Implications Of Shadow Trading In Canada

How might a Canadian securities regulator approach so-called "shadow trading"? Shadow trading extends the scope of conventional insider trading to impose liability where a person uses knowledge of undisclosed material information about Company A to trade in securities of another (entirely different) company (Company B) — even though the trader has no undisclosed material information about Company B.

Shadow Trading in SEC v. Panuwat

Earlier this year, a California jury in SEC v. Panuwat found a former executive of Medivation, Inc. liable for insider trading. The executive had purchased short term, out-of-the-money call options for common shares of Incyte Corporation, one of his employer's "peer companies," without pre-clearing or discussing his purchases with anyone at Medivation, and within minutes of learning that Medivation would likely be acquired by Pfizer. Days later, when Medivation announced publicly that it had entered into a merger agreement with Pfizer,