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Making Insider Trading Legal

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Re: Making Insider Trading Legal

#51

Post by evanpw »

pgeorgi wrote: post #36
Tomte wrote: post #23

Earlier quoted context omitted.

Which country is that? Does "illegal" mean criminal liability or just that the sale is void?

I suppose you already know about §259 StGB in Germany. (up to 5 years for handling goods that were stolen by somebody else)

I am not a lawyer nor a German, but Wikipedia says that German law has no strictly liability [1], which would seem to imply that knowledge (or at least belief or a willful lack of knowledge) that the goods were stolen would be necessary to prosecute that crime. Is that wrong?

[1] https://en.wikipedia.org/wiki/Strict_liability_(criminal)

Re: Making Insider Trading Legal

#52

Post by lumberjack »

enraged_camel wrote: post #19
Dylan16807 wrote: post #15

Earlier quoted context omitted.

"insider trading isn't about fairness, it's about theft"

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.

Re: Making Insider Trading Legal

#53

Post by evanpw »

Natanael_L wrote: post #42
bobcostas55 wrote: post #35

Earlier quoted context omitted.

You completely ignore the benefit of the more accurate price. Let's say the price of a share with the inside info is 110. It is now 100. The inside trader does cause some volume that wouldn't have happened otherwise, and moves the price to 105 -- to the detriment of someone who would not have traded otherwise. But then every subsequent trade is at a price closer to the true one, a clear benefit. It is true that great…

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.

> with inside information, you're incentivized to keep others in the dark so that you can maximize the impact of your trades

This is true of all professional trading.

> borrowing money to short stocks in a company likely to go bankrupt, while telling people to buy

This would be fraud, which is illegal independently of any insider trading rules

Re: Making Insider Trading Legal

#54

Post by bediger4000 »

nanis wrote: post #13

If everyone with inside information could trade on it without fearing the law, they would reveal the predicted effect of said information via movements in the price of the security. Therefore, free and legal insider trading would actually increase fairness in the market.

I agree, that narrow viewpoint of fairness would increase. But wouldn't the general perception of fairness decrease? I mean, all those Edward D. Jones strip mall and small town stockbrokers would probably loose business because of the perception that only bigtime Wall Street insiders can actually catch good deals.

Of course, the sleazier Edward D. Jones strip mall and small town stockbrokers would probably increase their own profitably in the short term by lying to customers about having insider info. It would work until the gullible customers were tapped out.

Re: Making Insider Trading Legal

#55

Post by evanpw »

Dylan16807 wrote: post #15
enraged_camel wrote: post #9

Earlier quoted context omitted.

Not sure why you're getting downvoted. You're absolutely correct. Having access to insider information is about knowing people on the inside, or having some sort of special access to that information. By definition, it gives the person unfair advantage over others in the market.

"insider trading isn't about fairness, it's about theft"

For siblings and downstream, here is some more discussion about this fact: http://www.bloombergview.com/articles/2015-04-01/another-pol...

Re: Making Insider Trading Legal

#56

Post by baddox »

lambdapie wrote: post #21

Insider trading does harm people, and does reduce liquidity. Many people who understand classical economics get this wrong [0], because financial markets are a very degenerate kind of market from the point of view of classical economics. The fundamental error in all cases is to conceptualize insider trading as buying from someone who would have bought/sold anyway . This is precisely failing to think at the margin. It…

I think the main trouble I'm having with your argument is the idea of it "harming" someone. While that seems to perhaps be true in the most technical sense, I'm not sure it's a sufficient argument for banning insider trading. After all, many things which harm people are not generally considered to be bad. For instance, if someone opens a restaurant Ina town, and runs the restaurant very efficient while offering a high quality product, that could absolutely harm other competing restaurant owners. And yet most people do not condemn the practice of opening a restaurant and operating it well.

Re: Making Insider Trading Legal

#57

Post by baddox »

evanpw wrote: post #53
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.

> with inside information, you're incentivized to keep others in the dark so that you can maximize the impact of your trades This is true of all professional trading. > borrowing money to short stocks in a company likely to go bankrupt, while telling people to buy This would be fraud, which is illegal independently of any insider trading rules

Why does borrowing money in any way diminish the positive effect of making the stock price more reliable?

And how does the incentive to lie to other traders apply only to insider trading? It seems like that would always apply to all trading.

Re: Making Insider Trading Legal

#58

Post by JacobH »

Natanael_L wrote: post #42
bobcostas55 wrote: post #35

Earlier quoted context omitted.

You completely ignore the benefit of the more accurate price. Let's say the price of a share with the inside info is 110. It is now 100. The inside trader does cause some volume that wouldn't have happened otherwise, and moves the price to 105 -- to the detriment of someone who would not have traded otherwise. But then every subsequent trade is at a price closer to the true one, a clear benefit. It is true that great…

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.

Re: Making Insider Trading Legal

#59

Post by germanier »

evanpw wrote: post #51
pgeorgi wrote: post #36

Earlier quoted context omitted.

I suppose you already know about §259 StGB in Germany. (up to 5 years for handling goods that were stolen by somebody else)

I am not a lawyer nor a German, but Wikipedia says that German law has no strictly liability [1], which would seem to imply that knowledge (or at least belief or a willful lack of knowledge) that the goods were stolen would be necessary to prosecute that crime. Is that wrong? [1] https://en.wikipedia.org/wiki/Strict_liability_(criminal)

You are right in your assumption. § 259 requires intent. Usual interpretation is that the offender needs to know the fact that the good was somehow acquired illegally (but doesn't need to know any details). It's not enough to think of a possibility of such an action, they have to resign to the fact. (There are other obligatory characteristics that need to be fulfilled, but they are irrelevant to this discussion.)

Simply handling stolen goods is not a criminal offence in Germany.

Re: Making Insider Trading Legal

#60

Post by rdancer »

nostromo wrote: post #28
runn1ng wrote: post #24

Not related to the actual article, but I got stuck on the word "coöperating". Originally, I thought the "Umlaut" is a typo or a mistake, but, according to wiktionary, "coöperate" is an actual word! I still feel like pronouncing the second "ö" like in German though.

It's called a diaeresis. Used in this way, a diaeresis tells the reader that it's pronounced as "co op" and not "coop". http://www.newyorker.com/culture/culture-desk/the-curse-of-t... Most people would just write "co-op" nowadays -- I've only ever seen this in the New Yorker.

Just to add further explanation, it's the same reason we write naïve: to hint it is to be pronounced /na-yeev/, not /neivə/.
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