How Much Does an Illegal Insider Trade?

How Much Does an Illegal Insider Trade?

Alex Frino University of Sydney – Discipline of Finance; Financial Research Network (FIRN)

Stephen E. Satchell University of Cambridge – Faculty of Economics and Politics

Brad Wong University of Sydney

Hui Zheng Discipline of Finance, The University of Sydney; Financial Research Network (FIRN)

June 2013 International Review of Finance, Vol. 13, Issue 2, pp. 241-263, 2013

Abstract: 
This paper examines the choice of trade size by an illegal insider. Previous literature (i.e. Meulbroek 1992) tends to focus on the price impact of such a trader. Using a unique data set hand‐collected from the litigation reports of the Securities and Exchange Commission and court cases, we provide evidence, which suggests that the size of an illegal insider’s trade is a function of the value of his private information, the probability of detection and the expected penalty if detected. Our results have important implication for security market regulators.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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