business corporate-law finance insider-trading
Insider trading and assertions made by influent agents
<p>It is possible for an influent (private) agent, namely someone who has the power to direct the market, to buy a stock before giving a positive announcement about the stock itself? Does his investment need to be public so that other investors can understand that his move can be just a manipulation of stock's value? Will it be considered insider trading? How often does this happen?</p>
<p>What I think is that a behaviour like this if reiterated will become not credible so it should be avoided because you can just lose your credibility and that could damage you more than what you obtained, always if the investment is public.</p>
<p>However, if you manage to influence the value for a good amount of time then changing your mind maybe will not make people think you're playing with the market.</p>

<h2>Legal framework</h2>
<p>In <a href="/questions/tagged/england-and-wales" class="post-tag" title="show questions tagged &#39;england-and-wales&#39;" rel="tag">england-and-wales</a>, the offence of insider dealing is covered by <a href="https://www.legislation.gov.uk/ukpga/1993/36/part/V" rel="nofollow noreferrer">Part 5 of the Criminal Justice Act 1993</a>. The relevant provisions are set out below.</p>
<p>First, the definition of insider dealing which is relevant to the scenario:</p>
<blockquote>
<p>52(1) An individual who has information as an insider is guilty of
insider dealing if, in the circumstances mentioned in subsection (3),
he deals in securities that are price-affected securities in relation
to the information.</p>
<p>52(3) The circumstances referred to above are that the acquisition or
disposal in question occurs on a regulated market, or that the person
dealing relies on a professional intermediary or is himself acting as
a professional intermediary.</p>
</blockquote>
<p>This is subject to a number of defences, one of which is:</p>
<blockquote>
<p>52(4) This section has effect subject to section 53.</p>
<p>53 (1) An individual is not guilty of insider dealing by virtue of
dealing in securities if he shows — [...] (b) that at the time he
believed on reasonable grounds that the information had been disclosed
widely enough to ensure that none of those taking part in the dealing
would be prejudiced by not having the information, [...]</p>
</blockquote>
<p>In order to understand the definition at section 52(1) above, we need to turn to the interpretation sections (emphasis added to show the terms which are being defined):</p>
<blockquote>
<p>55(1) For the purposes of this Part, a person <strong>deals in securities</strong> if
(a) he acquires or disposes of the securities (whether as principal or
agent); or (b) he procures, directly or indirectly, an acquisition or
disposal of the securities by any other person.</p>
</blockquote>
<blockquote>
<p>57(1) For the purposes of this Part, a person has <strong>information as an
insider</strong> if and only if (a) it is, and he knows that it is, inside
information, and (b) he has it, and knows that he has it, from an
inside source.</p>
</blockquote>
<blockquote>
<p>57(2) For the purposes of subsection (1), a person has
<strong>information from an inside source</strong> if and only if (a) he has it through
(i) being a director, employee or shareholder of an issuer of
securities; or (ii) having access to the information by virtue of his
employment, office or profession; or (b) the direct or indirect source
of his information is a person within paragraph (a).</p>
</blockquote>
<blockquote>
<p>56 (1) For the purposes of this section and section 57, <strong>“inside
information”</strong> means information which (a) relates to particular
securities or to a particular issuer of securities or to particular
issuers of securities and not to securities generally or to issuers of
securities generally; (b) is specific or precise; (c) has not been
made public; and (d) if it were made public would be likely to have a
significant effect on the price of any securities.</p>
<p>56(2) For the purposes of this Part, securities are <strong>“price-affected
securities”</strong> in relation to inside information, and inside information
is “price-sensitive information” in relation to securities, if and
only if the information would, if made public, be likely to have a
significant effect on the price of the securities.</p>
</blockquote>
<p>Note that information is not inside information if it has been made public, pursuant to section 56(1)(c) above. So we now need to turn to the definition of &quot;made public&quot;:</p>
<blockquote>
<p>58(1) For the purposes of section 56, “<strong>made public</strong>”, in relation to
information, shall be construed in accordance with the following
provisions of this section; <strong>but those provisions are not exhaustive as
to the meaning of that expression</strong>.</p>
<p>58(2) Information <strong>is</strong> made public if (a) it is published in accordance
with the rules of a regulated market for the purpose of informing
investors and their professional advisers; (b) it is contained in
records which by virtue of any enactment are open to inspection by the
public; (c) it can be readily acquired by those likely to deal in any
securities (i) to which the information relates, or (ii) of an issuer
to which the information relates; or (d) it is derived from
information which has been made public.</p>
<p>58(3) Information <strong>may be</strong> treated as made public even though (a)it can
be acquired only by persons exercising diligence or expertise; (b) it
is communicated to a section of the public and not to the public at
large; (c) it can be acquired only by observation; (d) it is
communicated only on payment of a fee; or (e) it is published only
outside the United Kingdom.</p>
</blockquote>
<p>Looking at the bolded parts, information may be considered to have been made public even though it is not in a manner explicitly listed in section 58(2). However, if a person wants to be absolutely sure that they will not commit the offence, then they would be advised to use one of those methods in 58(2). The bolded word &quot;is&quot; there ensures that it cannot be called into question. A person working in a listed company will almost invariably use the method in 58(2)(1): &quot;<em>published in accordance with the rules of a regulated market for the purpose of informing investors and their professional advisers</em>&quot;</p>
<h2>Conclusion</h2>
<p>I'm working on the assumption that we are talking about shares which are listed on a regulated market. &quot;Regulated market&quot; also has a specific definition but I won't get into that other than to say that there are markets which are not regulated for the purpose of this offence.</p>
<p>To answer your questions:</p>
<p><em>It is possible for an influent (private) agent, namely someone who has the power to direct the market, to buy a stock before giving a positive announcement about the stock itself?</em></p>
<p>This will likely result in commiting the offence of insider dealing, assuming that person and the information falls within the defintions above.</p>
<p><em>Does his investment need to be public so that other investors can understand that his move can be just a manipulation of stock's value?</em></p>
<p>This is likely insufficient. It is the <em>inside information</em> which must be made public, not the mere fact that he is purchasing the shares. So again, the offence is likely to be committed.</p>
<p>To avoid committing the offence, the person should make the positive announcement about the stock (preferably in accordance with s 58(2)) and only <em>then</em> make the purchase for himself.</p>
