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View all search resultsVague thin line between endorsement and insider trading
Based on such a framework, it should be impossible for stock influencers to be criminally charged based on insider trading.
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T
he year 2020 was a very unique period, not only because we were forced to stay at home, but there was a swift shift in our financial habits. As a consequence of being unable to spend wealth on lavish trips or pointless possessions, wealth unexpectedly accumulated and soon became a ripe investment means.
Thanks to technological advancements providing easy access for any person, especially young investors, to open a trading account, stock trading came out as everyone’s weapon of choice. In 2020 alone, there were ±488,000 new trading accounts (a 93 percent increase), and most of them are retail traders. Unfortunately, using a weapon without the underlying proper knowledge of its mechanism comes with great risk.
However, while incompetent, those new traders do not come out in a cold sweat when trading stocks regularly. Why? The clue lies in the so-called “stock influencers” who willingly and confidently hand out stock picks to those inept stock traders through social media. No charts, no technical analysis, no thorough fundamental analysis, only stock picks, and pleasantly enough, no questions asked to the shepherd. Luckily enough, most of them were bull’s eye.
Skeptically glancing at such a trend, one should raise a mere simple question: How did those stock influencers come up with their picks, while frequently hitting a home run? Optimists may say it was a fluke due to a bullish market, pessimists may say it was insider trading.
To begin with, who is actually eligible to give stock recommendations? Legally speaking, it should be investment managers of securities companies. Those are professionals (commonly referred to as market makers) who frequently publish recommendations on “Buy”, “Hold” and “Sell” of certain stocks on the front-page of financial newspapers.
However, not all people are qualified to act as investment managers. In order to assume such a role, one should meet certain prerequisites, including having adequate knowledge and expertise in capital markets, as demonstrated from possession of a certificate of expertise and professional work experience.
Those stock influencers, evidently, are not licensed investment managers. Nonetheless, may they still pass stock endorsements under the auspices of “freedom of expression”? Since, they might not be licensed professionals, but wouldn’t they still be allowed to share personal interest on a certain stock? Here comes the tricky part.
