MFA members believe that insider trading cannot be tolerated in capital markets. MFA is engaging with policymakers on the importance of legitimate market research to healthy capital markets and how changes in the law could impact it.
Fundamental market research is crucial to the development and implementation of investment strategies used to deliver returns to hedge fund investors such as public pension plans and endowments.
Among other legitimate information- gathering techniques, a financial analyst is permitted to listen to a company’s executives describe the company’s performance and future guidance on quarterly conference calls; review a company’s public filings; engage an expert or a consultant to learn that expert’s views on the industry sector, on the individual company, and on sectors related to the company in question; and, talk to former employees of the company. An analyst thereby gains the best understanding of how a company is performing and may perform in the future. The courts have sanctioned this type of data gathering, describing it as the “matrix” method of financial analysis.
Under a traditional insider trading analysis, an analyst may not, however, induce an “insider” at a company to violate that insider’s fiduciary duty to the company and leak material, non-public information (“MNPI”) in exchange for a personal benefit to the insider. MFA strongly supports the laws against insider trading and the enforcement of those laws. Prosecuting the use of improperly obtained information is essential to ensuring integrity, fairness, and public confidence in our capital markets. MFA members rely on fair and honest capital markets in fulfilling their fiduciary obligations to their investors. It is essential to ensure that financial analysts are able to properly gather information and conduct fundamental market research without the fear of being prosecuted for unknowingly coming into possession of improper information.