Insider trading stock options nso



The Opfions Stock Exchange says that by watching its computer prinouts closely it warned the S. Publisher retains any excess sums after expenses as its compensation. More from Daily Capital INSIDER TRADING AND OPTIONS The case eventually ensnared corporate executives, consultants, rating agency personnel, proprietary traders, hedge fund executives, and public relations personnel.




Insider trading in options has become a sticky problem for the traders and regulators of the nation's options exchanges. Once a plague of the stock exchanges, insider trading has moved into the options pits, propelled by the chance to make staggering profits. Ambiguous laws covering insider trading in options and the relative ease optionz evading enforcement procedures add to the lure of options. Recently, a handful of highly sensitive cases, paticularly one involving Thomas Reed, a special assistant to President Reagan, have come to light as a result rrading renewed enforcement activity by the Securities and Exchange Commission.

But many less publicized cases may be falling through the holes of the enforcement net, enforcement officials and traders say. With sno present tools, regulators seem powerless do much about a myriad of smaller, ad hoc abuses, they say. Beatty, a former S. Those cases have generally involved mergers. Beatty contends, however, that the bulk of insider trading in options result in ''small profits of 50 to percent'' on tips about such routine matters as changes in insiser and dividends.

The exchanges rely heavily on their record keeping to deter insider trading. Their computers, however, are programmed to spot large volume transactions and volatile prices, leaving an area in which insider trading stock options nso cheaters can operate undetected. Sgock exchanges keep their procedures secret to prevent attempts at circumvention. I suspect that people who do that time after time will get caught. The use of inside information has been a gnawing concern since the trading of options by exchanges began 10 years ago.

But big losses suffered by floor traders during the takeover fever of the late 's and early 's have left some options traders bitter. Exchange floor traders, who are usually obligated to make markets in certain options, feel particularly vulnerable to financial losses. The insiders don't care or don't know that somebody gets hurt. I guess they think the money falls from the sky. Responding to such charges, the S. In a jso case, Mr. Reed is under investigation by the Justice Department opitons his transactions involving the options of Amax, where Mr.

Reed's father is a director. Martin, a certified public accountant with a client on the Santa Fe International board. Martin's profits were ordered frozen, but he subsequently invested part of the money in another venture. With insidrr case on appeal, he is insider trading stock options nso to begin serving in June a contempt-of-court term for using the money. His defense: ''I've contended all along that it's my money.

We're dealing with some definitional problems about insider trading. Options give the holder the right to buy or sell shares of stock at a fixed price within a given period. Generally, they can be purchased for only pennies per share when their expiration date is approaching. Sttock certain situations, their value can soar overnight. The traders get a lot of help from exchanges in seeking out and reporting illegal use of privileged information.

The American Stock Exchange says that by watching its computer prinouts closely it warned the S. Reed and Amax only a few hours after the suspicious trades were made. The exchanges regularly trade information among themselves and with the stock exchanges. After any material announcement, such as mergers, big swings in profits, dividend changes or introduction of new products, the exchanges check their ''audit trails'' for unusual activity.

But the best efforts of the exchanges and the commission are not always optjons, especially in cases involving secret Swiss and other foreign accounts. Insiders may also escape detection by entering several small transactions at different brokerage insdier. And proving access to insider information has always been extremely difficult.

The changing definition of ''insider'' has also hampered enforcement. A few years ago, the Supreme Court ruled in Chiarella v. United States that an ''insider'' was someone with a fiduciary responsibility to the iinsider. The court said Vincent Chiarella, an employee of a financial printer, had no obligation to disclose his inside information to those who unknowingly sold shares of companies soon to be taken over. The question of who stocl an ''insider'' is a particularly sticky one for options.

Since exchange-traded options are not direct issues of a corporation, tradding legal experts contend that options trading is exempt from the requirements of provision 16b of the Securities and Exchange Act of That provision requires corporate officers to report all transactions in the company's securities. It also forbids the buying and selling of the same corporate security within a six-month period by an officer or director of the corporation.

Reformers say legislative clarification of 16b would eliminate much of the ''small'' insider stovk in options. If clarified, in and out trading would be reportable and explicitly illegal. There may also be a need for harsher enforcement penalties. Orrick in tradijg Northern District of California last fall refused to sign an order ending the S. The commission has no strict guidelines in determining whether a case should be referred to the Justice Department for prosecution.

It is urging legislative action to clear up some of the ambiguities nsi to strengthen its enforcement powers. Illustrations: photo of Chicago Board Options Exchange Room for Debate asks whether shorefront homeowners should have to open their land to all comers. INSIDER TRADING AND OPTIONS By WINSTON WILLIAMS, Special to the New York Times. Published: April 13, Illustrations: photo of Chicago Board Options Exchange. Correction: April 25,Sell Call Options And Make Money At Home, Late City Final Edition.

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