I have noticed that David Solomon has made an insider trade on Goldman Sachs as shown in this screenshot from marketwatch.com:

Source: marketwatch.com

Now This tells me he got a profit of over 2.5 million dollars in a day trade. I have two questions:

  1. Is my understanding correct?
  2. What do executive directors usually do with such profit? Is it understood that such trade profits should be re-invested back to the company?
  • 20
    This isn't insider trading. The COO would have requested and got permission from the compliance department and this would have been reported to the authorities, as required. Trades done by the top brass is always confirmed with compliance beforehand and then reported to SEC.
    – DumbCoder
    May 16 '17 at 8:13
  • 4
    @DumbCoder Is is insider trading in the sense that it's trading done by an insider. It's just not (probably) illegal insider trading.
    – D Stanley
    May 16 '17 at 13:27
  • 1
    @DStanley Insider trading means illegal insider trading.
    – Neil G
    Jun 5 '17 at 3:28

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.

  • 8
    Specifically, isn't insider trading make a trade based on information that isn't publicly known to profit from the results after that information is released. AKA you have inside information. For example a buying stocks in a small company right before it's announced that MS or Facebook is going to buy them out for big bucks because you are part of the team negotiating the sale. For that reason a COO would have a blackout period around when the earnings are reported where they couldn't sell stocks. They already know what the earnings report would look like. May 15 '17 at 20:57
  • 5
    "Insider trading" is not illegal per se - only when trades "rely on material non-public information". Insiders can make trades, but they need to be very careful that their trading is not a result of non-public information. Often this is done by announcing trades well in advance to ensure that any information their trade is based off of has become public.
    – D Stanley
    May 15 '17 at 22:22
  • @DStanley Also note that the legality of insider trading depends on what legal jurisdiction you're operating in, and the laws vary significantly around the world.
    – JBentley
    May 16 '17 at 9:01
  • 3
    As D.Stanley notes, "insider trading" hinges on the date of selling. By selling stock on the same the day stock options mature (which was set by the board, not the COO) the COO avoids the impression of picking a favorable date. It would be more suspicious if the COO kept the stocks until good news was reported.
    – MSalters
    May 16 '17 at 10:28

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.

  • 1
    So are we saying that could be his bonus payment? Is a number that large usual or it is only the case for GS like companies?
    – Griffin
    May 15 '17 at 17:17
  • 7
    It could be a bonus or just normal compensation. Multi-million dollar bonuses are not uncommon for officers of large companies.
    – D Stanley
    May 15 '17 at 17:21
  • 4
    Or early employees at startups that turn into billion dollar companies. May 15 '17 at 22:17
  • 1
    @Griffin , for that level, it is rather small as a bonus. It might be a part of an annual bonus; those often reach deep into 8 digits.
    – Aganju
    May 16 '17 at 11:16
  • 3
    @Griffin Well, this isn't a Marxist economy. Leaders of companies that make billions of dollars of income for their shareholders can earn millions in compensation. Whether that's right or not is a separate question and off-topic for this site.
    – D Stanley
    May 16 '17 at 13:26

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