988 provide for penalties for illegal insider trading to be as high as threetimes the profit gained or the loss avoided from the illegal trading.[16]SEC regulationsSEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses materialnon-public information to one person, it must simultaneously disclose that information to thepublic at large. In the case of an unintentional disclosure of material non-public information toone person, the company must make a public disclosure "promptly."[17]Insider trading, or similar practices, are also regulated by the SEC under its rules on takeoversand tender offers under the Williams Act.Court decisionsMuch of the development of insider trading law has resulted from court decisions.In SEC v. Texas Gulf Sulphur Co. (1966), a federal circuit court stated that anyone in possessionof inside information must either disclose the information or refrain from trading.[18]
  20. 20. In 1909, the Supreme Court of the United States ruled in Strong v. Repide that a director uponwhose action the value of the shares depends cannot avail of his knowledge of what his ownaction will be to acquire shares from those whom he intentionally keeps in ignorance of hisexpected action and the resulting value of the shares. Even though in general, ordinary relationsbetween directors and shareholders in a business corporation are not of such a fiduciary nature asto make it the duty of a director to disclose to a shareholder the general knowledge which he maypossess regarding the value of the shares of the company before he purchases any from ashareholder, yet there are cases where, by reason of the special facts, such duty exists.In 1984, the Supreme Court of the United States ruled in the case of Dirks v. SEC that tippees(receivers of second-hand information) are liable if they had reason to believe that the tipper hadbreached a fiduciary duty in disclosing confidential information and the tipper received anypersonal benefit from the disclosure. (Since Dirks disclosed the information in order to expose afraud, rather than for personal gain, nobody was liable for insider trading violations in his case.)The Dirks case also defined the concept of "constructive insiders," who are lawyers, investmentbankers and others who receive confidential information from a corporation while providingservices to the corporation. Constructive insiders are also liable for insider trading violations ifthe corporation expects the information to remain confidential, since they acquire the fiduciaryduties of the true insider.In United States v. Carpenter (1986) the U.S. Supreme Court cited an earlier ruling whileunanimously upholding mail and wire fraud convictions for a defendant who received hisinformation from a journalist rather than from the company itself. The journalist R. FosterWinans was also convicted, on the grounds that he had misappropriated information belonging tohis employer, the Wall Street Journal. In that widely publicized case, Winans traded in advanceof "Heard on the Street" columns appearing in the Journal.[19]The court ruled in Carpenter: "It is well established, as a general proposition, that a person whoacquires special knowledge or information by virtue of a confidential or fiduciary relationshipwith another is not free to exploit that knowledge or information for his own personal benefit butmust account to his principal for any profits derived therefrom."However, in upholding the securities fraud (insider trading) convictions, the justices were evenlysplit.In 1997 the U.S. Supreme Court adopted the misappropriation theory of insider trading in UnitedStates v. OHagan, 521 U.S. 642, 655 (1997). OHagan was a partner in a law firm representingGrand Metropolitan, while it was considering a tender offer for Pillsbury Co. OHagan used thisinside information by buying call options on Pillsbury stock, resulting in profits of over $4million. OHagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so thathe did not commit fraud by purchasing Pillsbury options.[20]The Court rejected OHagans arguments and upheld his conviction.
  21. 21. The "misappropriation theory" holds that a person commits fraud "in connection with" asecurities transaction, and thereby violates 10(b) and Rule 10b-5, when he misappropriatesconfidential information for securities trading purposes, in breach of a duty owed to the source ofthe information. Under this theory, a fiduciarys undisclosed, self-serving use of a principalsinformation to purchase or sell securities, in breach of a duty of loyalty and confidentiality,defrauds the principal of the exclusive use of the information. In lieu of premising liability on afiduciary relationship between company insider and purchaser or seller of the companys stock,the misappropriation theory premises liability on a fiduciary-turned-traders deception of thosewho entrusted him with access to confidential information.The Court specifically recognized that a corporation’s information is its property: "A companysconfidential information...qualifies as property to which the company has a right of exclusiveuse. The undisclosed misappropriation of such information in violation of a fiduciaryduty...constitutes fraud akin to embezzlement – the fraudulent appropriation to ones own use ofthe money or goods entrusted to ones care by another."In 2000, the SEC enacted Rule 10b5-1, which defined trading "on the basis of" insideinformation as any time a person trades while aware of material nonpublic information – so thatit is no defense for one to say that she would have made the trade anyway. This rule also createdan affirmative defense for pre-planned trades.Insider trading by members of CongressMembers of Congress are exempted from insider trading laws and thus can act on informationthey are bound to gain in the course of their congressional activities, although house rules [21]may consider it unethical. A 2004 study found that stock sales and purchases by Senatorsoutperformed the market by 12.3% per year.[citation needed]Peter Schweizer points out severalexamples of insider trading by members of Congress, including action taken by Spencer Bachusfollowing a private, behind-the-doors meeting on the evening of September 18, 2008 when HankPaulson and Ben Bernanke informed members of Congress about the imminent financial crisis,Bachus then shorted stocks the next morning and cashed in his profits within a week.[22]Alsoattending the same meeting were Senator Dick Durbin and John Boehner; the same day (tradeeffective the next day), Durbin sold mutual-fund shares worth $42,696, and reinvested it all withWarren Buffett. Also the same day (trade effective the next day), Congressman Boehner cashedout of an equity mutual fund.[23][24]Security analysis and insider tradingSecurity analysts gather and compile information, talk to corporate officers and other insiders,and issue recommendations to traders. Thus their activities may easily cross legal lines if they arenot especially careful. The CFA Institute in its code of ethics states that analysts should makeevery effort to make all reports available to all the brokers clients on a timely basis. Analystsshould never report material nonpublic information, except in an effort to make that informationavailable to the general public. Nevertheless, analysts reports may contain a variety ofinformation that is "pieced together" without violating insider trading laws, under the Mosaic
  22. 22. theory.[25]This information may include non-material nonpublic information as well as materialpublic information, which may increase in value when properly compiled and documented.In May 2007, a bill entitled the "Stop Trading on Congressional Knowledge Act, or STOCKAct" was introduced that would hold congressional and federal employees liable for stock tradesthey made using information they gained through their jobs and also regulate analysts or"Political Intelligence" firms that research government activities.[26]The bill has not passed.[27]Arguments for legalizing insider tradingSome economists and legal scholars (e.g. Henry Manne, Milton Friedman, Thomas Sowell,Daniel Fischel, Frank H. Easterbrook) argue that laws making insider trading illegal should berevoked. They claim that insider trading based on material nonpublic information benefitsinvestors, in general, by more quickly introducing new information into the market.[28]Milton Friedman, laureate of the Nobel Memorial Prize in Economics, said: "You want moreinsider trading, not less. You want to give the people most likely to have knowledge aboutdeficiencies of the company an incentive to make the public aware of that." Friedman did notbelieve that the trader should be required to make his trade known to the public, because thebuying or selling pressure itself is information for the market.[29]Other critics argue that insider trading is a victimless act: A willing buyer and a willing selleragree to trade property which the seller rightfully owns, with no prior contract (according to thisview) having been made between the parties to refrain from trading if there is asymmetricinformation. The Atlantic has described the process as "arguably the closest thing that modernfinance has to a victimless crime".[30]Legalization advocates also question why "trading" where one party has more information thanthe other is legal in other markets, such as real estate, but not in the stock market. For example, ifa geologist knows there is a high likelihood of the discovery of petroleum under Farmer Smithsland, he may be entitled to make Smith an offer for the land, and buy it, without first tellingFarmer Smith of the geological data.[18]Nevertheless, circumstances can occur when thegeologist would be committing fraud if, because he owes a duty to the farmer, he did not disclosethe information; e.g., if he had been hired by Farmer Smith to assess the geology of the farm.Advocates of legalization make free speech arguments. Punishment for communicating about adevelopment pertinent to the next days stock price might seem to be an act of censorship.[31]Ifthe information being conveyed is proprietary information and the corporate insider hascontracted to not expose it, he has no more right to communicate it than he would to tell othersabout the companys confidential new product designs, formulas, or bank account passwords.There are very limited laws against "insider trading" in the commodities markets, if, for no otherreason, than that the concept of an "insider" is not immediately analogous to commoditiesthemselves (e.g., corn, wheat, steel, etc.). However, analogous activities such as front running areillegal under U.S. commodity and futures trading laws. For example, a commodity broker can becharged with fraud if he or she receives a large purchase order from a client (one likely to affect
  23. 23. the price of that commodity) and then purchases that commodity before executing the clientsorder in order to benefit from the anticipated price increase.Legal differences among jurisdictionsThe US and the UK vary in the way the law is interpreted and applied with regard to insidertrading.In the UK, the relevant laws are the Criminal Justice Act 1993 Part V Schedule 1 and theFinancial Services and Markets Act 2000, which defines an offence of Market Abuse.[32]It isalso illegal to fail to trade based on inside information (whereas without the inside informationthe trade would have taken place). The principle is that it is illegal to trade on the basis ofmarket-sensitive information that is not generally known. No relationship to the issuer of thesecurity is required; all that is required is that the guilty party traded (or caused trading) whilsthaving inside information.Japan enacted its first law against insider trading in 1988. Roderick Seeman says: "Even todaymany Japanese do not understand why this is illegal. Indeed, previously it was regarded ascommon sense to make a profit from your knowledge."[33]In accordance with EU Directives, Malta enacted the Financial Markets Abuse Act in 2002,which effectively replaced the Insider Dealing and Market Abuse Act of 1994.The "Objectives and Principles of Securities Regulation"[34]published by the InternationalOrganization of Securities Commissions (IOSCO) in 1998 and updated in 2003 states that thethree objectives of good securities market regulation are (1) investor protection, (2) ensuring thatmarkets are fair, efficient and transparent, and (3) reducing systemic risk. The discussion of these"Core Principles" state that "investor protection" in this context means "Investors should beprotected from misleading, manipulative or fraudulent practices, including insider trading, frontrunning or trading ahead of customers and the misuse of client assets." More than 85 percent ofthe worlds securities and commodities market regulators are members of IOSCO and havesigned on to these Core Principles.The World Bank and International Monetary Fund now use the IOSCO Core Principles inreviewing the financial health of different countrys regulatory systems as part of theseorganizations financial sector assessment program, so laws against insider trading based on non-public information are now expected by the international community. Enforcement of insidertrading laws varies widely from country to country, but the vast majority of jurisdictions nowoutlaw the practice, at least in principle.Larry Harris claims that differences in the effectiveness with which countries restrict insidertrading help to explain the differences in executive compensation among those countries. TheU.S., for example, has much higher CEO salaries than do Japan or Germany, where insidertrading is less effectively restrained.[35]
  24. 24. See what insiders are buying, earlier than everybody else!For Real-time insider transactions. Enter Stock Symbol: (e.g. IBM)Insider behavior matters because research based on real-time signals has shown that a properlymodeled picture of insider actions can provide the most accurate reflection of the prospects forthe company, industry, economic sector, or even the stock market in general, going forward.This makes perfect sense from an intuitive perspective. Corporate insiders possess all thenecessary skills and characteristics that one could use to describe the "successful" investor.These include: A deep knowledge and understanding of the company and/or industry; Ademonstrated ability to produce success; The training necessary to understand risk and to controlit; The wherewithal (capital) to take advantage of opportunity when it presents itself and finally;A tendency to go against the crowd.In general, insider buys are more useful. Since insiders have exclusive information on thecompany performance, if they are risking their own money on the stock, usually they shouldhave good reasons, especially when several insiders buy the stock at the same time.Below are some sample insider trades:SYMBOL BUY DateClose PRICE onBuy Date (OrOpen PRICE NextDay for After-Hour InsiderBuys)SELL DateClose PRICE onSell Date1-MonthRETURNACFN 03/26/2012 $8.95 04/26/2012 $11.62 30%MGT 03/22/2012 $1.5 04/23/2012 $2.71 81%SALM 03/16/2012 $3.99 04/16/2012 $5.45 37%BLIN 03/06/2012 $0.97 04/06/2012 $1.3 34%CWBC 02/10/2012 $1.7 03/12/2012 $2.17 28%CAFI 02/03/2012 $1.56 03/05/2012 $2.19 40%ANCI 12/23/2011 $0.38 01/23/2012 $0.54 42%UWN 12/20/2011 $1.19 01/20/2012 $1.54 29%BYD 12/15/2011 $6.11 01/16/2012 $8.05 32%CDXC 12/13/2011 $0.66 01/13/2012 $0.95 44%U.S. Charges 7 for Insider Trading of DellStock
  25. 25. By PETER LATTMAN and AZAM AHMEDRobert Stolarik for The New York Times“It was a club where everyonescratched everyone else’s back,” said Preet S. Bharara, a U.S. attorney in Manhattan.9:05 p.m. | UpdatedSandeep Goyal was a small-time stock analyst with a big connection.Before pursuing a career on Wall Street, Mr. Goyal spent three years at Dell, and after he left in2006, he kept close ties to his colleagues at the computer maker. In 2008, while working at amutual fund company, Mr. Goyal received illegal tips from a Dell employee about thecompany’s financial results, federal authorities say.Mr. Goyal, they say, used the secret information as currency, passing it around to his expandingnetwork of fellow stock pickers. The leaks, emanating from Dell’s headquarters in Texas,ricocheted around the country, reaching a fund manager at a small trust company in Californiaand three powerful hedge funds in New York and Connecticut.Article ToolsE-mailPrint47 CommentsRecommendShareo Tumblro Diggo Linkedino Reddito PermalinkoTwitter
  26. 26. Related LinksThe complaintOn Wednesday, federal prosecutors announced criminal charges against Mr. Goyal and sixothers, depicting a ―circle of friends‖ that together earned about $62 million in illegal gains inDell stock.One hedge fund, Level Global Investors, made $53 million of those profits, the government said.Level Global is the most prominent hedge fund touched by the government’s insider tradingprosecutions since the Galleon Group closed in 2009 after the arrest of its co-founder, RajRajaratnam.Timothy A. Clary/Agence France-Presse — Getty ImagesAnthonyChiasson, right, a co-founder of Level Global, a hedge fund that is said to have made $53 million fromillegal trades.A co-founder of Level Global, Anthony Chiasson, 38, was among those charged on Wednesday.Also charged were Todd Newman, 47, a former trader at Diamondback; Daniel Kuo, 36, aformer portfolio manager at Whittier Trust Company in Pasadena, Calif., and Jon Horvath, 42,an analyst at Sigma Capital, a unit of SAC Capital Advisors, the hedge fund run by thebillionaire investor Steven A. Cohen.The Dell executive was not named in the government’s complaint. A company spokesman saidthat if the accusations were true, the action was a clear violation of Dell’s policies.Lawyers for Mr. Chiasson and Mr. Horvath issued separate statements denying the government’scharges against their clients. The other defendants’ lawyers did not immediately respond torequests for comment.The arrest of Mr. Horvath, who is accused of making $1 million in illegal profits, adds to the listof former SAC Capital employees ensnared by the government’s insider trading crackdown. Lastyear, two former SAC portfolio managers, Noah Freeman and Donald Longueuil, pleaded guiltyto trading on illegal stock tips while at the company.
  27. 27. Another pair of former SAC Capital traders, David Ganek and Mr. Chiasson, started LevelGlobal, which closed last year. Mr. Ganek has not been accused of any wrongdoing.Diamondback was also started by SAC Capital alumni, including Mr. Cohen’s brother-in-law,Richard Shimel. Mr. Shimel has not been accused of any wrongdoing, and Diamondbackcontinues to operate. On Wednesday, the company sent a letter to its investors that said it hadassisted in the investigation and that the government’s charges were ―an important step towardsputting this matter behind us.‖An SAC spokesman said the firm was continuing to cooperate with the investigation.Though hedge funds are again at the center of insider trading charges, the case is the first timethat charges from the government’s insider trading inquiry has reached into the sleepier mutualfund industry. Mr. Goyal worked at Neuberger Berman, a New York money manager with alarge mutual fund business.The 39-year-old Mr. Goyal, who has pleaded guilty and is cooperating with the government,received about $175,000 in illicit payments from Diamondback for ―consulting‖ work. He didnot make any illegal trades at Neuberger Berman, which has not been accused of anywrongdoing.―This unethical behavior is contrary to the core values of our firm and the culture of compliancein which we operate,‖ a Neuberger spokesman said.Jesse Tortora, 36, a former trader at Diamondback, and Spyridon Andondakis, 40, a formertrader at Level Global, also pleaded guilty and have been cooperating with the government.The case is the latest round of prosecutions in a multiyear government campaign to root outinsider trading. Nicknamed ―Operation Perfect Hedge,‖ the investigation has led to more than 60guilty pleas or convictions.―If you are engaged in insider trading, what distinguishes you from the dozens who have beencharged is not that you haven’t been caught; it’s that you haven’t been caught yet,‖ said JaniceK. Fedarcyk, the head of the Federal Bureau of Investigation’s New York office.The Securities and Exchange Commission filed a parallel civil action against the sevendefendants on Wednesday.Wednesday’s charges again highlighted the web of connections on Wall Street. Mr. Goyal, Mr.Tortora and Mr. Andondakis, for instance, all worked together earlier in their careers atPrudential Equity Group, and they socialized together in Manhattan and the Hamptons.―It was a club where everyone scratched everyone else’s back,‖ Preet S. Bharara, the UnitedStates attorney in Manhattan who brought the charges, said at a news conference.
  28. 28. More than a year ago, the government raided a series of hedge funds. Federal agent stormed theoffices of Level Global, Diamondback Capital Management and two others in November 2010 toretrieve documents and other materials. Months after the November raid, Level Global closed.Mr. Chiasson and Mr. Ganek started Level Global in 2003 shortly after leaving SAC Capital.They used ―Level‖ in its name because, Mr. Chiasson once said, ―Level is a palindrome whichconnotes balance and adaptability — two key investing traits.‖In a few years, the fund’s assets swelled to nearly $4 billion, attracting major clients like theNew York state pension fund.Inside the firm, the two men exhibited different styles, according to former employees. Mr.Chiasson had a calm and even demeanor, peppering his analysts with questions while rarelyraising his voice.Mr. Ganek, by contrast, often barked out directions over the Bloomberg terminals and was amore excitable trader.Their different styles were also apparent in their personal lives.While Mr. Ganek was prominent in the Manhattan social scene, serving on boards and buyingmillions of dollars worth of modern art, Mr. Chiasson, who grew up near Portland, Me.,eschewed the limelight.Since closing the hedge fund, Mr. Ganek has kept a low profile on Wall Street. He is said to beplanning a new investment venture, financed mostly by his own wealth, according to a personwith knowledge of the matter spoke only anonymously because the discussions were private.Level Global made by far the largest profits in the scheme, according to the government’saccusations. After learning from Mr. Andondakis that a source inside Dell had leaked thecompany’s bleak financial outlook, Mr. Chiasson oversaw a large negative bet on the computercompany, according to the government.The fund accumulated a short position in Dell of 8.6 million shares in the weeks leading up tothe company’s earnings announcement. It also bought at least 10,900 put option contracts, aderivatives trade that would magnify the fund’s profits if the price of Dell’s stock dropped.Dell shares declined 14 percent on its earnings announcement. It continued to sink until LevelGlobal closed out its position on Sept. 16, 2008 — the day after the collapse of LehmanBrothers. The fund’s total illegal profits were $53 million, the government said.―You might call that the big short,‖ said Mr. Bharara, a reference to ―The Big Short,‖ MichaelLewis’s book about the financial crisis.―Or more precisely: the big illegal short,‖ Mr. Bharara added.
  29. 29. Ben Protess contributed reporting.More details revealed on inside tradersjailingEnglish.news.cn 2012-05-22 15:01:40File photo of Huang Guangyu.(Photo Source: chinadaily.com.cn)BEIJING, May 22 (Xinhua) -- The Supreme Peoples Court (SPC) on Tuesday revealed moredetails about the insider trading case that saw Chinese home appliance tycoon Huang Guangyujailed in 2010.SPC spokesman Sun Jungong told a press conference that Huang, as the major shareholder ofShenzhen-listed Beijing Centergate Technologies (Holding) Co. Ltd., instructed accomplices toopen dummy trading accounts using more than 79 individuals IDs and to buy the companysstock before statements of major transactions and corporate restructuring were issued.In three such insider deals, Huang acquired more than 140 million shares with a value of 1.8billion yuan (286 million U.S. dollars) and profits of nearly 400 million yuan, according to apress release posted on the SPC website.Sun cited the case of Huang, former chairman of Chinese electronics retail giant Gome, as anexample of insider trading that has "seriously jeopardized the security of the capital market andeconomic and social order."Huang was sentenced to 14 years in prison in May 2010 after being convicted of illegal businessdealings, insider trading and corporate bribery.
  30. 30. Also known as Wong Kwong-yu, he was once the richest man in Chinas mainland and the legalrepresentative of both Gome and Beijing Pengrun Real Estate Development Company.According to the SPC, the number of insider trading cases closed by Chinese courts hasincreased annually, from one in 2007 to 11 in 2011.A new statutory interpretation on insider trading, issued by the SPC, will take effect from June 1in hopes of easing some of the difficulties associated with combating this crime.Sun warned that insider trading causes very negative impacts, and it involves sophisticated andhighly professional criminals with financial, legal and IT backgrounds.It is very hard to track these crimes and convict the perpetrators. The China SecuritiesRegulatory Commission obtained tip-offs on 426 insider trading cases from 2008 to 2011, butonly 153 of them were opened for investigation.The new statutory interpretation was drafted by the SPC and the Supreme Peoples Procuratorateon articles related to insider trading in criminal law, securities law and the regulation of futurestrading.It clarifies the definition of an insider, which refers to an individual, not an institution, that iseither a senior manager or major shareholder -- one holding more than a 5-percent stake -- of alisted company or its affiliates, an employee of a security firm involved with trade or an officialwith the security watchdog.It also defines people who obtain confidential transaction information through illegal means andhow investigators should define the act of insider trading.In addition, the interpretation explains that an insider securities transaction with a value of over500,000 yuan constitutes a grave crime. A futures transaction with a value of more than 300,000yuan and a deal yielding profits of more than 150,000 yuan will also be considered grave crimes.Defining Illegal Insider TradingSeptember 25 2010 | Filed Under » Laws, StocksWhen hearing news stories about illegal insider trading activity, investors usually take noticebecause its an activity that affects them. Although there are legal forms of insider trading (whichyou can learn more about in the articles Uncovering Insider Trading and When Insiders Buy,Should You Join Them?) , the better you understand why illegal insider trading is a crime, thebetter youll understand how the market works. Here we discuss what an illegal insider is, how itcompromises the essential conditions of a capital market and what defines an insider.What Is It and Why Is It Harmful?Insider trading occurs when a trade has been influenced by the privileged possession of corporate
  31. 31. information that has not yet been made public. Because the information is not available to otherinvestors, a person using such knowledge is trying to gain an unfair advantage over the rest ofthe market.Using nonpublic information for making a trade violates transparency, which is the basis of acapital market. Information in a transparent market is disseminated in a manner by which allmarket participants receive it at more or less the same time. Under these conditions, one investorcan gain an advantage over another only through acquiring skill in analyzing and interpretingavailable information. This skill is based on individual merit and awareness. If one person tradeswith nonpublic information, he or she gains an advantage that is impossible for the rest of thepublic. This is not only unfair but disruptive to a properly functioning market: if insider tradingwere allowed, investors would lose confidence in their disadvantaged position (in comparison toinsiders) and would no longer invest.Advertisement - Article continues below.The LawIn August 2000, the Securities and Exchange Commission (SEC) adopted new rules regardinginsider trading (made effective in October of the same year). Under Rule 10b5-1, the SECdefines insider trading as any securities transaction made when the person behind the trade isaware of nonpublic material information, and is hence violating his or her duty to maintainconfidentiality of such knowledge.Information is defined as being material if its release could affect the companys stock price. Thefollowing are examples of material information: the announcement that the company will receivea tender offer, the declaration of a merger, a positive earnings announcement, the release of thecompanys discovery such as a new drug, an upcoming dividend announcement, an unreleasedbuy recommendation by an analyst and finally, an imminent exclusive in a financial newscolumn.Trade Forex and make big profits. Try Now!In a further effort to limit the possibility of insider trading, the SEC has also stated in RegulationFair Disclosure (Reg FD), which was released at the same time as Rule10b5-1, that companiescan no longer be selective as to how they release information. This means that analysts orinstitutional clients cannot be privy to information ahead of retail clients or the general public.Everyone who is not a part of the company is to receive information at the same time.Who Is an Insider?For the purposes of defining illegal insider trading, a corporate insider is someone who is privyto information that has yet to be released to the public. If a person is an insider, he or she isexpected to maintain a fiduciary duty to the company and to the shareholders and is obligated toretain in confidence the possession of the nonpublic material information. A person is liable ofinsider trading when he or she has acted on privileged knowledge in the attempt to make a profit.Sometimes it is easy to identify who insiders are: CEOs, executives and directors are of coursedirectly exposed to material information before its made public. However, according to the
  32. 32. misappropriation theory of insider trading cases, certain other relationships automatically giverise to confidentiality. In the second part of Rule 10b5-2, the SEC has outlined threenonexclusive instances that call for a duty of trust or confidentiality:1. When a person expresses his or her agreement to maintain confidentiality2. When history, pattern and/or practice show that a relationship has mutual confidentiality3. When a person hears information from a spouse, parent, child or sibling (unless it can beproven that such a relationship has not and does not give rise to confidentiality).Partners in CrimeIn insider trading that occurs as a result of information leaking outside of company walls, there iswhat is known as the "tipper" and the "tippee". The tipper is the person who has broken his orher fiduciary duty when he or she has consciously revealed inside information. The tippee is theperson who knowingly uses such information to make a trade (in turn also breaking his or herconfidentiality). Both parties typically do so for a mutual monetary benefit. A tipper could be thespouse of a CEO who goes ahead and tells his neighbor inside information. If the neighbor inturn knowingly uses this inside information in a securities transaction, he or she is guilty ofinsider trading. Even if the tippee does not use the information to trade, the tipper can still beliable for releasing it.It may be difficult for the SEC to prove whether or not a person is a tippee. The route of insiderinformation and its influence over peoples trading is not so easy to track. Take for example aperson who initiates a trade because his or her broker advised him or her to buy/sell a share. Ifthe broker broker based the advice on material non-public information, the person who made thetrade may or may not have had awareness of the brokers knowledge - evidence to prove what theperson knew before the trade may be hard to uncover.Excuses, ExcusesOftentimes, people accused of the crime claim that they just overheard someone talking. Take forexample a neighbor who overhears a conversation between a CEO and her husband regardingconfidential corporate information. If the neighbor then goes ahead and makes a trade based onwhat was overheard, he or she would be violating the law even though the information was just"innocently" overheard: the neighbor becomes an insider with a fiduciary duty and obligation toconfidentiality the moment he or she comes to possess the nonpublic material information. Since,however, the CEO and her husband did not try to profit from their insider knowledge, they arenot necessarily liable of insider trading. In their carelessness, they may, however, be in breach oftheir confidentiality.
  33. 33. Home | Previous PageInsider Trading"Insider trading" is a term that most investors have heard and usuallyassociate with illegal conduct. But the term actually includes both legaland illegal conduct. The legal version is when corporate insiders—officers,directors, and employees—buy and sell stock in their own companies.When corporate insiders trade in their own securities, they must reporttheir trades to the SEC. For more information about this type of insidertrading and the reports insiders must file, please read "Forms 3, 4, 5" inour Fast Answers databank.Illegal insider trading refers generally to buying or selling a security, inbreach of a fiduciary duty or other relationship of trust and confidence,while in possession of material, nonpublic information about the security.Insider trading violations may also include "tipping" such information,securities trading by the person "tipped," and securities trading by thosewho misappropriate such information.Examples of insider trading cases that have been brought by the SEC arecases against:Corporate officers, directors, and employees who traded thecorporations securities after learning of significant, confidentialcorporate developments;Friends, business associates, family members, and other "tippees"of such officers, directors, and employees, who traded thesecurities after receiving such information;Employees of law, banking, brokerage and printing firms who weregiven such information to provide services to the corporationwhose securities they traded;Government employees who learned of such information becauseof their employment by the government; andOther persons who misappropriated, and took advantage of,confidential information from their employers.Because insider trading undermines investor confidence in the fairnessand integrity of the securities markets, the SEC has treated the detectionand prosecution of insider trading violations as one of its enforcementpriorities.
  34. 34. The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insidertrading issues where the courts have disagreed. Rule 10b5-1 providesthat a person trades on the basis of material nonpublic information if atrader is "aware" of the material nonpublic information when making thepurchase or sale. The rule also sets forth several affirmative defenses orexceptions to liability. The rule permits persons to trade in certainspecified circumstances where it is clear that the information they areaware of is not a factor in the decision to trade, such as pursuant to apre-existing plan, contract, or instruction that was made in good faith.Rule 10b5-2 clarifies how the misappropriation theory applies to certainnon-business relationships. This rule provides that a person receivingconfidential information under circumstances specified in the rule wouldowe a duty of trust or confidence and thus could be liable under themisappropriation theory.TERMS OF USE & PRIVACY POLICYPlease read the following terms and conditions relating toaccess of The Inside Trader website and related websites.By accessing and using The Inside Trader website andrelated websites and emails from these sites, the customeracknowledges that he or she has read, understood andagrees to be bound by the terms and conditions.Financial Services GuideYou can download our Financial Services Guide here.IMPORTANT: This information has been prepared fordistribution over the internet and without taking into accountthe investment objectives, financial situation and particularneeds of any particular person. The Inside Trader makes norecommendations as to the merits of any investmentopportunity referred to in its emails or its related websites.Services provided1. The Inside Trader is brought to you by EquilibriumEnterprises Pty Ltd ABN 39 089 986 130 as anauthorised representative of Gryphon Learning Pty Ltd. ACN098 597 427 Australian Financial Services License Number:246606 (The Inside Trader).2. Various subscriptions are available for varying periods,payable only in advance. The Inside Trader offers a 14 day
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  41. 41. In Australia a similar prohibition is covered under Sections 1041A of the Corporations Act 2001.Types of Market ManipulationMarket manipulation can occur in a variety of ways including ...Churning - when a trader places both buy and sell orders at about the same price. The increasein activity is intended to attract additional investors, and increase the price.Rumoring - when a group of traders create activity or rumors in order to drive the price of astock up, sometimes referred to in the US as ramping (the market up).Wash trading - selling and re-purchasing the same or substantially the same security for thepurpose of generating activity and increasing the price, or creating a tax loss. Follow the linkWash trading for further information.Bear raiding - attempting to push the price of a stock down by heavy selling or short selling.Insider TradingInsider trading refers to the buying or selling of a stock by someone who has access to non-public information of value about the stock.Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegalwhen the material information is still non-public.Trading while having special knowledge is unfair to other investors who dont have access tosuch knowledge.Directors are not the only ones who have the potential to be convicted of insider trading. Brokersand even family members can potentially be guilty.Insider trading is legal once the information has been made public, at which time the insider hasno direct advantage over other investors.The Securities and Exchange Commission (SEC), and regulatory bodies in many other countrieshowever, still require all insiders to report all their transactions.To ConcludeStock market manipulation is an activity which is out of the control of value investors. They arereliant on the market regulators to enforce the law regarding this behavior.Company insiders are required to report instances of insider trading to the regulator. Valueinvestors should look at these trading reports to see how insiders are legally trading their stock.
  42. 42. The reason being that company insiders have the best insight into the workings of their company.

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