Insider Trading
Corporate
Execs
Not Fazed By
Terrorist Attacks
By Paul Elliott, editor
Insiders' Chronicle
If
you follow such things, you were likely dismayed by reports the
corporate executives flooded the Securities & Exchange Commission
with Form 144 registrations in the wake of the September 11 attacks.
Not only does this portray capitalism in the meanest light, it
implies a lack of confidence in the very individuals responsible
for getting our fragile economy back on its feet. The good news
is that like so many tales spawned by terror, this one might
turn out to be a bit tall for its own good.
Now granted, given
the unprecedented break in trading and the inevitable pent-up
demand that resulted, historical comparisons are difficult. It
doesn't seem unreasonable to approach the month's data in aggregate,
however. For the month, insiders and other early investors registered
less than $ 3 billion worth of stock, the lowest total since
December 1998.
Of this total, $1.2
billion was registered in the six trading days prior to September
11, while the remaining $1.6 billion was registered during the
ten days that followed. And keep in mind, not only does some
portion of this latter value represent pent-up demand, but likewise
shares sold under programs, including Rule 10b5-1 plans established
under the SEC's Fair Disclosure Regulation (Reg. FD).
So, unlike an unfortunate
minority itching to flee Capitol Hill for the heartland and mountains,
the nation's executives apparently haven't given up the ghost.
In fact, preliminary numbers show that corporate insiders at
long last started buying in September. So much so, in
fact, that our preliminary ratio of sellers to buyers dipped
below one-to-one for the first time since December 1999.
To be sure, the Feds
provided some of the juice. Much was made of the SEC's decision
to temporarily suspend restrictions on the timing and magnitude
of corporate buybacks when trading resumed following the attacks.
Less widely known is that the same emergency order suspended
the short-swing profit rule and thus allowed insiders who had
sold within the past six-months to repurchase at lower prices
and hang-on to their short-swing "profits."
And believe it or not,
there's one other aspect to these numbers that's worth considering.
For while the number of distinct individuals that hit the open
market for shares increased markedly in September, this increase
was curiously modest relative to the dollar value of the shares
they purchased. What gives?
An obvious culprit
would be an increase in value in the underlying stocks. Wishful
thinking: despite a spirited reversal in the last week of the
month, we've a ways to go before high stocks prices are an issue.
Fortunately, the more likely explanation is every bit as appealing:
those insiders who did buy placed some pretty big bets.
Editor's Note: Paul
Elliot is editor of the Insider's Chronicle, 1455 Research Blvd,
Rockville, MD 20850, 1 year, 50 issues, $315. Includes four quarterly
summaries of insider transactions. The Insiders' Chronicle, a
weekly newsletter, offers a concise interpretation, analysis
and commentary of the week's insider activity. Each issue, in
addition to charts; contains nearly 800 insider trades on the
NYSE, AMEX, and Nasdaq keeping you up to the minute on what insiders
are doing right now.
