Insider trading is alive and well - it's just got slicker
The markets may be more transparent than they were in decades gone by, but temptation, gossip and greed are still rife among their participants
Financial columnists sometimes enjoy the influence they have over events on the markets. But that influence can come back to bite them if they're accused of making false statements about the stocks they own, as Apple Daily financial commentator Sky Cheung Shi-gaii has discovered.
At the beginning of last week, Cheung became the first columnist to be punished by the Securities and Futures Commission (SFC) for hiding and failing to declare shareholdings in companies he was writing about. As a result he was fined and banned from working in the finance industry for 30 months.
The SFC has clear rules requiring commentators to disclose holdings in the listed companies they cover. Such rules are also common in other jurisdictions. Some media outlets even go so far as to limit the ability of their editorial staff to trade shares.
This is far removed from my experience when I started work as a financial reporter in London. Not only were those of us covering markets frequently given insider trading tips, but we were also fully expected to act on them for personal gain. Indeed, one prestigious newspaper I worked for had an owner who used its business pages to plant stories that would boost his investments. For the record, I did not avail myself of these kinds of opportunities.
However, this is a fraught issue. Individual investors may not be aware that insider information and connections still play a major role in equities trading. And there are a number of grey areas that make the picture very cloudy indeed.
For example - and this is not insider trading, as such - when shares are subject to heavy buying or selling at a particular point in time, it is normal practice for the bigger players to go to the head of the trading queue. This provides a considerable price advantage, not least because their trades in themselves influence the subsequent price of the shares.
Moreover, it is the world's worst-kept secret that the finance industry is a very gossipy place. It was even more so when shares were physically traded on stock exchange floors and the dealers were in close physical proximity to each other - not only during their frantic trading hours but, often as not, when they left work and poured into nearby pubs and bars. The exchange of information was, and still is, purely verbal and very hard to monitor.
Meanwhile, at newspapers and other media outlets, most journalists are far too poor to be anything like big-league traders, and most certainly do not try what Cheung did by setting up a broking account in his wife's name to disguise trades. But that does not mean that, inadvertently, they are not used to put price-sensitive information into the public domain for the financial advantage of people who should not be benefiting in such a way.
The law prevents companies trading in their own shares when they are in possession of undisclosed, price-sensitive information. This stricture also applies to trading by individual members of their staff who might have access to this information. Yet companies still find ways of furnishing news-hungry reporters with price-sensitive information before it is officially released. Many of those privy to such information use it to trade.
The markets are much cleaner places than they were even two decades ago, but no one should be under the illusion that insider trading has been stamped out.