Is CME Group (Nasdaq: CME) headed higher, or lower? That's the question we ask when we evaluate insider buying and selling. We ask because the way in which executives spend their paychecks often reflects what they think of their companies' prospects.

Of course, not all buys are equal. According to two decades worth of research from Dr. H. Nejat Seyhun, compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when (a) it comes from the CEO or other top-level executive, and (b) it's performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.

How do CME Group's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating Bearish: Multiple sales, late summer buys at an 8%-14% discount to current prices.
Business Description A collection of exchanges for trading equities, commodities, options, and other derivatives.
Recent Price $285.90
CAPS Stars (out of 5) ***
Percentage of Shares Owned by Insiders 0.91%
Net Buying (Selling)* ($1.03 million)
Last Buyer (% Increase) Phupinder Gill, President
2,000 shares at $261.81 apiece on Sept. 2, 2010
(Increased direct holdings by 19%.)
Last Seller (% Decrease) CC Odom II, Director
100 shares at $286 apiece on Nov. 29, 2010
(Reduced direct holdings by 3%.)
Competitors CBOE Holdings (Nasdaq: CBOE)
IntercontinentalExchange (NYSE: ICE)
NYSE Euronext (NYSE: NYX)

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Nov. 29.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: bearish
Exchanges are attractive for a wide variety of reasons. Liquid markets need them, and panicky investors have made markets about as liquid as they've been in a while. In November, CME saw trading volume rise 31% year-over-year and 24% from a month earlier, Dow Jones Newswires reports.

A renewed appetite for interest-rate futures contracts helped drive the gains. Volume surged 46% during the month, to roughly 7 million contracts per day.

For those unfamiliar, futures contracts are like insurance. A contract (written by a seller) guarantees a rate (purchased by the buyer). In this case, businesses sensitive to rate fluctuations (i.e., banks, capital equipment makers, transport providers) may be positioning to protect themselves against the uncertain effects of U.S. monetary policy.

But that's over the short term. Does CME hold a long-term advantage? Some Fools point to the Dodd-Frank financial legislation as a growth catalyst, since the new law requires additional clearing of over-the-counter derivatives transactions. CME could be called upon to perform much of this legwork, and generate big fees in the process.

"Mercantile exchange has significant share of derivatives market. Could benefit from financial reform. This business scales pretty easily," wrote Foolish investor nwat25 in September.

If only insiders were behaving as if that were true. Instead, they're acting as if the stock is trading above fair value. Board members have sold more than $1 million worth of shares on the open market over the past year.

Director CC Odom II sold less than two weeks ago, while buyers were last seen over the summer -- at prices well below what the stock trades for currently. All of it adds up to a bearish trading pattern for an otherwise sturdy business.

That's why I'm avoiding this stock in my CAPS portfolio. Much as I'd like to add it, I think doing so at current prices would be a mistake. Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate CME Group. You can also add the stock to your watchlist.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here, reply to me on Twitter, or use the comments box below. I'll write this column as often as you, our readers, demand.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.