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We've all seen it. A share price rises 20% for no apparent reason and then, lo and behold, the company announces a highly positive piece of news. Often it seems like the private investor was the last to know. One recent example was Gulf Keystone Petroleum (LSE: GKP), a small oil exploration company. On September 15, shares in the company were trading at 67.5p; they then hit 86p on September 21st for no obvious reason. On the 22nd, Gulf announced some good exploration news and the share price only gained a further penny that day. Fools on our Gulf Keystone board were in the money on that day, but they still weren't happy that news appeared to have leaked. They were even less happy a month later when the price fell before bad news was announced. Now it's possible that the price changes weren't driven by insider dealing. Perhaps a lucky or clever speculator had bought Gulf shares before the good news announcement. And if there were leaks, it's worth pointing out that the leak could have come from a wide range of possible suspects. But whatever the source of that piece of news, it appears that insider trading is still rife. New research from the FSA suggests that "informed trading" may have taken place before 29% of takeover announcements in 2000 and 2004. Sadly, that figure isn't really surprising, but it's very irritating nonetheless. Private investors want to know that they're trading on a level playing field -- or at least as level as possible. The FSA has also looked at trading around significant business announcements by FTSE 350 companies. The regulator reckons there was insider dealing before 22% of those announcements between 1998 and 2003. The FSA has revealed the methodology for its research in a paper entitled "Measuring Market Cleanliness" (pdf file). One purpose of the research was to see if the Financial Services and Markets Act (FSMA) had had any impact on insider dealing. FSMA came into force in 2001, but the figures suggest that the Act hasn't improved the situation so far although statistical issues mean that the figures aren't crystal clear. However, the first successful enforcement of FSMA didn't happen until 2004. Further enforcements and higher fines mean FSMA may have a bigger impact in the future. I fear that insider dealing will always be with us, but a reduction would be welcome. Let's hope that the FSA will commission further research so we can see if better enforcement is having an impact. I also think higher fines for miscreants could be a useful deterrent.
