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giobilkis
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Posts: 39
Joined: February 18th, 2011, 10:06 am

Shorting competition before product launch

January 29th, 2013, 8:58 pm

Let?s assume you are a businessman that plans an entry into a regulated market that was recently opened for a competition.You raise a lot of money, you get license, regulatory approval.You know that till now this market was de-facto a cartel.You plan to lower the prices significantly.One day before your company actually launches the product with super low prices, you personally short your competitors.Your company launches the super cheap product (on the border with dumping).The market is in turmoil.Competitors share plunge.You privately make a lot of money on a short position.Now the question: is that legal? What do you think?
 
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DevonFangs
Posts: 3004
Joined: November 9th, 2009, 1:49 pm

Shorting competition before product launch

February 1st, 2013, 11:54 am

QuoteOriginally posted by: giobilkisLet?s assume you are a businessman that plans an entry into a regulated market that was recently opened for a competition.You raise a lot of money, you get license, regulatory approval.You know that till now this market was de-facto a cartel.You plan to lower the prices significantly.One day before your company actually launches the product with super low prices, you personally short your competitors.Your company launches the super cheap product (on the border with dumping).The market is in turmoil.Competitors share plunge.You privately make a lot of money on a short position.Now the question: is that legal? What do you think?So the questions is: is this illegal even though it wouldn't literally be insider trading? I guess the answer strongly depends on whether or not it would be in the US. EDIT My feeling is that it wouldn't be illegal. The information gets public the moment the market is open and you get the license.
Last edited by DevonFangs on January 31st, 2013, 11:00 pm, edited 1 time in total.
 
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katastrofa
Posts: 9435
Joined: August 16th, 2007, 5:36 am
Location: Alpha Centauri

Shorting competition before product launch

February 2nd, 2013, 11:37 pm

My gut instinct, based on what I've been told about EU regulations, is that it would be trading on non-public information and thus illegal. It would also potentially open you to the accusation of market manipulation, if someone made an argument that you (as CEO) pushed your product prices so low for personal gain on short positions (i.e. you'd have to prove that you'd set them so low even if you didn't haven't shorted your competitors). Disclaimer: IANAL (I am not a lawyer).
Last edited by katastrofa on February 2nd, 2013, 11:00 pm, edited 1 time in total.
 
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DevonFangs
Posts: 3004
Joined: November 9th, 2009, 1:49 pm

Shorting competition before product launch

February 3rd, 2013, 8:18 am

QuoteOriginally posted by: katastrofaMy gut instinct, based on what I've been told about EU regulations, is that it would be trading on non-public information and thus illegal. It would also potentially open you to the accusation of market manipulation, if someone made an argument that you (as CEO) pushed your product prices so low for personal gain on short positions (i.e. you'd have to prove that you'd set them so low even if you didn't haven't shorted your competitors). Disclaimer: IANAL (I am not a lawyer).Ah right, the price is the non-public info. Hence you'd be insider de facto. I agree.
 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

Shorting competition before product launch

February 3rd, 2013, 9:22 am

essentially the same question was asked here.People there didn't seem to know the answer, which suggests to me that the SEC (in the US) has not acted on cases like this
 
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katastrofa
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Joined: August 16th, 2007, 5:36 am
Location: Alpha Centauri

Shorting competition before product launch

February 3rd, 2013, 12:58 pm

QuoteOriginally posted by: ppauperessentially the same question was asked here.People there didn't seem to know the answer, which suggests to me that the SEC (in the US) has not acted on cases like this... which does not mean that it is not illegal, or that SEC wouldn't go after you if you tried that ;-)
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

Shorting competition before product launch

February 3rd, 2013, 1:14 pm

QuoteOriginally posted by: katastrofaMy gut instinct, based on what I've been told about EU regulations, is that it would be trading on non-public information and thus illegal. It would also potentially open you to the accusation of market manipulation, if someone made an argument that you (as CEO) pushed your product prices so low for personal gain on short positions (i.e. you'd have to prove that you'd set them so low even if you didn't haven't shorted your competitors). Disclaimer: IANAL (I am not a lawyer).Indeed! Moreover, your shareholders might argue that you should be maximizing the value of your company (with somewhat higher prices) rather than minimizing the value of your competitor's shares.
 
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giobilkis
Topic Author
Posts: 39
Joined: February 18th, 2011, 10:06 am

Shorting competition before product launch

February 4th, 2013, 3:54 pm

Thank you, guys.It feels wrong on many levels: from discrimination of other shareholders, not acting in a good faith and up to a somewhat broadened definition of "insider trading".G
 
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PvalAnal85
Posts: 37
Joined: May 26th, 2009, 6:23 pm

Shorting competition before product launch

February 5th, 2013, 2:18 pm

If you have to ask the question, then you probably shouldn't be doing it!
Last edited by PvalAnal85 on February 4th, 2013, 11:00 pm, edited 1 time in total.
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