One such example would be if the tipper received any personal benefit from the disclosure, thereby breaching his or her duty of loyalty to the company. In Dirks, the "tippee" received confidential information from an insider, a former employee of a company. The reason the insider disclosed the information to the tippee, and the reason the tippee disclosed the information to third parties, was to blow the whistle on massive fraud at the company. As a result of the tippee's efforts the fraud was uncovered, and the company went into bankruptcy.
But, while the tippee had given the "inside" information to clients who made profits from the information, the U. Supreme Court ruled that the tippee could not be held liable under the federal securities laws—for the simple reason that the insider from whom he received the information was not releasing the information for an improper purpose a personal benefit , but rather for the purpose of exposing the fraud. The Supreme Court ruled that the tippee could not have been aiding and abetting a securities law violation committed by the insider—for the simple reason that no securities law violation had been committed by the insider.
In Dirks, the Supreme Court also defined the concept of "constructive insiders", who are lawyers, investment bankers, and others who receive confidential information from a corporation while providing services to the corporation. Constructive insiders are also liable for insider trading violations if the corporation expects the information to remain confidential, since they acquire the fiduciary duties of the true insider. The next expansion of insider trading liability came in SEC vs.
Materia [26] F. Materia, a financial printing firm proofreader, and clearly not an insider by any definition, was found to have determined the identity of takeover targets based on proofreading tender offer documents in the course of his employment.
After a two-week trial, the district court found him liable for insider trading, and the Second Circuit Court of Appeals affirmed holding that the theft of information from an employer, and the use of that information to purchase or sell securities in another entity, constituted a fraud in connection with the purchase or sale of a securities.
The misappropriation theory of insider trading was born, and liability further expanded to encompass a larger group of outsiders. In United States v. Carpenter [27] the U. Supreme Court cited an earlier ruling while unanimously upholding mail and wire fraud convictions for a defendant who received his information from a journalist rather than from the company itself.
The journalist R. Foster Winans was also convicted, on the grounds that he had misappropriated information belonging to his employer, the Wall Street Journal. In that widely publicized case, Winans traded in advance of "Heard on the Street" columns appearing in the Journal. In , the U. Supreme Court adopted the misappropriation theory of insider trading in United States v. O'Hagan, [29] U. O'Hagan was a partner in a law firm representing Grand Metropolitan , while it was considering a tender offer for Pillsbury Company.
O'Hagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so he did not commit fraud by purchasing Pillsbury options. The "misappropriation theory" holds that a person commits fraud "in connection with" a securities transaction and thereby violates 10 b and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.
Under this theory, a fiduciary's undisclosed, self-serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of the information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company's stock, the misappropriation theory premises liability on a fiduciary-turned-trader's deception of those who entrusted him with access to confidential information.
The Court specifically recognized that a corporation's information is its property: "A company's confidential information The undisclosed misappropriation of such information in violation of a fiduciary duty It is no longer a defense for one to say that one would have made the trade anyway. The rule also created an affirmative defense for pre-planned trades.
In Morgan Stanley v. Skowron , F. Newman, the United States Court of Appeals for the Second Circuit cited the Supreme Court's decision in Dirks, and ruled that for a "tippee" a person who used information they received from an insider to be guilty of insider trading, the tippee must have been aware not only that the information was insider information, but must also have been aware that the insider released the information for an improper purpose such as a personal benefit. The Court concluded that the insider's breach of a fiduciary duty not to release confidential information—in the absence of an improper purpose on the part of the insider—is not enough to impose criminal liability on either the insider or the tippee.
United States , the U. Supreme Court held that the benefit a tipper must receive as predicate for an insider-trader prosecution of a tippee need not be pecuniary, and that giving a 'gift' of a tip to a family member is presumptively an act for the personal though intangible benefit of the tipper.
Blaszczak, the U. Because they generally do not have a confidential relationship with the source of the information they receive, however, they do not meet the usual definition of an "insider". A study found that stock sales and purchases by senators outperformed the market by Also the same day trade effective the next day , Congressman Boehner cashed out of an equity mutual fund.
Easterbrook have argued that laws against insider trading should be repealed. They claim that insider trading based on material nonpublic information benefits investors, in general, by more quickly introducing new information into the market. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.
The Atlantic has described the process as "arguably the closest thing that modern finance has to a victimless crime". For example, if a geologist knows there is a high likelihood of the discovery of petroleum under Farmer Smith's land, he may be entitled to make Smith an offer for the land, and buy it, without first telling Farmer Smith of the geological data.
Punishment for communicating about a development pertinent to the next day's stock price might seem an act of censorship. Since negative information is often withheld from the market, trading on such information has a higher value for the market than trading on positive information. However, analogous activities such as front running are illegal under US commodity and futures trading laws. For example, a commodity broker can be charged with fraud for receiving a large purchase order from a client one likely to affect the price of that commodity and then purchasing that commodity before executing the client's order to benefit from the anticipated price increase.
In a number of dark web sites were identified as marketplaces where such non-public information was bought and sold. At least one such site used bitcoins to avoid currency restrictions and to impede tracking.
Such sites also provide a place for soliciting for corporate informants, where non-public information may be used for purposes [51] other than stock trading. This is a much broader scope that under U. The key differences from U. Roderick Seeman said, "Even today many Japanese do not understand why this is illegal. Indeed, previously it was regarded as common sense to make a profit from your knowledge.
The discussion of these "Core Principles" state that "investor protection" in this context means "Investors should be protected from misleading, manipulative or fraudulent practices, including insider trading, front running or trading ahead of customers and the misuse of client assets. The World Bank and International Monetary Fund now use the IOSCO Core Principles in reviewing the financial health of different country's regulatory systems as part of these organization's financial sector assessment program, so laws against insider trading based on non-public information are now expected by the international community.
Enforcement of insider trading laws varies widely from country to country, but the vast majority of jurisdictions now outlaw the practice, at least in principle. Larry Harris claims that differences in the effectiveness with which countries restrict insider trading help to explain the differences in executive compensation among those countries.
All EU Member States agreed to introduce maximum prison sentences of at least four years for serious cases of market manipulation and insider dealing, and at least two years for improper disclosure of insider information. In Australia if a person possesses inside information and knows, or ought reasonably to know, that the information is not generally available and is materially price sensitive then the insider must not trade.
Nor must she or he procure another to trade and must not tip another. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be. Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency.
Its effects are more prominent if the increase is in the traded sector. All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies.
Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Market psychology Market psychology and trader perceptions influence the foreign exchange market in a variety of ways: Flights to quality: Unsettling international events can lead to a " flight-to-quality ", a type of capital flight whereby investors move their assets to a perceived " safe haven ".
There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The US dollar, Swiss franc and gold have been traditional safe havens during times of political or economic uncertainty. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt.
Cycle analysis looks at longer-term price trends that may rise from economic or political trends. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves.
In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight. Many traders study price charts in order to identify such patterns. Spot trading is one of the most common types of forex trading. Often, a forex broker will charge a small fee to the client to roll-over the expiring transaction into a new identical transaction for a continuation of the trade.
This roll-over fee is known as the "swap" fee. Forward See also: Forward contract One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then.
The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties. NDFs are popular for currencies with restrictions such as the Argentinian peso. In fact, a forex hedger can only hedge such risks with NDFs, as currencies such as the Argentinian peso cannot be traded on open markets like major currencies.
In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. A deposit is often required in order to hold the position open until the transaction is completed. Futures Main article: Currency future Futures are standardized forward contracts and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months.
Futures contracts are usually inclusive of any interest amounts. Currency futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. Thus the currency futures contracts are similar to forward contracts in terms of their obligation, but differ from forward contracts in the way they are traded.
In addition, Futures are daily settled removing credit risk that exist in Forwards.
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