Why Not Insider Trade on Every Company? • Hacker News Board

Re: Why Not Insider Trade on Every Company?

#91

Post by pyre » Wed, Aug 12, 2015, 2:47 AM UTC

coldtea wrote: post #47

rayiner wrote: post #38

Earlier quoted context omitted.

It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns. Of course, the answer to that is to require all Congressmen to put their assets in a blind trust.

> It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns. How about disallowing them to trade altogether in the first place for as long as they hold office?

This would make more sense if there weren't career Congress-critters, though perhaps this would encourage movement in that direction...

Re: Why Not Insider Trade on Every Company?

#92

Post by pyre » Wed, Aug 12, 2015, 2:55 AM UTC

Taek wrote: post #82

mfisher87 wrote: post #76

Earlier quoted context omitted.

OK, good idea. Let's make insider trading legal... now NSA employees win and everyone else loses. Seems like a sensible economic system.

You joke, but trading on insider information means revealing that information. It gives people 2 incentives: 1. Trade on your insider information quickly, or someone will beat you to it 2. Keep your secrets safer. It also makes the NSA vulnerable to false planted information. Trading on stolen information means trusting that information.

> trading on insider information means revealing that information

Did I miss the blank space on the form that requires you to fill in the reason for your trade before it gets executed?

Joking aside, you do not reveal your intentions by executing a trade. Let's look at a hypothetical. Say all of the sudden someone dumps 5% of Apple stocks. Information has been imparted, but this is imperfect information. If you own Apple stock and you are weighing your options, you can't know the real reason behind these trades. If you did know the real reason behind the trades (e.g. announcement of a 1% dip in growth in Q4 2015) you could evaluate what you think that does to the value of the stock instead of trying to reverse engineer someone else's logic.

Another Example: How about knowing that someone will happen in ~2 months time, so you slowly sell stock off over 2 months. How does this impart significant information to the market?

Re: Why Not Insider Trade on Every Company?

#93

Post by _nedR » Wed, Aug 12, 2015, 3:00 AM UTC

stevewepay wrote: post #36

nostromo wrote: post #5

It's actually still possible to perform a specific type of legal insider trading. Example: you are an executive at E Corp and the company will announce its acquisition in two months. You had previously set up planned trades to sell x number of shares each month before then. Because the acquisition is at a premium on the current price, you will make much less money if you go forward with your trades before the announc…

Politicians in Congress are explicitly allowed to insider trade based on information they hear about. This is why congressmen's stock portfolios are far more profitable than an average person's.

Wait, Wait. Hold a second. I am not sure I read that correctly.

Are you telling me that until 2012, for every confidential hearing that American congressman could attend, every budget proposal or allocation they had to vote on, every bill (say on the environment, or regarding corporate or financial regulation) they had to pass, or every declaration of war they had to approve, they were allowed to choose the outcome and personally profit from it?

Re: Why Not Insider Trade on Every Company?

#94

Post by hkmurakami » Wed, Aug 12, 2015, 3:03 AM UTC

tokenadult wrote: post #6

I think I will end up upvoting every share of this Bloomberg View columnist's columns here on Hacker News. The author, Matt Levine, thinks like a hacker in the best sense, by pushing ideas to their extremes and seeing what the consequences might be. He adopts a humorous tone, but his columns are full of food for thought. http://www.bloombergview.com/contributors/matt-levine

You should also take a look at his writing at Dealbreaker, where he used to write before joining Bloomberg View. http://dealbreaker.com/author/mlevine/

Re: Why Not Insider Trade on Every Company?

#95

Post by rodgerd » Wed, Aug 12, 2015, 3:03 AM UTC

amalcon wrote: post #64

Taek wrote: post #29

Perhaps someone will change my mind, but I see the block on insider trading and spoofing as harmful to the financial industry overall. Someone starts shorting a ton of Apple stock? That probably means something big is happen at Apple, and it's not good. It's information. Spoofing as a technique can be used to combat and inhibit other types of trading, and is in some sense an algorithm to 'keep the opponent honest'. A…

The main reason we don't like insider trading is that we like participation in the market by relative amateurs. A system that allows insider trading discourages participation by amateurs, because they do not have insider information. Insiders would earn money at the expense of these amateurs, so it's better for them to stick to other sorts of investments to avoid this "tax". This isn't necessarily a problem. As a soc…

> The main reason we don't like insider trading is that we like participation in the market by relative amateurs. A system that allows insider trading discourages participation by amateurs, because they do not have insider information.

While I agree with that in theory, in practise we see that the rest of the market is so hopelessly skewed in favour of insiders in one form or another it's like a sticky plaster on the stump of a severed leg; just look at the Facebook IPO, or high frequency trading.

Re: Why Not Insider Trade on Every Company?

#96

Post by losvedir » Wed, Aug 12, 2015, 3:18 AM UTC

mmanfrin wrote: post #40

cespare wrote: post #11

Earlier quoted context omitted.

So a "trade canary", then.

I wonder if it would be possible to track the continual sales of stock by large shareholders, use that to buy options based on the canary trades disappearing. This would then lead to the question: am I an insider trader if I am basing my options off of the lack of sales of insiders?

Interestingly, if you look at the Martha Stewart chart posted, there's a big spike when she would have sold but didn't... maybe there was some real news at that time, too, I don't know, but maybe there are algorithms already set up to detect this?

Re: Why Not Insider Trade on Every Company?

#97

Post by danieltillett » Wed, Aug 12, 2015, 3:20 AM UTC

ksherlock wrote: post #41

melvinmt wrote: post #16

Earlier quoted context omitted.

I would not get insider trading advice from Martha Stewart…

To be a pedant, Martha Stewart wasn't convicted of insider trading; she was convicted of obstruction of justice and making false statements, etc. Mark Cuban, facing similar circumstances, kept his mouth shut and stayed out of jail.

Yes this is the lesson.

NEVER TALK TO THE POLICE WITHOUT YOUR LAWYER.

Re: Why Not Insider Trade on Every Company?

#98

Post by uptown » Wed, Aug 12, 2015, 3:23 AM UTC

martey wrote: post #63

stevewepay wrote: post #36

Earlier quoted context omitted.

Politicians in Congress are explicitly allowed to insider trade based on information they hear about. This is why congressmen's stock portfolios are far more profitable than an average person's.

Doesn't the STOCK Act ( https://en.wikipedia.org/wiki/STOCK_Act ) explicitly ban Congresspeople from insider trading? The only study on the performance on Congressional stock portfolios is from 2004 [1]. Do you know of any post-STOCK studies? [1]: Ziobrowski, A.J., Cheng, P.X., Boyd, J.W., and Ziobrowski, B.J. (2004) “Abnormal Returns from the Common Stock Investments of Members of the United States Senate.” Journal…

NOPE!

"Congress Quickly And Quietly Rolls Back Insider Trading Rules For Itself"

"It was such a national risk that Congress did the whole thing quietly, with no debate. The bill was introduced in the Senate on Thursday and quickly voted on late that night when no one was paying attention. Friday afternoon (the best time to sneak through news), the House picked it up by unanimous consent. The House ignored its own promise to give Congress three days to read a bill before holding a vote, because this kind of thing is too important to let anyone read the bill before Congress had to pass it."

https://www.techdirt.com/articles/20130416/08344222725/congr...

Re: Why Not Insider Trade on Every Company?

#99

Post by losvedir » Wed, Aug 12, 2015, 3:31 AM UTC

amalcon wrote: post #64

Taek wrote: post #29

Perhaps someone will change my mind, but I see the block on insider trading and spoofing as harmful to the financial industry overall. Someone starts shorting a ton of Apple stock? That probably means something big is happen at Apple, and it's not good. It's information. Spoofing as a technique can be used to combat and inhibit other types of trading, and is in some sense an algorithm to 'keep the opponent honest'. A…

The main reason we don't like insider trading is that we like participation in the market by relative amateurs. A system that allows insider trading discourages participation by amateurs, because they do not have insider information. Insiders would earn money at the expense of these amateurs, so it's better for them to stick to other sorts of investments to avoid this "tax". This isn't necessarily a problem. As a soc…

> A system that allows insider trading discourages participation by amateurs, because they do not have insider information. Insiders would earn money at the expense of these amateurs

How so? Can you flesh out the scenario a bit since I'm having trouble seeing how this is the case. To me, it seems like if there were no trade prohibitions on insider trading the share price would immediately reflect inside knowledge, thereby protecting amateurs from making investments based on facts that they don't know that others do.

Re: Why Not Insider Trade on Every Company?

#100

Post by clamprecht » Wed, Aug 12, 2015, 3:35 AM UTC

nostromo wrote: post #5

It's actually still possible to perform a specific type of legal insider trading. Example: you are an executive at E Corp and the company will announce its acquisition in two months. You had previously set up planned trades to sell x number of shares each month before then. Because the acquisition is at a premium on the current price, you will make much less money if you go forward with your trades before the announc…

Is it that easy? So just pre-schedule many possible trades, and in the end, just cancel all except the ones you actually want to do (after getting the inside information).