Trading on material nonpublic information by the big guys

S

soxfan04

I was wondering if any of you could share your thoughts on this subject. As a longtime trader, I have always witnessed it, and doubt it will ever change.

Nevertheless, some examples are more egregious than others. Despite the money I spend on news services, I fully expect to be a few seconds to minutes late on most every news event...The big firms have incredible technology, direct lines to companies and analysts, and other sources which I don't. Still, this i can live with.

Other such instances make me sick. I took a hit in FXEN today on the Nasdaq. Looking through some technicals and other metrics, my partners and I decided it was ripe for a trade down between 12 and 15%, between 10 and 11 AM.

Now had a press release been issued by the company at that moment, I certainly would have had no issue with the losing trade...it happens all the time.

But when a release was made public by FX Energy over an hour later which disclosed a disappointing oil drilling project, I became enraged. I called FX, and the release was made public at 12:03, well after the suspicious trading in the stock took place. Furthermore, certain named market makers did seem to be flooding the market at what my partners considered to be an absurd price.

Please understand: I know that this may simply sound like sour grapes on my part, but I take losses of this size (and larger, unfortunately) numerous times throughout the year, and I never take issue with them.

But this situation was different: the number of shares going off after the company had shed 15% of its market cap, combined with the enormous time difference of over an hour before the news came public, have me infuriated.

I was just wondering if any of you had any thoughts, or if you had ever been tempted to raise this issue with someone other than your fellow traders in the past.

Thanks for any and all input.
 
I worked in options surveillance for one of the option exchanges in the '90's. It was SEC policy that they did not investigate suspicious institutional trades because they did not feel they could prove that institutions and large trading firms were doing anything other than their usual business. So, if Triple X Trading buys 500 calls at the close the day before Acme Anvil Corp gets taken over, well, Triple X is just going about their usual business of trading. The market makers were not enamoured of this policy, to say the least. :)

The SEC hires law school grads who know nothing, let me emphasize that - NOTHING!!!, about trading and the markets. Trying to get cases investigated and prosecuted was difficult at best. They sometimes did not pursue open and shut cases because they just didn't have the time or enough staff.

The SEC's Atlanta office was especially inept - full of shockingly arrogant know-nothings who accomplished very, very little.
 
We were absolutely aware of the inventory report in the sector, and it was specifically the "overreaction" in this particular stock that piqued our interest. Never-the-less, I wonder if this wasn't a tactic specifically employed by the market maker(s) who were selling inordinate size to mask the information upon which they were trading.

But your point is well-noted.
 
If MMs did not have suckers to dump the shares to, how could they afford the houses in Hamptons.
They arent smarter than most of us, just have the INFO.
I was getting hit hard as well in 2004 on so called sudden news.
That's why I bagged the stocks and moved to the index futures.
 
On a chart, FXEN is simply sliding as CL/NG tank after the inventory number, but really drops after 1203. It really doesnt look like inside trading. If someone knew, they would have slammed it after the numbers, not let it stabilize into the 1203 announcement.

I think you need to do a correlation study of FXEN v oil/gas first.

But you never know.
 
i picked up some shares of it at the close and will hold it for a while. Sounds like you and ur day-trading buddies decided to try to catch the falling knife and got cut. Sorry to hear that.

Did u take a look at the daily chart of this stock? It has lost over 50% in the past 3-4 weeks. Why would you want to own something like that. That alone should tell you that u were on the wrong side. If they haven't told you already, day-trading can be a dangerous proposition. Clearly MANY people knew something was wrong with the stock over a month ago. I'm sorry if you and your boys didn't get the memo.

Stocks go up and down ALL THE TIME based on information that you may or may not know. That doesn't mean that it is insider trading. Thats what separates the "smart" and "dumb" money. If you don't know which one you are....

just be thankful that you didn't try this with RFX. Now that would be a truly painful lesson.
 
With all due respect, HILO, we've been doing this for years, and 2005 was our best year to date. So we know about daytrading thanks, though it is not the only format we employ.

Despite your comments, our metrics told us that, barring extraneous news, the stock had hit the price at which we wanted to enter a trade.

Once, it does that, we enter the trade. Whether or not you think we should.

What bothers me was the gap move to down 14-15%, followed, over an hour later, by the negative press release, at which time both the sector and the XLE had begun a substantial rally...obviously without FXEN.

I appreciate the comments, but try to keep them constructive...in this game, we all have winners and losers, and most are taken fully in stride. But to me, this one stood out particularly as an example of trading on nonpublic information.

Cheers.
 
lol
I just checked the charts of FXEN
Most bearish chart on the planet, you think it'll do a dip down and pop right back up to hand you out some cash?



Who cares if it fell 15% before the "public press release"

If you have to rely on press releases to trade, thats a big laugh.



1. What you don't understand is, companies have thousands of employees, someone will ALWAYS know.

You are not gordon gekko, watch the charts because you have no direct lines other then to some customer support guy picking his ass telling you about some "press release" that was written two days ago.


2. Another thing you don't seem to understand as well is , What goes down 15%, can go down another 15% Just to make you choke.

Understand the word CHOKE.

Thats what you are doing now regardless of what "reasonable" prices you and your partner thought the stock was suppose to be.


Silly Advice: Try using a stop next time.
 
We all know the boyz trade ahead.

However, I have no sympathy for knife catching.

If you are buying a tanker, you take the risk that there is further bad news and downside.
 
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