Chapter 227 - Chapter 227: Insider Trading
"This is just my speculation, but you engaged in a pseudo-short sale using spot stocks as the underlying asset for index futures and standard futures, didn't you?"
When Steve said that, Aurora laughed. Beatrice was confused, unable to grasp the meaning.
So, Steve explained.
"The price of stock index futures is calculated from spot stocks. In the past, there were often large discrepancies between futures and spot prices, but now arbitrage traders correct those discrepancies immediately. In other words, there is almost no discrepancy. Buying futures is the same as buying the same amount of spot stocks. However, futures have leverage applied to them. Do you understand up to that point?"
"Yes."
Beatrice nodded.
"Then let's continue. Buy the same number of spot stocks as the number of futures sold. No matter how wildly the price moves after that, there will be no profit and no loss. If you deliver the spot stocks on the futures settlement date, it ends with a loss limited to just the fees. But, if there are stocks certain to drop in price, and you simply don't buy those specific stocks, the amount by which those stocks would have dragged down the index becomes your profit. In this case, that stock is Archibalt Steel."
Hearing Steve's explanation, Beatrice realized the truth.
Steve knew this because he had experienced it in his past life, and he was stunned that Aurora had thought of it herself.
Steve's experience was during the Great East Japan Earthquake. A hedge fund that wanted to short Tokyo Electric Power Company (TEPCO), which caused the nuclear accident, could not borrow TEPCO shares to sell. So, they bought 224 stocks other than TEPCO from the Nikkei Average constituent stocks and sold the same number of futures.
Of course, shorting TEPCO directly would require less capital, but since they couldn't secure borrowed shares, they had no choice but to do it this way.
And Aurora had reproduced this here.
"That means insider trading—"
Beatrice opened her mouth, but Aurora cut her off.
"It doesn't become insider trading. Insider trading is buying or selling stocks knowing undisclosed 'material facts' before their public announcement. There is no illegality in trading Archibalt Steel after other investors know about it. Even if you intentionally exclude Archibalt Steel stocks from arbitrage trading with futures, there is no illegality under current law. Even if laws are amended, they cannot be applied retroactively, can they?"
"I'm not a legal expert, but that's probably correct. Besides, you're someone who doesn't do uncertain things, so you must have confirmed it with a legal expert beforehand. Once Archibalt Steel stocks have fallen sufficiently and are about to rebound, you match the number of futures and spot stocks, and then you just need to settle both on the settlement date. You might even be able to dispose of them in the market before the settlement date. It is a truly brilliant technique."
When Steve smiled, Aurora puffed out her chest.
"So, are you going to continue the interrogation any further?"
Told by Aurora, Beatrice fell silent. There was nothing to be gained by continuing. She thought she wanted to escape this prickly mat as quickly as possible.
However, whether Aurora knew it or not, she did not allow Beatrice to leave the room.
Or rather, the correct situation is that Aurora has no intention of returning Steve, and Beatrice, who came using Steve's teleportation magic, has also become unable to return.
"Now, this is a family matter, but will you listen?"
At Aurora's question, Steve nodded.
"Of course. In fact, I was very interested in how this situation was caused. I was planning to ask you to tell us."
At Steve's reply, Aurora smiled with great satisfaction.
"First, the elimination of those who think of getting rid of this Alexa and taking over the Sowell family. When I told them to make good use of the information about Archibalt Steel's scandal, most of the grandchildren resorted to insider trading, but that was expected. I will officially declare that their inheritance rights will be stripped. If that happens, they cannot claim rights even after my death."
"So, 'first' implies there is something else, doesn't it?"
"Yes. The second thing is the education of this Alexa. Entrusting the Sowell family, which has now grown to a scale comparable to a nation, to her as she is now is too heavy a burden for this child."
Told by Aurora, Alexa felt a sharp pain in her chest.
She was indignant, though she didn't show it on her face, thinking she didn't have to say such things in front of others.
Aurora asked Alexa like that.
"Alexa, why didn't you commit insider trading?"
"Yes. As I am currently in the position of heir, I did not want to take the risk of engaging in illegal trading."
Hearing that, Aurora nodded.
"I see. You are that kind of child. In terms of not taking risks and maintaining the status quo, you are the best among the clan. You are incomparable to those who destroy themselves with greed. Furthermore, the way to deliver the final blow to those arrested for insider trading is undoubtedly the best use of this information."
Unexpectedly praised by Aurora, Alexa was taken aback. Thinking about the meaning of the task Aurora set, she realized that not rashly resorting to insider trading was the correct decision. Relief and joy rushed over her.
However, right after that, she was struck down.
"Nevertheless, maintaining the status quo leads only to decline. Deterioration comes with everything. Only by improving and expanding can you continue to maintain the status quo. Unfortunately, there is no heir candidate who can do that right now."
"So, you orchestrated this incident?"
At Steve's question, Aurora smiled gently.
"Yes. Just when I obtained information about Archibalt Steel's scandal, I plotted to sweep away those foolish enough to try to kick Alexa down and become the heir. And I gave that task to Alexa to see. Cooperating with the Securities and Exchange Surveillance Commission and taking a stance to make those people criminals was good. But there was more beyond that."
"To increase assets without violating insider trading laws, is that it?"
"Yes. Maintaining the status quo is not enough. I wanted to show them that there are such ways of thinking. If I had reached this point, I could have retired, you know."
"Only you could do that."
When said by Steve, Aurora's eyes shone.
"Does that mean I am special?"
"Yes. I am always surprised by your schemes."
"So—"
Aurora said that and remained silent for a while.