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It is possible for an influent (private) agent, namely someone who has the power to direct the market, to buy a stock before giving a positive announcement about the stock itself? Does his investment need to be public so that other investors can understand that his move can be just a manipulation of stock's value? Will it be considered insider trading? How often does this happen?

What I think is that a behaviour like this if reiterated will become not credible so it should be avoided because you can just lose your credibility and that could damage you more than what you obtained, always if the investment is public.

However, if you manage to influence the value for a good amount of time then changing your mind maybe will not make people think you're playing with the market.

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  • See this re cross-posting meta.stackexchange.com/questions/64068/…
    – Rock Ape
    Sep 14 at 21:08
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    thanks @Rock Ape I think my question is more suited for this site because it has the tag insider-trading while economics stack does not, so I deleted it there
    – Tortar
    Sep 14 at 21:14
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Legal framework

In , the offence of insider dealing is covered by Part 5 of the Criminal Justice Act 1993. The relevant provisions are set out below.

First, the definition of insider dealing which is relevant to the scenario:

52(1) An individual who has information as an insider is guilty of insider dealing if, in the circumstances mentioned in subsection (3), he deals in securities that are price-affected securities in relation to the information.

52(3) The circumstances referred to above are that the acquisition or disposal in question occurs on a regulated market, or that the person dealing relies on a professional intermediary or is himself acting as a professional intermediary.

This is subject to a number of defences, one of which is:

52(4) This section has effect subject to section 53.

53 (1) An individual is not guilty of insider dealing by virtue of dealing in securities if he shows — [...] (b) that at the time he believed on reasonable grounds that the information had been disclosed widely enough to ensure that none of those taking part in the dealing would be prejudiced by not having the information, [...]

In order to understand the definition at section 52(1) above, we need to turn to the interpretation sections (emphasis added to show the terms which are being defined):

55(1) For the purposes of this Part, a person deals in securities if (a) he acquires or disposes of the securities (whether as principal or agent); or (b) he procures, directly or indirectly, an acquisition or disposal of the securities by any other person.

57(1) For the purposes of this Part, a person has information as an insider if and only if (a) it is, and he knows that it is, inside information, and (b) he has it, and knows that he has it, from an inside source.

57(2) For the purposes of subsection (1), a person has information from an inside source if and only if (a) he has it through (i) being a director, employee or shareholder of an issuer of securities; or (ii) having access to the information by virtue of his employment, office or profession; or (b) the direct or indirect source of his information is a person within paragraph (a).

56 (1) For the purposes of this section and section 57, “inside information” means information which (a) relates to particular securities or to a particular issuer of securities or to particular issuers of securities and not to securities generally or to issuers of securities generally; (b) is specific or precise; (c) has not been made public; and (d) if it were made public would be likely to have a significant effect on the price of any securities.

56(2) For the purposes of this Part, securities are “price-affected securities” in relation to inside information, and inside information is “price-sensitive information” in relation to securities, if and only if the information would, if made public, be likely to have a significant effect on the price of the securities.

Note that information is not inside information if it has been made public, pursuant to section 56(1)(c) above. So we now need to turn to the definition of "made public":

58(1) For the purposes of section 56, “made public”, in relation to information, shall be construed in accordance with the following provisions of this section; but those provisions are not exhaustive as to the meaning of that expression.

58(2) Information is made public if (a) it is published in accordance with the rules of a regulated market for the purpose of informing investors and their professional advisers; (b) it is contained in records which by virtue of any enactment are open to inspection by the public; (c) it can be readily acquired by those likely to deal in any securities (i) to which the information relates, or (ii) of an issuer to which the information relates; or (d) it is derived from information which has been made public.

58(3) Information may be treated as made public even though (a)it can be acquired only by persons exercising diligence or expertise; (b) it is communicated to a section of the public and not to the public at large; (c) it can be acquired only by observation; (d) it is communicated only on payment of a fee; or (e) it is published only outside the United Kingdom.

Looking at the bolded parts, information may be considered to have been made public even though it is not in a manner explicitly listed in section 58(2). However, if a person wants to be absolutely sure that they will not commit the offence, then they would be advised to use one of those methods in 58(2). The bolded word "is" there ensures that it cannot be called into question. A person working in a listed company will almost invariably use the method in 58(2)(1): "published in accordance with the rules of a regulated market for the purpose of informing investors and their professional advisers"

Conclusion

I'm working on the assumption that we are talking about shares which are listed on a regulated market. "Regulated market" also has a specific definition but I won't get into that other than to say that there are markets which are not regulated for the purpose of this offence.

To answer your questions:

It is possible for an influent (private) agent, namely someone who has the power to direct the market, to buy a stock before giving a positive announcement about the stock itself?

This will likely result in commiting the offence of insider dealing, assuming that person and the information falls within the defintions above.

Does his investment need to be public so that other investors can understand that his move can be just a manipulation of stock's value?

This is likely insufficient. It is the inside information which must be made public, not the mere fact that he is purchasing the shares. So again, the offence is likely to be committed.

To avoid committing the offence, the person should make the positive announcement about the stock (preferably in accordance with s 58(2)) and only then make the purchase for himself.

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  • thanks for the answer @JBentley, really well explained. I have one last question : what about a sequence of positive announcements? Say I do the first then I buy the stock, and after some time I give another positive announcement, obviously in this case there is more uncertainty on the result, but is this permitted ?
    – Tortar
    Sep 15 at 9:44
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    @Tortar you should examine the 2nd item of information separately and work through the definitions above to see if it applies. For example, if you didn't even have knowledge of the 2nd announcement when you bought the shares then it is fine. But if you did and the other criteria are satisfied then the fact that there was some earlier disclosed information is irrelevant. "More uncertainty on the result" could be relevant because of the requirement that "the information would, if made public, be likely to have a significant effect on the price of the securities."
    – JBentley
    Sep 15 at 10:39
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    @tortar But that is probably a dangerous fence to be sitting on. If the price does react to the news then you will have a hard time arguing that an affect on the price was not likely. The sensible approach is that if there is any doubt, you should announce first.
    – JBentley
    Sep 15 at 10:42
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    @tortar Also if this is a real situation and not just hypothetical then be aware of my jurisdiction tag at the start of the answer. I say that because your use of the word "stock" suggests you are elsewhere since the word "share" is more commonly used here.
    – JBentley
    Sep 15 at 10:47

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