TransWikia.com

Understanding the Nasdaq insider trading information

Personal Finance & Money Asked on February 28, 2021

I was looking at information about stocks at Nasdaq and noticed that they post information about amount of company stock being sold and bought by company insiders.

Nasdaq explains the value of this information as follows on this page:

Insider trading can give you a glimpse into how confident the managers of the company are in the prospects for the company. If managers are confident in the company, chances are good that they will be buying stock in the company. Anytime you see insiders buying stock, it is typically a good sign.

However it looks to me like sometimes too much is sometimes being read into the insider buying and selling of the shares.

After all it seems that many companies have a rather high level of insider selling but no indication that the stock is somehow tanking.

For example, companies that have had only insider selling (no buying) of shares during the last 12 months include Adobe (ADBE; 66 sells of a total of 10,171,676 shares) and Computer Sciences Corporation (CSC; 109 sells of a total of 1,027,384 shares).

Neither of these companies seem to have been on a major downturn trajectory during the last 12 months.

Other companies that have had a large majority of selling (with a small amount of buying) include Amazon (AMZN), Apple (AAPL) and Netflix (NFLX).

So to get a better idea of the potential value of this information, I wanted to ask these questions about the “Transaction Type” and “OwnerType” column data:

  1. The “Transaction Type” column often has values such as “Automatic
    Sell” and “Disposition (Non Open Market)”. What is the meaning of
    these two terms, and how does the term affect how the particular
    trading activity should be viewed?
  2. The “OwnerType” column seems to only have either the value “direct”
    or “indirect”. What kind of situation would lead to an “indirect”
    selling of shares?

3 Answers

Usually insiders are in a better position than you to understand their business, but that doesn't mean they will know the future with perfect accuracy. Sometimes they are wrong, sometimes life events force them to liquidate an otherwise promising investment, sometimes their minds change. So while it is indeed valuable information, as everything in fundamental analysis it must be taken with a grain of salt.

Automatic Sell

I think these refer to how the sell occurred. Often the employees don't get actual shares but options or warrants that can be converted to shares. Or there may be special predetermined arrangements regarding when and how the shares may be traded. Since the decision to sell here has nothing to do with the prospects of the business, but has to do with the personal situation of the employee, it's not quite the same as outright selling due to market concerns.

Some people, for instance, are not interested in holding stock. Part of their compensation is given in stock, so they immediately sell the stock to avoid the headache of watching an investment. This obviously doesn't indicate that they expect the company will go south.

I think automatic sell refers to these sorts of situations, but your broker should provide a more detailed definition.

Disposition (Non Open Market)

These days people trade through a broker, but there's nothing stopping you from taking the physical shares and giving them to someone in exchange for say a stack of cash. With a broker, you only "sell" without considering who is buying. The broker then finds buyers for you according to their own system. If selling without a broker you can also be choosy with who is buying, and it's not like anybody can just call up the CEO and ask to buy some stock, so it's a non-open market.

Ultimately though it's still the insider selling. Just on a different exchange. So I would treat this as any insider sell - if they are selling, they may be expecting the stock to become less valuable.

indirect ownership

I think this refers to owning an entity that in turn owns the asset. For instance CEO of XYZ owns stock in ACME, but ACME holds shares of XYZ. This is a somewhat complicated situation, it comes down to whether you think they sold ACME because of the exposure to XYZ or because of some other risk that applies only to ACME and not XYZ.


Generally speaking, I don't think you would find a rule like "if insider transactions of so and so kinds > X then buy" that provides guaranteed success. If such a rule was possible it would have been exploited already by the professionals. The more sensible option is to consider all data available to you and try to make a holistic evaluation. All of these insider activities can be bullish or bearish depending on many other factors.

Correct answer by Superbest on February 28, 2021

Their argument is mostly nonsense. Take someone like Tim Cook, CEO of Apple. He has a not very large salary, and makes a lot more money through stock bonuses. You would never, ever expect him to buy Apple shares. And assuming that he doesn't want to end up one day as the richest man in the cemetery, you would expect him to sell significant numbers of shares, independent on whether he expects Apple to go up or down.

Answered by gnasher729 on February 28, 2021

Insiders are prevented from buying or selling shares except at certain periods right after information is disclosed publicly. But. People have bills to pay and kids to put through college and whatnot. So an insider can set up a plan where shares are sold on a specific schedule and they have no control over number of shares or timing. These plans (covered under rule 10b5-1) allow insiders to generate cash flow without immoderately benefiting from their inside information. Sales under these plans can mostly be ignored when trying to figure out the fortunes of a company from insider trades.

Answered by zeta-band on February 28, 2021

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP