Is it legal if I use certain information in the stock market before I pass it to my clients?

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Is it legal if I use certain information in the stock market before I pass it to my clients?

I’m building an app where I give stock ideas to my clients on the basis of
incoming breaking news i.e buy or sell a stock on the basis of the incoming
news. The clients have to take a monthly subscription. Is it legal if I pass on
the information to my clients after a 5-10 second delay i.e. time required for
me to act on that news?

Asked on September 24, 2017 under Business Law, Illinois

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

It's not even remotely legal. First, under the Investment Advisors (or "Advisers") Act, you may well have to register as an investment adviser (i.e. there is a considerable likelihood you must register) and, if you do, are bound by a fiduciary duty which would make giving yourself an advantage over your clients illegal. (And if you are required to register but do not, that is itself illegal.) You are strongly advised to study this Act and compare it to the details of what you propose to do to see if you must register and, if so, to understand the strictures then placed upon you.
Second, unless you are telling your clients that you are "front running" by trading ahead of them, you will be committing fraud. To avoid committing fraud, you would have to discose to people signing up for your service that it's not real time, but is time-delayed so you can act first.
 


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