£10.00 and Falling: The Resting Order That Could Make You an Insider

It is 9:47 on a Tuesday morning.

Yesterday, you did something completely ordinary. You looked at XYZ plc, decided it was worth owning, and placed a limit order to buy at £10.00 for the firm's book. The stock was trading at £10.20 at the time. Nothing clever, nothing dramatic just a routine investment decision made in good faith, with nothing in your head but your own analysis.

Then this morning happened.

A few minutes ago, inside information landed on your desk. XYZ is going to issue a profit warning tomorrow. Material, non-public, and unambiguously bad. The kind of thing that moves a share price by double digits.

Your order is still resting. It hasn't filled. XYZ is now trading at £10.15 and ticking down towards your £10.00, towards the moment your good-faith order from yesterday quietly executes while you sit there knowing exactly what is coming.

You have, by your own estimate, a couple of minutes. Maybe less. You can leave the order where it is, or you can cancel it.

Take a moment to think. Honestly. What would you do?

This is the moment the trap closes, because under the Market Abuse Regulation, there is a serious argument that both of those choices are insider dealing. Article 8 of MAR prohibits acquiring a financial instrument while possessing inside information about it. The execution is the acquisition. You possessed the information. You have just bought XYZ as an insider, but if you cancel the trade you’ve benefitted by having inside information and avoiding a loss, which seems like it must be against the intention of the regulation too.

Two moves, each with a regulator's argument waiting behind it. Welcome to one of the genuinely hard problems in market abuse and one that most traders have never thought about until the price is two pence away from filling and you must make a rushed decision.

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Here is the word the whole thing turns on, and it is easy to miss because it does so much quiet work: ‘use’. 

MAR doesn't prohibit possessing information while you have a resting order. It prohibits using it. And the presumption in Recital 25, the one that says cancelling equals insider dealing, is explicitly rebuttable. You can defeat it if you can establish that you did not use the inside information when you acted.

That single word is the difference between a tidy rule and the messy reality. It means the answer to "should I leave it or cancel it?" is not buried in the order book. It is buried in why you did what you did and, crucially, in whether you can prove it.

This is why the honest expert answer to "leave it or cancel it?" is so maddening: it depends, and it depends on things that happened before this morning ever arrived.

The things that actually change the answer

1. Which way the information cuts. Our trader has a buy order and bearish information. That is the kindest version of the dilemma; leaving the order in place produces a loss, which is hard to characterise as "use." Now flip it. Imagine you hold a position and a resting sell order, and you receive bullish inside information. Cancelling theat sell order so you can ride the good news up isn't ambiguous at all. That is using inside information to capture a gain, full stop. The direction of the trade against the direction of the information tells you how close to the cliff edge you are standing.

2. Whether your firm has a blanket cancellation policy written before today. Some firms operate a standing rule: the moment any desk becomes an insider in a name, all resting orders in that name are cancelled, automatically, no judgement, no discretion. This isn't a loophole, and it isn't cheating, even though it can sound like both. A pre-existing, documented policy changes the character of the cancellation. You didn't decide to pull the order this morning because the news was bad; the firm decided months ago to pull every order in every insider name regardless of which way it cut. That is compliance acting, not a trader using information. The MAR Q&A guidance accepts that such policies are not automatically insider dealing. But, and this matters, it still has to be assessed case by case. The policy doesn't grant immunity. The discipline is everything: the policy only protects you if it genuinely fires every time, not just on the days it happens to save or make money.

   
   

3. Whether you actually possess the information at all. Picture the trader ten feet away who is happily working XYZ, cancelling and placing orders, doing whatever they like. Same firm, same stock, same morning. If the information barrier is properly maintained, with the inside information genuinely walled off on the other side, then that trader is not an insider in this name. They don't possess the information, so they cannot be using it. The barrier isn't there to let some people get away with it; it's there so that the whole firm doesn't have to freeze every time one team becomes an insider. The question is never "does anyone at the firm know?" It is "do you know?"

4. Whether it's your book or the client's. Everything above assumes the firm's own principal book. Flip it to a client's execution-only order and the logic changes. The client can cancel their own order, and they can instruct you to cancel it for them; that is their prerogative, and you generally act on it. What you absolutely cannot do is refuse and explain why: telling the client "you can't cancel that" could tip off the client that you're sitting on inside information, which is potentially unlawful disclosure. Your firm’s role is to execute the instruction, watch for genuinely suspicious patterns, and escalate to compliance, and potentially raise a STOR, if something doesn't smell right. The same set of facts, a different account, a different answer.

So what do you actually do at 9:48?

Here is the part that survives the controversy. The reason this scenario is so uncomfortable is that, by the time the price is two pence from filling, most of the decisions that protect you have already been made or not made. The real work happened before this morning.

If you want to come out of this clean:

You should have a blanket cancellation policy decided in advance, applied without exception, so that when this morning arrives the action is automatic and the reason is documentary, not discretionary.

You should have robust information barriers so that the question of who actually possesses the information has a clear, defensible answer.

And in the moment, whatever you do, you document it contemporaneously and you call compliance before you act, not after. Write down what you were told, when and how the information reached you, what you did, and why. The “why" should be able to stand on its own without the benefit of hindsight. The trader who pauses for ninety seconds, weighs the news, and then pulls the order looks very different from the one whose firm cancels automatically the instant the wall goes up. Timing is evidence. Deliberation is evidence. Selectivity, cancelling when the news is “bad” but leaving orders alone when it's “good”, is the most damning evidence of all.

The honest bottom line

People want the gun-to-the-head answer. Leave it or cancel it - right now.

The honest answer is that in this specific scenario (buy order, bearish information, proprietary book, no policy, no time) leaving the order to execute and take its loss is the easier position to defend, precisely because a loss is so harder to recast as the proceeds of insider dealing. But that is a long way from "safe," and it is not advice you should act on cold, because the moment you change one fact (the direction of the trade, the existence of a policy, the account it sits in)  the answer can move underneath you.

The framework tells you the test ( did you ‘use’ the information? ) and then hands you the burden of proving the answer. It is not a trap designed to catch you. It is a standard that assumes you will have done the necessary, unglamorous work ( the policy, the barriers, the documentation, the training) long before the price came falling towards your order.

Which is the real lesson, and the one worth sharing: the time to win this argument is not at 9:48 on the Tuesday the information lands. It is on every ordinary day before it.

If you enjoyed thinking through the dilemmas in this scenario, you’ll love the over 1,000 scenarios, that just like this one you need to be ready for, to be found in our MAR360 Academy “Certification in Market Abuse” training course here.

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This article is for general information and training purposes and does not constitute legal advice. Specific situations should always be referred to your compliance and legal teams.