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Making Insider Trading Legal

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Re: Making Insider Trading Legal

#131

Post by dllthomas »

lumberjack wrote: post #52
enraged_camel wrote: post #19

Earlier quoted context omitted.

I don't think that's true. If you have a friend on the executive board of pharma company X, and he confides in you over the phone that the internal trials for the company's next big drug failed big time and they're going to announce the results to the public tomorrow, and you dump the stock... that's insider trading. It wasn't theft. The information was willingly given to you by an insider. And it's a crime because y…

>It wasn't theft. The insider had no right to divulge that information. I don't care whether it's technically theft but it is definitely immoral, and should definitely be illegal. If I'm busting my ass off in a startup I sure as heck don't want my buddy to sell or give away our trade secrets to the competition.

"sell or give away our trade secrets to the competition."

That's an entirely different question.

Re: Making Insider Trading Legal

#132

Post by kbenson »

wavefunction wrote: post #95
giaour wrote: post #75

Earlier quoted context omitted.

If you pay someone to predict stock movements, and they come to you and say, "short Dell and do not ask me why," you would probably act on that information. After all, you're already employing them for their stock market expertise. As a private citizen without an army of analysts, you would probably subject their claim to more scrutiny. It sounds like insider trading is only "legal" now if you own a hedge fund.

But if you're employing someone to predict stock movements, you presumably are paying them to provide you with advice that will result in profit rather than loss which would make the "why" somewhat implicit. As well, a major red-flag should be raised should anyone tell you "do not ask me why." Insider trading is legal now if you are powerful and wealthy and not an appropriate candidate for some sort of selective enfo…

I can imagine if your job is to predict stock movements and you are hired for those predictions (as a company, not as an employee), then I can imagine not wanting to hand out the analysis, as that could then be shopped to others. Without your reputation and/or analysis, someone reselling your predictions is less likely yo be successful.

That said, if you are employed by the company, the work and the product is all owned by them, so there's no reason not to provide all information when asked.

> Insider trading is legal now if you are powerful and wealthy and not an appropriate candidate for some sort of selective enforcement of the laws, it seems.

I think you can replace insider trading in that statement with just about any other criminal act and it's still mostly true, in most parts of the world.

Re: Making Insider Trading Legal

#133

Post by jostmey »

lmm wrote: post #111
jostmey wrote: post #86

I naively assume that the only way to succeed big in wall street is to rely on insider information. The rules against insider trading only hurt those trading at home believing the playing field is level. But I don't know how it really works.

In a perfectly efficient market with perfect information there's no profit to be made. So to make money you either have to be more efficient - either by market-making where you do millions of small trades, or the kind of value investing where you just buy what other people are selling and vice versa and hold them for a while - or you have better information. (Which doesn't have to mean inside information. It's certai…

A perfect market, which is a stupid assumption, can indeed make profit. You are assuming that an economy is a zero sum game but it is not. Transactions are made because both parties come out ahead.

Re: Making Insider Trading Legal

#134

Post by Natanael_L »

nanis wrote: post #125
Natanael_L wrote: post #74

Earlier quoted context omitted.

When those insiders represents a minority (in capital available to trade with), the positive effects of their trades from improved price signals can be far smaller than the negative effects from the bad incentives created. Consider a government administrator trading with relatively small sums, knowing what effect his unpublished decisions will have. He can make gains that are large for him, while causing significant…

I said free and legal insider trading by everyone. People in the company would also be able to trade on their information regarding potential government actions etc. Markets are information aggregators.

Some people have very disproportionate access to accurate information, and this disproportionate power and influence. You can't dismiss the harm abuse of that can cause. Just look at all the staged games done for the sake of betting profits.

Re: Making Insider Trading Legal

#135

Post by Gibbon1 »

thaumasiotes wrote: post #91
joe_the_user wrote: post #61

Earlier quoted context omitted.

It seems like some constituency likes the idea of legalizing insider trading so much that they grasp at a variety of straws in an effort to find some analogous place where it would be legal. But these are very thin reeds. "Suppose I have a business where I get stuff to sell on a 'don't ask, don't tell basis', that would be totally legal and no one would complain..." sure "It's just information, information shouldn't…

> Those who buy a stock on an insider get money - meaning those who sold the stock lose it. This is definitely not true; those who buy a stock on inside information are buying from people who independently decided it was a good time to sell their stock. Those people are likely, in the counterfactual universe, to sell their stock anyway. And while a shop foreman might be guilty of theft for shutting down a shop in res…

This definitely is true. If the other party had the same information they would have sold or bought at a different price point. (or maybe not at all+) That has to be because that's the attraction of insider trading, I know something that will cause you to misprice the trade in a way that benefits the insider trader.

+ Consider the person trading in insider information, namely that Cogswell's Cosmic Cogs has agreed to buy Spacely Space Sprockets at $12/share. Someone with stock in Spacely Space Sprockets would likely chose not to sell at the current market rate of $9.25/share if they knew that.

Re: Making Insider Trading Legal

#136

Post by peteretep »

mstade wrote: post #20

> Many people on Wall Street felt that Bharara’s crusade against insider trading was recklessly broad: An analyst like Horvath might knowingly obtain an illegal tip, but if he feeds his information up the chain to a Steinberg or a Cohen, and they take his word that he is not passing along stolen goods, should they really go to prison for that misplaced faith? Is it fair to convict someone of engaging in insider tradi…

    > dealing in stolen goods is in fact illegal,
    > regardless of whether or not you knew the goods were
    > stolen in the first place
This is called strict liability: https://en.wikipedia.org/wiki/Strict_liability

Re: Making Insider Trading Legal

#137

Post by nanis »

Natanael_L wrote: post #134
nanis wrote: post #125

Earlier quoted context omitted.

I said free and legal insider trading by everyone. People in the company would also be able to trade on their information regarding potential government actions etc. Markets are information aggregators.

Some people have very disproportionate access to accurate information, and this disproportionate power and influence. You can't dismiss the harm abuse of that can cause. Just look at all the staged games done for the sake of betting profits.

So, the situation will be no worse than it currently is, but with the upside that more information would be available, and tons of money would not be wasted on stupid investigations.

I do recommend you watch "American Greed" on CNBC.

Re: Making Insider Trading Legal

#138

Post by Natanael_L »

nanis wrote: post #137
Natanael_L wrote: post #134

Earlier quoted context omitted.

Some people have very disproportionate access to accurate information, and this disproportionate power and influence. You can't dismiss the harm abuse of that can cause. Just look at all the staged games done for the sake of betting profits.

So, the situation will be no worse than it currently is, but with the upside that more information would be available, and tons of money would not be wasted on stupid investigations. I do recommend you watch "American Greed" on CNBC.

Except it would, abuse would be entirely risk free

Re: Making Insider Trading Legal

#139

Post by thaumasiotes »

Gibbon1 wrote: post #135
thaumasiotes wrote: post #91

Earlier quoted context omitted.

> Those who buy a stock on an insider get money - meaning those who sold the stock lose it. This is definitely not true; those who buy a stock on inside information are buying from people who independently decided it was a good time to sell their stock. Those people are likely, in the counterfactual universe, to sell their stock anyway. And while a shop foreman might be guilty of theft for shutting down a shop in res…

This definitely is true. If the other party had the same information they would have sold or bought at a different price point. (or maybe not at all+) That has to be because that's the attraction of insider trading, I know something that will cause you to misprice the trade in a way that benefits the insider trader. + Consider the person trading in insider information, namely that Cogswell's Cosmic Cogs has agreed to…

> If the other party had the same information they would have sold or bought at a different price point. (or maybe not at all+) That has to be because that's the attraction of insider trading

This doesn't follow at all. Trades happen all the time between people with the same information. Under your theory, that's impossible.

It's also not particularly relevant to the main point. The idea of banning insider trading isn't to reflect inside knowledge in the price instantly -- that would be accomplished by encouraging insider trading. The idea is to prevent people with inside knowledge from trading. People who sell to someone trading on inside knowledge get a little bit more money (due to higher demand) than they otherwise would have. They miss out on gains that the person with inside knowledge predicted, but that they also miss in the relevant counterfactual (when they sell to someone else with no inside knowledge).

A few end up selling when, in the world without the insider, they wouldn't have. Those people can't be identified and quite plausibly realize the same gain under either scenario, for example, if they have a standing order to sell at X price.

Re: Making Insider Trading Legal

#140

Post by evanpw »

maxxxxx wrote: post #110

The only chance for the regular guy to make money for retirement is through the stock market. No pensions and polices like 401k and low interest pretty much leave no other chance. I am fine if Wall Streeters rip off each other but with the regular guy pretty much forced into the stock market I think there should be very tight regulation and certainly no insider training.

For a regular guy, investing in the stock market is a great idea, but trading stocks is a terrible one. (In other words, index and forget it). If you don't trade much, then insider trading is probably more likely to benefit you than harm you, since it leaks information, making prevailing prices more accurate.
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