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Take a company like Google, that has access to real time information on what billions of people want at any given moment, their plans for the future - not to mention the entire email archives of hundreds of millions of people.

It's not hard to imagine how this data can be harvested to build a pretty vivid picture of where market forces might be headed. As a simple example, Google could make pretty reasonable predictions about how many people are looking to buy homes in a certain area and the price they'd be willing to pay for it. As another example, Google could probably make good approximations on how many people are seriously interested in purchasing a Tesla vehicle.

So my question is, is there any legal problem with Google (and loads of others with large amounts of user data) actively investing/trading based on this data? For instance, should Google Engineers notice a spike in searches on "Tesla customizations" and "Tesla dealerships near me", can they purchase shares in $TSLA ?

This obviously isn't classic insider trading, because the "inside" data they have isn't from Tesla itself, but from their own company. That's why I'm wondering if it's allowed.

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    Yeah Dale is right, how would that give you an unfair advantage? Stock prices aren't tied to searches. Even if a company releases a new product and theres tons of searches, the product could not work long term and then the stock goes down. If you just based your stock buys off searches you would buy a stock that would fall just based on searches before people knew the full story. – Putvi Apr 4 at 20:22
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    @Putvi how about a bunch of searches suddenly coming from the IP addresses of a chemical company asking "legal effects of ground water contamination" or "negative health effects of a leak of chemical X" etc etc etc? Or from a major electric car manufacturer searching "bankruptcy processes" a lot suddenly? Fairly contrived examples, but suddenly the companies are leaking potentially very privileged information allowing for market manipulation. – user4210 Apr 4 at 21:52
  • @Moo that still isnt market manipulation, because its not something that couldn't be known. – Putvi Apr 4 at 21:55
  • @Putvi I disagree, its internal information about a potential situation which allows for trading on non-public information. My point was that its not just about buying stock in a company based on searches done about its products, there is also the potential to make trades based on search traffic which leaks privileged information about immediate situations. And companies can suddenly go under with no warning - happened in the UK just before Christmas, a shop chain suddenly became insolvent because of fraudulent actions of its finance officer. – user4210 Apr 4 at 22:03
  • Oh, I am from the US, so I don't know how the UK regulates it, but the US doesn't care if you look at searches. Searches aren't privileged though. That's like saying you and I couldn't come up with ideas on a stock and then trade on it because its privileged information others wouldn't have. – Putvi Apr 4 at 22:05
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Yes

You’re right that it isn’t ‘insider trading’ - the correct name for it is ‘market research’ and that’s totally legal.

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is there any legal problem with Google (and loads of others with large amounts of user data) actively investing/trading based on this data?

No. By way of analogy, consider a scenario where many, many random people in the street casually tell you that they are about to purchase a Tesla vehicle. There would be no legal impediment for you to buy Tesla shares on the basis of your information. For instance:

  • there is no breach of confidentiality;

  • the disclosures create no fiduciary duty;

  • you are not violating individuals' privacy or disclosing their personal identifying information; and

  • the information did not originate from fraudulent statements made by you to the effect of inducing them to purchase the vehicle.

The differences between the "street scenario" and the online context of your question are insufficient to lead to a different legal outcome. By purchasing Tesla shares, Google would not be violating consumers' privacy --let alone that of unidentified users-- when a multitude of random people online say to Google (via its "Search" button) something that couples the keyword "Tesla" with bullish term(s).

This obviously isn't classic insider trading, because the "inside" data they have isn't from Tesla itself, but from their own company.

The nature of insider trading is more "internal" than depicted here, or it requires the existence of a fiduciary duty. Hypothetical examples of insider trading would be:

  • Google's transactions of Tesla shares are inspired by information furnished by Tesla to Google under some existing NDA or fiduciary duty between these two companies;

  • Tesla fraudulently understates its financial prospects so as to cause its share price to fall and subsequently buy it cheap;

  • Tesla fraudulently overstates its financial prospects, be it to obtain profit from its short-sales of Tesla shares, its long position on put options, etc., or to pocket whatever money is left while dissimulating an imminent bankruptcy;

  • A broker receives an order from a customer known to be usually right about financial markets, but the broker submits similar transactions for his own benefit prior to (or instead of) submitting his customer's order.

  • Thank you for your thorough answer. There still seems something wrong with Google being able to use search data to purchase public securities. I don't see how they can possibly lose money – CodyBugstein Apr 9 at 15:58
  • @CodyBugstein In your opinion, what is different between the Google scenario and the street analogy that should lead to a different legal outcome? Also, even if Google's transactions were systematically profitable, what do you perceive as unlawful about it? Maybe I can clarify some point that remains unnoticed about your question. – Iñaki Viggers Apr 9 at 18:45

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