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Think the super unsatisfying answer is:

¯\_(ツ)_/¯

I think a lawyer would advise that that trade would come with a ton of risk. But the law isn’t clear. Generally, the SEC’s goal is to make sure markets are “fair.” What makes a market fair is hard to define.

If you do a ton of work to launch satellites to fly over Walmart parking lots and then model the correlation of how full they are to what the company’s next earnings will be: that seems like you worked hard and earned an edge you can trade on without getting in trouble. Feels like anyone has a theoretically equal opportunity to do the same work you did and get the same trading edge. That feels fair.

Your hypothetical feels less fair. Is it unfair? Maybe? So unfair that it’d be prosecuted? Probably depends on a number of things, including how much you made on the trade. At a minimum it’s an area of unsettled law. And you would almost certainly be in for serious scrutiny and a legal fight.

Supposedly one idea for Google’s business model early on was that they should use search query data to trade equities. After they researched it they concluded it would be considered insider trading. Though it’s hard to distinguish from overhearing something on the train, which (not legal advice) generally has not been. Think the difference at some level is scale and intention. And, I’d guess, if you made it your business to ride the Acela every day between Greenwich and NYC, bought special hearing aides that let you better eavesdrop on conversations, and made significant profits trading on the information then you’d be more likely to be successfully prosecuted.

But… how is that different from flying satellites over Walmart parking lots?

¯\_(ツ)_/¯

Sometimes the law is intentionally a bit unclear. Usually in areas like this where you care about a general concept of fairness and want some caution and buffer at the margins.

So since you mention Wal-Mart. They have, probably, a better idea of Proctor&Gamble's quarterly sales than anybody but P&G, right? Like Walmart makes some massive double digit percentage of sales of p&g products, and knows about it possibly in real-time. If I was some data analyst at Walmart,I couldn't trade on that, that's misappropriation. But Walmart could potentially spin up a hedge fund and trade (against) their suppliers, until their suppliers threaten to pull product, I think?

Presumably there's a contract between Walmart and p&g that they won't trade in each other's stocks, specifically to prevent this?

¯\_(ツ)_/¯

That framing makes a lot of sense, and does help square the difference between the "satellite imaging of Wal-mart parking lots" and "trading on intel you got working bizdev at a tech company".

It's funny how often "we'll trade equities on the information we generate as a byproduct" comes up --- always briefly --- as a tech company business model. Like, I've non-ironically been involved in companies that had that premise, and then "real" business always swamps the "we'll trade on it" intentions.

That practice has been referred to recently as "shadow (insider) trading". It's an actively evolving area of case law, but the SEC's opinion is yes, see https://wp.nyu.edu/compliance_enforcement/2022/01/19/sec-v-p...

Or Matt Levine on the same case: https://archive.ph/5Dlmw

Oh, neat! I hadn't read this, but my hypo is literally case (3). His answer: "who knows?". Excellent.

In my hypo and his, the origin of the private information I've acquired is still business my employer has conducted, so there's a better-than-baseline probability that the SEC would see this as misappropriation --- even if my employer wasn't directly going to trade on this, or if it was hard to trace any harm to my employer, it's still potentially not OK for me to profit from it.

The thing where it gets murky though is that the theft argument needs someone to be stolen from, or defrauded.

In classical insider trading, the victims are the investors in the M&A target. I'm misappropriating MNPI about the target, so I'm essentially defrauding the target's investors.

In the "shadow" case, I think it's a harder argument to make. If I work for a potential Cisco M&A target that falls through (as per the GPP), I've got, MNPI about my org, and probably MNPI relating to Cisco. Can I defraud Splunk's investors with that?

I love this hypothetical. It’s a kind of “triangulation” of insider info, and I have no idea what the prevailing legal theory is. But I’m willing to bet that there is a Matt Levine article that discusses a real world scenario that mirrors this…

> Say you're, like, an employee at DataDog, and you're involved in a long-term M&A discussion with Cisco that you know is competitive (I've had the pleasure of witnessing one of these at Arbor Networks). Things are looking great, you've picked up a bunch of strong signals that Cisco is definitely going to make a move, and then: the talks fall apart.

I don't know about the law, but where I work insider trading policies also applies to vendor and supplier stocks. Trading on that info would cost me a job, at the least.

In the hypothetical, though, Cisco is neither a vendor or a supplier to Datadog.

I mean, given Cisco's line of business, there's a high chance they are a supplier to a company like DataDog.

Good point, I somehow quoted that without fully reading it.

insider trade? Maybe not. Unethical? Yes. IANAL but this can be grounds for firing and potentially DataDog can sue for misusing what is effectively their confidential information.

What's unethical about it

You’re using confidential information obtained in the course of your work duties for personal gain. I’m pretty sure my employer would consider that a business conduct violation.

I'm sure it's against the rules but why is it unethical

Because you’re abusing your professional position and employer’s trust for personal gain.

I don't see how, but more importantly I don't see who this harms

> I don't see who this harms

Every trade has a counterpart.

Except those calls just popped into existence in the exchange. So the first trader bought them ex-nihilo.

But that’s easy to solve for to get to the crux of the issue: what if you realized it and then, on behalf of and with the blessing of your employer traded on the information?

The fact that you're not one of our esteemed congressmen.

you can have an idea of what will happen but the timing is really important.

options change price considerably depending on the length of the contract, this required surgical precision.