‘FSA targets insider trading deals’- BBC News May 6

Dear Hector,

I believe legitimate trading by company directors in their own shares to be a valuable source of information for the market as a whole. It has been shown widely that following ‘company insiders’ enables an investor to outperform the  wider market. The information detailing those trades is quite rightly publicly available, enabling you or I to make our own decisions regarding its validity.

I believe that in the vast majority of cases where company insiders trade ahead of results or other corporate information they are ignorant of the FSA guidelines and stock exchange rules on directors dealings.

So Hector before you beef up your police force, if that is what you are doing, spend more time on educating company directors on the rights and wrongs of directors dealings. It will be a lot cheaper than investigating and taking cases to court.

I think however that when the press refers to your comments on insider trading they really mean ‘informed price movements ahead of merger and acquisition (M&A) announcements’ as per your newsletter of April 29th 2008 (see link here).

This is solely concerned with undisclosed trades made by individuals with knowledge of forthcoming M&A activity. Very very few disclosed directors dealings are of this nature.

In the protection of individual investors, and for the credibility of the London markets, I therefore fully support an ongoing vigilance over this form of market abuse.

Regards,

Simon Winfield

For other commentary see also the following:

Michael Gibersons of Knowledge Problem : ‘Would making insider trading restrictions optional for corporations suffice? and ‘Overview of Henry Manne’s ”Insider trading, Virtual Markets, and the Dog that Did Not Bark”

Chris Dillow at Stumbling and Mumbling: ‘Legalize Insider trading’