In light of the recent news that Warren Buffet would purchase H.J. Heinz, within 36 hours a trading account had been frozen for potential insider trading from an options transaction, reported Reuters.?
Did this mean that regulators are all over any potentially suspicious activity from profitable options trades prior to big corporate news?
Reuters decided to check out this type of activity and with?Schaeffer’s Investment Research help, conducted a study of 181 announcements over 14 months from Jan. 1, 2012 through February 28, 2013.
The review disclosed that activity before takeovers, big stock repurchases or major investment news, these trades happened regularly.?
From 23 percent of the sample (41 examples from companies), volume of new call options positions had increased by a minimum of 50 percent in the five days prior to the news as compared with the average from six previous months.
For 33 companies, volume more than doubled, reported Reuters.
But this rise in bets doesn’t automatically mean “wrongdoing.” There’s a number of reasons that doesn’t necessarily come from inside information such as just harmless activity, luck, good analysis or hedging activity.?
Thomas Sporkin, a partner at law firm BuckleySandler LLP and a former senior SEC enforcement official said to Reuters,?”You can’t look at an option trade in a vacuum; it could be a hedge. The regulator has to look at what the pattern and practice of trading was in that account.”
As for the SEC’s take on the study, an SEC spokesman responded that the options market “has been and will continue to be an area of focus.” He added that a “simple search of the SEC website will show many, many insider trading enforcement actions involving options.”
Since the start of last year, the SEC has issued about 90 different releases for litigation of insider trading; from this, 18 includes the options market going back to 2006.?
Wait, there’s more to this Reuters study; you can read it here.?
As for the case of the Heinz options, the SEC has initiated litigation/enforcement action for insider trading.?