SEC is asking for real-time information to detect illegal insider trading. Here is why:
On August 12th, 13th, and 16th Juan Jose Fernandez Garcia, head of European Equity Derivatives at Banco Santander bought out of the money call options of Potash for $13669. On August 17th he sold his options for a profit of $576000. Do you think he was merely lucky? Banco Santander, employer of Mr. Garcia, was an advisor to BHP which made a tender offer to acquire Potash for a significant premium. More than 90% of the options bought by Garcia were due to expire on August 21st. Why would any buy call options with a strike proce of $130 and expires in a few days when the underlying stock is trading at less than $110?
This is obviously an illegal insider trading case involving investment bankers. Garcia’s brokerage firm, Interactive Brokers, noticed the suspicious transactions and notified SEC. Interactive Brokers also bloked the transfer requests for most of the illegal profits. This is a successful enforcement by the brokerage company, not the SEC. Currently SEC does not have real-time access to market transactions by individuals.
Currently SEC has to make multiple requests to brokers to obtain transaction information about a specific security. Hey, no wonder they are slow in detecting illegal insider transactions perpetrated by securities professionals, lawyers, and accountants. SEC does not know which trades are suspicious because they don’t even see the trades. How do they investigate illegal insider trading then? If somebody complains or tips them about illegal transactions, then they start investigating the allegations. Maybe they just read WSJ or other financial websites to get ideas.
I am not going to delve into the discussion whether we should spend millions of dollars to set up a real time tracking system for the SEC. All I wanted to point at is SEC’s weakness in detecting illegal insider trading cases.