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Making Insider Trading Legal

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Re: Making Insider Trading Legal

#101

Post by rhino369 »

mark_l_watson wrote: post #93

Insider trading is just one more thing that increases income inequality. Not surprised that the Supreme Court passed on this. A little off topic but I am so pissed off that US Congress members have passed laws that make themselves and their assistants immune to being prosecuted for insider trading. You know the system is getting more corrupt when such bad behavior is not even hidden from public view.

Congress didn't make itself immune to insider trading. In fact they recently made it illegal for congressmen to trade based on confidential information.

The reason it wasn't illegal for them before the recent law was because they weren't insiders. Congressmen do not owe a fiduciary duty to third party companies. And they don't owe congress or the government confidentially for stuff they learn on the job.

In fact the whole insider trading rules were not even passed by congress. It's a mix of SEC regulation and essentially federal common law that created insider trading law.

Also congress wasn't really immune. If a congressman payed Tim Cook for Apple info, that would have been illegal.

Re: Making Insider Trading Legal

#102

Post by lmm »

JacobH wrote: post #58
Natanael_L wrote: post #42

Earlier quoted context omitted.

But there's also bad incentives tied to it - with inside information, you're incentivized to keep others in the dark so that you can maximize the impact of your trades. Things like borrowing money to short stocks in a company likely to go bankrupt, while telling people to buy.

Telling people to buy stock you shorted is a bad idea. You're goal is for the stock to go lower.

Yeah but conversely you want to talk the price up before you lock in your short so that you get in at a better price.

Re: Making Insider Trading Legal

#103

Post by evanpw »

mrchicity wrote: post #90
evanpw wrote: post #87

Earlier quoted context omitted.

I agree that there are legitimate reasons to restrict insider trading, but I think that the "fairness" angle distorts more than it illuminates. Warren Buffet's trading plans for next year are not available to me at any price, and he can probably be 95% confident that after announcing he owns a stake in some company the price will jump, but I (and probably you) don't think that means he should go to prison.

Anyone buying a lot of shares will move the price up. Buffett makes money because he buys shares under their future value despite moving prices in the short-term, not because of it. Anyone can try to become as smart as Buffett, hire away his analysts, and so on.

> Anyone can try to become as smart as Buffett, hire away his analysts, and so on.

Anyone can try to schmooze corporate insiders so that they tell you some juicy information. And that seems a lot easier (theoretically and empirically) than becoming Warren Buffett.

Re: Making Insider Trading Legal

#104

Post by refurb »

newjersey wrote: post #43
maxerickson wrote: post #17

Earlier quoted context omitted.

Yes. I'm not a lawyer and all that, but counting trucks on the street wouldn't be nonpublic information, even if it is more available to some group of outside people. I think it is also clearly the case that concrete insider knowledge will be considered differently than deductions. This goes on and on about the meaning of the term: http://www.investopedia.com/exam-guide/cfa-level-1/ethics-st...

OK, lets get the camel's nose inside the tent. Imagine I am a janitor who works at Acme Inc. I notice that the board meets every Tuesday at 2:00 PM and they always laugh and seem to have fun. I can't hear anything behind the glass doors but it seems that they are all merry. Now, fast forward some time and I see that the meetings are not merry any more. It looks like there is a lot of yelling and banging on the confer…

The SEC would say yes. There was an employee who worked at a rail yard who noticed certain visitors and other things and decided to buy the stock. The company was purchased shortly thereafter.

How did a couple of railroad yard workers catch wind of a multibillion-dollar leveraged buyout? The complaint says they suspected something was up when they saw “people dressed in business attire” taking tours of the rail yards. It suggests their curiosity was further piqued by a day-long rail trip the Fortress folks took in a special train car reserved for visitors.

http://dealbook.nytimes.com/2010/10/01/s-e-c-charges-railroa...

Re: Making Insider Trading Legal

#105

Post by wavefunction »

thaumasiotes wrote: post #92
joe_the_user wrote: post #78

Earlier quoted context omitted.

Theft benefits the thief while costing the person stolen from. If one can backup and use a fuzzy enough lens, one can just ask "how should society calculate the total benefits here" but the problem is this begs the question of whether it's proper for the state to just ask these questions. My impression is that none of the insider trading proponents are also proponents of the view that it's not theft to take money tha…

> Theft benefits the thief while costing the person stolen from. > If one can backup and use a fuzzy enough lens, one can just ask "how should society calculate the total benefits here" but the problem is this begs the question of whether it's proper for the state to just ask these questions. But in the case of insider trading, there is no such person. Lambdapie identifies that there is a cost (yes!), but that cost o…

What if you considered the lost "profit" the non-insiders would have made from buying at 100 rather than 105, or 103, or whatever price results from normal speculative activity?

Re: Making Insider Trading Legal

#106

Post by lmm »

thaumasiotes wrote: post #94
mrchicity wrote: post #80

Earlier quoted context omitted.

The other difference is that inside information isn't available on a reasonable and non-discriminatory basis. Traders pay for advantages all the time: Bloomberg terminals, news services, hire better analysts, pay someone to count cars in store parking lots, purchase faster computers or data feeds, but anyone else can do the same. Some players have an advantage, but the playing field itself is relatively level. With i…

> With inside information, it's not available to people outside the tipping network at any price. Let's take a stylized version of a recent insider-trading case: - A company ("Conglomacorp") employs someone ("Big Mouth") to dispense inside information to investors. Usually he does this by sitting in his office and answering phone calls. (This is common, and definitely legal.) - A particular investor ("Shylock") devel…

"Reasonable and non-discriminatory" is a technical term, and I think it covers this case. If the company accepts everyone's calls, or everyone who owns more than x% of their stock, or charges you $y/minute, it's fine for them to reveal information that way. Revealing information to individuals that Big Mouth personally decides to go to dinner with is not ok.

Re: Making Insider Trading Legal

#107

Post by thaumasiotes »

lmm wrote: post #106
thaumasiotes wrote: post #94

Earlier quoted context omitted.

> With inside information, it's not available to people outside the tipping network at any price. Let's take a stylized version of a recent insider-trading case: - A company ("Conglomacorp") employs someone ("Big Mouth") to dispense inside information to investors. Usually he does this by sitting in his office and answering phone calls. (This is common, and definitely legal.) - A particular investor ("Shylock") devel…

"Reasonable and non-discriminatory" is a technical term, and I think it covers this case. If the company accepts everyone's calls, or everyone who owns more than x% of their stock, or charges you $y/minute, it's fine for them to reveal information that way. Revealing information to individuals that Big Mouth personally decides to go to dinner with is not ok.

Despite the fact that it's the same information? There's no distinction, in the example, between information that it's OK for Big Mouth to disclose and information that he can't disclose. Such forbidden information might exist and be known to Big Mouth, but Shylock didn't receive it. How can the only problem be that it was disclosed outside business hours?

Re: Making Insider Trading Legal

#108

Post by lmm »

newjersey wrote: post #43
maxerickson wrote: post #17

Earlier quoted context omitted.

Yes. I'm not a lawyer and all that, but counting trucks on the street wouldn't be nonpublic information, even if it is more available to some group of outside people. I think it is also clearly the case that concrete insider knowledge will be considered differently than deductions. This goes on and on about the meaning of the term: http://www.investopedia.com/exam-guide/cfa-level-1/ethics-st...

OK, lets get the camel's nose inside the tent. Imagine I am a janitor who works at Acme Inc. I notice that the board meets every Tuesday at 2:00 PM and they always laugh and seem to have fun. I can't hear anything behind the glass doors but it seems that they are all merry. Now, fast forward some time and I see that the meetings are not merry any more. It looks like there is a lot of yelling and banging on the confer…

If the information isn't market-moving (i.e. would not cause a reasonable investor to change their prices - a judgement for the court) then you're in the clear.

If it is market-moving and Acme lets you share that information then they're violating Reg FD.

If it is market-moving and the person you talked to knows that you weren't supposed to share it, that's insider trading. When does the court say they should have known that you weren't supposed to share the information? When they know that you received a personal benefit for it (or a few other circumstances e.g. they know you agreed to keep it confidential).

This is particularly important because often these cases are about investor relations people rather than janitors. If an investor relations person tells a trader something, they can trade on it. If a trader bribes an investor relations person to tell them something, they can't trade on it. (The law aligns with common sense here IMO). Now, what if an investor relations person tells an intermediary something, and then they tell a trader that thing, and the trader trades on it? The law here is that the trader has to know that the investor relations person was bribed - because otherwise they have no reason to think they're committing a crime.

Re: Making Insider Trading Legal

#109

Post by mrchicity »

lmm wrote: post #106
thaumasiotes wrote: post #94

Earlier quoted context omitted.

> With inside information, it's not available to people outside the tipping network at any price. Let's take a stylized version of a recent insider-trading case: - A company ("Conglomacorp") employs someone ("Big Mouth") to dispense inside information to investors. Usually he does this by sitting in his office and answering phone calls. (This is common, and definitely legal.) - A particular investor ("Shylock") devel…

"Reasonable and non-discriminatory" is a technical term, and I think it covers this case. If the company accepts everyone's calls, or everyone who owns more than x% of their stock, or charges you $y/minute, it's fine for them to reveal information that way. Revealing information to individuals that Big Mouth personally decides to go to dinner with is not ok.

https://en.wikipedia.org/wiki/Regulation_Fair_Disclosure

Re: Making Insider Trading Legal

#110

Post by maxxxxx »

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.

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