What happens to the insider trade profits?
"You seem to have a little confusion over terminology that should be cleared up: You are calling this ""day-trading"" Day-trading is the term for performing multiple trading actions in a single day. While it appears that the COO has performed a buy and a sell on the same day, most people would consider this a 'single trade'. In reality, it seems that the COO had 'stock options' [a contract providing the option for the holder to buy stock at a specific price, at some point in the future], provided as part of his compensation package. He decided or was required to 'exercise' those options today. This means he bought the shares using his special 'option price'. It is extremely common for employees who exercise stock options, to sell all of the resulting stock immediately. This is very different from usual day-trading, which implies that he would have bought stock in the morning at a low price, and then sold it later at a high price. You are calling this 'insider trading'. That term specifically often implies some level of unethical behavior. In general, stock options offered to executive employees are strictly limited in how they can be exercised. For example, most stock option plans require employees to wait x number of years before they can exercise them. This gives the employee incentive to stay longer, and for a high-level executive with the ability to strongly impact company performance, it gives incentive to do well. Technically you are correct, this is likely considered an 'insider trade', but given that it seems to have been a stock option exercise, it does not necessarily imply that there was any special reasoning for why he did the trade today. It could simply be that today was the first day the stock option rules allowed him to exercise. As to your final question - no, these profits are the COO's, to do with as he likes." Is my understanding correct? It's actually higher than that - he exercised options for 94,564 shares at $204.16 and sold them for $252.17 for a gain of about $4.5 Million.  There's another transaction that's not in your screenshot where he sold the other 7,954 shares for another $2 Million. What do executive directors usually do with such profit?  It's part of his compensation - it's anyone's guess what he decided to do with it. Is it understood that such trade profits should be re-invested back to the company? No - that is purely compensation for his position (I'm assuming the stock options were compensation rather then him buying options in the open market).  There generally is no expectation that trading profits need to go back into the company.  If the company wanted the profits reinvested they wouldn't have distributed the compensation in the first place.
However, is it a risk that they may withhold liquidity in a market panic crash to protect their own capital?  Two cases exist here. One is if you access the direct market, then they cannot. Secondly if you are trading in the internal market created by them, yes they can do to save their behind, but that is open to question. They don't make money on your profit or loss, their money comes from you trading. So as long as you maintain the required margin in your accounts, you can go ahead. I had a mail exchange with IG Index regarding this and they categorically refuted on this point. Will their clients be unable to sell at a fair market price in a panic crash? No. Also, do CFD providers sometimes make an occasional downward spike to cream off their clients' cut-loss order?  Need proof regarding this, not saying it cannot happen. They wouldn't antagonize the people bringing them business without any reason. They would be putting their money at risk. But you should know, their traders are also in the market. Which might look skimming your money, it would be their traders making money in the free market. After all Google, Facebook etc also sell your personal data for profit, why shouldn't the CFD firm also. Since they are market makers, what is to prevent them from attempting these tricks? Are these concerns also valid for forex brokers serving the retail public? What you consider as tricks are legitimate use of information to make money. According to HMRC's manual BIM42105, you can't deduct expenses of this kind when calculating your profits for corporation tax: No deduction is allowed for expenditure not incurred wholly and exclusively for trade purposes So at the least, the company will have to pay corporation tax on this donation at some point, assuming it ever makes any profits. There's also the risk that HMRC would say that what is really happening is that you are making a personal donation to this person and the company is giving you income to allow you to do it. In that case, you'd be liable to income tax and employees national insurance, and the company liable to employers national insurance. It should then be deductible from corporation tax, though. "As the other answer said, the person who owns the lent stock does not benefit directly.  They may benefit indirectly in that brokers can use the short lending profits to reduce their fees or in that they have the option to short other stocks at the same terms.   Follow-up question: what prevents the broker lending the shares for a very short time (less than a day), pocketing the interest and returning the lenders their shares without much change in share price (because borrowing period was very short). What prevents them from doing that many times a day ? Lack of market.   Short selling for short periods of time isn't so common as to allow for ""many"" times a day.  Some day traders may do it occasionally, but I don't know that it would be a reliable business model to supply them.  If there are enough people interested in shorting the stock, they will probably want to hold onto it long enough for the anticipated movement to happen.   There are transaction costs here.  Both fees for trading at all and the extra charges for short sale borrowing and interest.  Most stocks do not move down by large enough amounts ""many"" times a day.  Their fluctuations are smaller.  If the stock doesn't move enough to cover the transaction fees, then that seller lost money overall.  Over time, sellers like that will stop trading, as they will lose all their money.   All that said, there are no legal blocks to loaning the stock out many times, just practical ones.  If a stock was varying wildly for some bizarre reason, it could happen." "I'm surprised at the tone of the answers to this question! Trading with insider information is corruption and encourages fraud. As in many areas, there's an ethical line where behavior the gap between ""ok"" and ""illegal"" or unethical is thin. The classic local government insider information example is when the local councilman finds out that a highway exit is being constructed in an area that consists mostly of farmland. Knowing this, he buys out the farmers at what they think is a premium, and turns around for 10x profit a few months later. In that context, do you think that the councilman acting on that insider information is committing a crime or ethical lapse? Most people say yes.  Even in this case, the line is thin. If the same councilman has his finger on the pulse of growth patterns in the area, and realizes that the terrain makes a certain area a prime candiate for a highway and exit, buying up land would not be criminal -- but it would be risky as it creates a perception that he is abusing his position." I do not believe that this was a case of insider trading. As an example, one of the executives sold only 4% of his total. Now consider that between the 3 of them, the amount sold was only $1.8M. These amounts are minuscule and are in no way indicative of any misconduct. My opinion. "I'm surprised at the tone of the answers to this question! Trading with insider information is corruption and encourages fraud. As in many areas, there's an ethical line where behavior the gap between ""ok"" and ""illegal"" or unethical is thin. The classic local government insider information example is when the local councilman finds out that a highway exit is being constructed in an area that consists mostly of farmland. Knowing this, he buys out the farmers at what they think is a premium, and turns around for 10x profit a few months later. In that context, do you think that the councilman acting on that insider information is committing a crime or ethical lapse? Most people say yes.  Even in this case, the line is thin. If the same councilman has his finger on the pulse of growth patterns in the area, and realizes that the terrain makes a certain area a prime candiate for a highway and exit, buying up land would not be criminal -- but it would be risky as it creates a perception that he is abusing his position." You'd likely be subject to a lock-up period before you could sell the shares along with possibly having other rules about how you could sell your shares as you'd likely be seen as an insider that may have information that gives you an unfair advantage for selling the stock possibly. Depending on how far in advance you hold the shares, you may or may not have adjustments in the valuation and number of shares as some companies may do a split or reverse split when preparing for an IPO. A company I worked for in the late 1990s had an IPO and my stock options had a revised strike price because of a reverse stock split that was done prior to the IPO. "Excellent observation! The short answer is that you don't own the firm, you own the right to your share of the profits (or losses) for the period that you worked there.  Technically you also have the right to vote to sell or disband the company (known as demutualization).   The workers at Equal Exchange voted in a clause to our bylaws to prevent this--basically a ""poison pill."" It says that if we ever sold the company we have to pay off any debts, return any investments (at the price paid), and give away any remaining assets to another company dedicated to Fair Trade. The effect is that there is no incentive for us to sell the company, so we don't worry about all the kinds of things you would if you were focused on an ""exit strategy."" But in this sense, ""ownership"" is even more compromised, right?   Back to your question, I think the answer is ""It depends on what you mean by ownership."" It is certainly not ownership in the conventional sense. I think of it more like a trusteeship. We are stewards of the enterprise while we have the benefits given to active workers, but we have a responsibility not just to maximize our own well-being, but that of the other stakeholders (our suppliers, consumers, investors, our communities, the environment, etc), including the people who worked there before (and left part of the profits in the company as retained earnings) and those that will come after us."