What are Directors Dealings?

Directors Dealings and insider sales can be summarized under the term insider trading. In English, the term Directors Dealings is commonly used.

These are purchases and sales of stocks by individuals who have insider information about the respective company.

But who is even considered an insider?

An insider is aware of non-publicly known circumstances surrounding publicly traded companies, which can have a significant impact on the price - for example, because they have obtained this insider information due to their profession.

An insider information can be the knowledge that a listed company is about to undertake a capital measure or acquire a significant stake.

An insider is not necessarily a person with a professional connection to the issuer. It can also refer to close family members and individuals residing in the same household.

Insider trading is prohibited.

It is important to understand that insider trading is prohibited.

A publicly traded company must disclose all information that could potentially affect the stock price as soon as possible. It is illegal for an insider to buy or sell shares based on this information that has not yet been disclosed.

So it should be clear that the published insider trades usually do not refer to trades that have a significant short-term impact on the stock price of a publicly traded company.

Rather, insider trades are about an insider's belief in a positive or negative future development of the company.

However, the normalization of (legal) insider trades does not mean that they cannot have an impact on the stock price.

Insider obligations

If you are a member of the executive board, the supervisory board, or a top-level executive of a publicly traded company and you buy or sell shares of your own company based on insider information, you must notify the company immediately (within 3 business days).

The company must then promptly (within 2 business days) disclose this information.

The same applies to family members of the mentioned individuals and other involved parties, such as legal entities closely associated with the insider, fiduciary institutions (e.g. foundations), or partnerships.

The reporting threshold has been set at 20,000 euros per calendar year since 2020 (previously 5,000 euros).

The mentioned information pertains to German companies.

How does the Eulerpool Directors Dealings Tool work?

With the Eulerpool Directors Dealings Tool, you can easily find out which Directors Dealings are available at German companies in the last 7, 30, or 365 days occurred. Directors Dealings of shares from the USA will be added in the near future.

In principle, you have two options to use the Directors Dealings Tool:

• Search for directors dealings of a specific stock within the timeframe of 7, 30, or 365 days.
• Search for all directors dealings in the period of 7, 30, or 365 days.

Option 1: Search for directors dealings of a specific stock.

If you want to check whether there has been any insider trading activity for a particular stock recently, you can search for it using the stock's name or the stock's ISIN.

Option 2: Search for all directors dealings

If you want to know which Directors Dealings have occurred in all German stock companies recently, Eulerpool's Directors Dealings Tool can also help you.

Simply call up the page and select the desired time period, and you will immediately see all Directors Dealings in the table. But how do you read the table?

So how to read the table

The table consists of the following 6 columns:

• Issuer
• ISIN
• Purchase volume
• Sales volume
• Number
• Difference

Issuer/ISIN

With the names (issuer) and ISIN, you can uniquely identify a stock. By clicking on both parameters, you will get more information about insider trading for the selected stock. But more on that later.

Purchase and Sales Volume

When looking at the buying and selling volume, you can see how much volume of stocks has been traded in insider trades. For example, if a stock is worth 100 euros and an insider buys it 100 times, you will see a value of 10,000 euros in the buying volume column. If an insider has sold stocks for the same amount, you will see the 10,000 euros in the selling volume.

Difference

The difference is calculated by the buying and selling volume. If an insider trading transaction involves buying a volume of 100,000 euros, but only selling 50,000 euros, you will see a green value of 50,000 euros in the difference. In the case of a negative difference, you will see a red number with a minus sign in front. This indicates that more shares were sold than bought in insider trades.

Number

The number indicates how much insider trading has occurred at the respective company. Both purchases and sales are included here.

Sort table

Now you know how to read the table. However, if you use option 2, you still need to sort the results. At Eulerpool's Directors Dealings Tool, you can sort all columns from top to bottom (or vice versa).

If you click on, for example, "purchase volume", the results will be sorted in descending order based on purchase volume as the leading criterion. If you click on it again, the sorting will change from descending to ascending.

The same is also possible with all other columns. Every time you click on the respective column, it will become the leading criterion for sorting the results.

You can customize the results for insider trading according to your preferences. If you have found a stock that is noticeable to you, for example, due to a high number of directors dealings or a significant difference, you naturally want to gather more information. As mentioned briefly before, the Directors Dealings Tool from Eulerpool also assists you with that.

Further information about insider trading

By clicking on issuer or ISIN, you will be directed to a page with further information about the company. In addition to the business model and stock price of the company, you can see how much insider trading has occurred in the last 7, 30, and 365 days (number, difference).

As a special highlight, you can see in the table notifications who exactly made the insider trade. In addition to the obligated party, you can see the volume of the trade, the insider's position (including close relationship, executive board), the stock price at the time of the trade, the number of shares traded, and the date of the trade. This way, you can track all directors dealings in detail.

Now you can start further research and find out with qualitative information what exactly led to the insider trade.

Where does the data on insider trading come from?

Finally, the answer to an important question. We obtain the data from the Eulerpool Directors Dealings Tool directly from the Federal Financial Supervisory Authority (BaFin).

For the Directors Dealings of stocks from the USA, we will rely on data from the United States Securities and Exchange Commission (SEC) in the future.

We are also providing the Equity Screener with the highest possible data quality.

Why insider trading is prohibited and how you as an investor can still benefit from it.

In the section "What are Directors Dealings?" we have informed, among other things, about the duties of insiders. But why does insider trading actually have to be reported?

Insider trading can influence the price.

To repeat: In the case of publicly traded companies, any information that could affect the stock price must be disclosed. This is clear to everyone when it comes to Quarterly results and the like. However, directors' dealings can also influence a stock price.

Let's imagine that the CEO of a company, which has reported excellent numbers recently, suddenly sells a larger portion of his own stocks. If you are invested in this company, the CEO's stock sale would definitely be relevant information for you. Perhaps the sale is an indicator of weaker future performance or other deficiencies within the company. After all, if the CEO doesn't have the best information about the company, then who does?

If the CEO were not required to disclose his sale, you will understand why (undisclosed) insider trading is prohibited. The CEO has eliminated an unfair advantage by having access to privileged information compared to the investors.

Of course, it is also prohibited and even illegal if, for example, the CEO buys or sells stocks based on ad-hoc mandatory information. If he knows, for example, about an impending bankruptcy that is not yet publicly known, he is not allowed to sell any stocks.

Basically, in Germany, insider trading is also prohibited during the publication of Quarterly results and during the period of the initial public offering (IPO).

In summary, it can be said that without these mechanisms, the functioning of the capital market would be at risk.

You can benefit from insider trading.

Since insider trading must be disclosed, as a private investor you can benefit from it.

However, it is important to note that a decision for or against a stock should never be based solely on insider trading. Ultimately, only the pure fact of the purchase or sale is initially at stake. The reasons behind it will only be known later, or in many cases, not at all.

It should also be considered that executives are often biased towards their own company. Accordingly, they may perceive the future of the company more positively than it actually is and buy stocks of the company based on this perception. In such cases, there are no insider information available. It is also possible that executives may intentionally purchase stocks in order to positively influence the company's stock price.

Who is the insider?

Another important question when evaluating an insider trade is: Who is the insider in the first place? In general, the following can be stated: The higher-ranking the insider, the more relevant the insider trading. The reason for this is logical, as a higher-ranking person will generally have the best information.

Assessing directors dealings and sales differently

To conclude this chapter, we want to highlight an important point from our perspective. Namely, that purchases and sales should not be considered equivalent.

Directors' dealings are a (slightly) positive indicator.

We can ask ourselves the simple question of why we buy a stock. The answer is in 99.9% of cases, because we want to achieve a positive return. And likely, executives also buy stocks for the same reason in the majority of cases.

As mentioned in the previous section, there may not necessarily be groundbreaking insider information here.

However, an insider purchase can still be a (strongly) positive indicator. But only if the insider buys the stocks with their own money. On the other hand, stocks or options packages as part of compensation are not a positive indicator, as no conscious decision is made for the company in this case.

Even more positive is to see a company where there have been several purchases by one person or purchases by multiple persons recently. In such a company, a more in-depth analysis is recommended. You can find these companies using Eulerpool's Directors Dealings Tool.

Insider sales are a (strong) negative indicator.

geben, warum ein Investor Aktien verkauft. Allerdings sollten Anleger vorsichtig sein, wenn größere Verkaufsaktionen von Vorstandsmitgliedern oder institutionellen Investoren stattfinden. Diese Art von Verkaufssignalen kann auf Probleme oder Unsicherheiten im Unternehmen hinweisen und dazu führen, dass der Aktienkurs sinkt. Es ist ratsam, solche Verkäufe genau zu beobachten und die Hintergründe zu analysieren, bevor man selbst eine Verkaufsentscheidung trifft. Bei Verkäufen ist es wichtig, einen kühlen Kopf zu bewahren und nicht rein panikgetrieben zu handeln. Statt blind zu verkaufen, sollte man sich mit den Fakten auseinandersetzen, eine fundierte Entscheidung treffen und möglicherweise auch die Meinung eines Finanzberaters einholen.

But when it comes to insider sales, it is probably worth taking a closer look than with directors dealings. Especially when the company is actually doing well externally.

It is also important to know how many own shares the insider sold. At 5%, it is naturally less relevant than at 50%.

If a CEO, for example, sells, then one should definitely take a closer look.

Always assess the context.

But here too, the same applies. Without a context, it is difficult to accurately translate the text. However, based on the provided information, here is a possible translation: Without a context. It is difficult to assess the whole. This becomes clear with an example from the recent past.

Elon Musk has sold billions of dollars' worth of shares as CEO of Tesla. Without context, this headline would likely imply a (strongly) negative impact on Tesla's stock. However, since the sale was made to finance the acquisition of Twitter, the sale can be seen in a different (more positive) light.

We do not want to make a statement about the sense or nonsense of these measures, but rather illustrate how strongly the context categorizes insider trading.

What does science say about insider trading?

To conclude the article, we would like to briefly discuss what science says about insider trading. Because insider trades have already been examined in a variety of scientific studies.

In general, it can be stated that insider trades can provide information about future returns. In this regard, directors' dealings on average have a greater positive impact on the stock price than insider sales have a negative impact on it.

The science also confirms that insider trades by higher-ranking individuals have a greater impact on the stock price.

Also just logical. The larger the trade, the more relevant. The more people make the trade, the more relevant.

Finally, however, there is one new piece of information from science for this article. It has been found that insider trades have a greater impact on the price of smaller companies than on larger ones.

Further scientific information can be found, for example, at 2iQ Research and The Evidence-Based Investor.