finance data-ownership securities insider-trading
Are companies allowed to trade securities based on internal user data?
<p>Take a company like Google, that has access to real time information on what billions of people want at any given moment, their plans for the future - not to mention the entire email archives of hundreds of millions of people.</p>

<p>It's not hard to imagine how this data can be harvested to build a pretty vivid picture of where market forces might be headed. As a simple example, Google could make pretty reasonable predictions about how many people are looking to buy homes in a certain area and the price they'd be willing to pay for it. As another example, Google could probably make good approximations on how many people are seriously interested in purchasing a Tesla vehicle.</p>

<p><strong>So my question is</strong>, is there any legal problem with Google (and loads of others with large amounts of user data) actively investing/trading based on this data? For instance, should Google Engineers notice a spike in searches on "Tesla customizations" and "Tesla dealerships near me", can they purchase shares in $TSLA ? </p>

<p>This obviously isn't classic insider trading, because the "inside" data they have isn't from Tesla itself, but from their own company. That's why I'm wondering if it's allowed.</p>

<h2>Yes</h2>

<p>You’re right that it isn’t ‘insider trading’ - the correct name for it is ‘market research’ and that’s totally legal.</p>

<blockquote>
  <p>is there any legal problem with Google (and loads of others with large amounts of user data) actively investing/trading based on this data?</p>
</blockquote>

<p>No. By way of analogy, consider a scenario where many, many random people in the street casually tell you that they are about to purchase a Tesla vehicle. There would be no legal impediment for you to buy Tesla shares on the basis of your information. For instance:</p>

<ul>
<li><p>there is no breach of confidentiality; </p></li>
<li><p>the disclosures create no fiduciary duty; </p></li>
<li><p>you are not violating individuals' privacy or disclosing their personal identifying information; and</p></li>
<li><p>the information did not originate from fraudulent statements made by you to the effect of inducing them to purchase the vehicle.</p></li>
</ul>

<p>The differences between the "street scenario" and the online context of your question are insufficient to lead to a different legal outcome. By purchasing Tesla shares, Google would not be violating consumers' privacy --let alone that of unidentified users-- when a multitude of random people online say to Google (via its "Search" button) something that couples the keyword "<em>Tesla</em>" with <a href="https://en.wikipedia.org/wiki/Market_sentiment" rel="nofollow noreferrer">bullish</a> term(s).</p>

<blockquote>
  <p>This obviously isn't classic insider trading, because the "inside" data they have isn't from Tesla itself, but from their own company.</p>
</blockquote>

<p>The nature of <em>insider trading</em> is more "internal" than depicted here, or it requires the existence of a fiduciary duty. <strong>Hypothetical</strong> examples of insider trading would be:</p>

<ul>
<li><p>Google's transactions of Tesla shares are inspired by information furnished by Tesla to Google under some existing NDA or fiduciary duty between these two companies;</p></li>
<li><p>Tesla fraudulently understates its financial prospects so as to cause its share price to fall and subsequently buy it cheap;</p></li>
<li><p>Tesla fraudulently overstates its financial prospects, be it to obtain profit from its short-sales of Tesla shares, its long position on put options, etc., or to pocket whatever money is left while dissimulating an imminent bankruptcy;</p></li>
<li><p>A broker receives an order from a customer known to be usually right about financial markets, but the broker submits similar transactions for his own benefit <em>prior to</em> (or instead of) submitting his customer's order.</p></li>
</ul>
