16 ms·

Making Insider Trading Legal

142 points by akg_67 11y ago

deleted 11y ago
[deleted]
kawera 11y ago
Same article posted yesterday: https://news.ycombinator.com/item?id=10483032 https://news.ycombinator.com/item?id=10483032
- Dylan16807 11y ago
  I'm sorry you didn't get upvotes out of randomness or timing but it doesn't help to link a previous submission with no comments.
  - kawera 11y ago
    Thanks but I'm not looking for upvotes, I just wanted to signal that the dupe detector isn't working very well since it's the same title and url and have been posted only hours before this.
    - Dylan16807 11y ago
      The dupe detector has been weakened on purpose.
    - dang 11y ago
      Please see the FAQ. It doesn't count as a duplicate until the story has had significant attention on HN. If we didn't have this rule, many good stories would go unnoticed because there's so much randomness in what gets liftoff from /newest. https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html Edit: One side-effect of our recent experiments in resuscitating solid articles is that it increases the number of reposts in the story stream. Given the number of comments we've seen about that, it seems users don't like this, so we've begun working on an alternative approach.
  - DanBC 11y ago
    Pointing to the five or so posts of this story helps to highlight the fact that New Yorker[1] gets very many duplicate submissions, most of which get very few comments / upvotes. Some other sites get similar beneficial multiple submissions. But many sites don't get this and repeat submissions just count as dupes. Look at this: https://news.ycombinator.com/from?site=newyorker.com https://news.ycombinator.com/from?site=newyorker.com It's crammed full of dupes. [1] or NYT or WSJ or etc.
- gus_massa 11y ago
  This was reposted a few times: https://hn.algolia.com/?query=Making%20Insider%20Trading%20Legal&sort=byDate&dateRange=all&type=story&storyText=false&prefix&page=0 https://hn.algolia.com/?query=Making%20Insider%20Trading%20L... From the FAQ: > Are reposts ok? > If a story has had significant attention in the last year or so, we kill reposts as duplicates. If not, a small number of reposts is ok. It's not very clear what significant means, but all the previous submissions have 0 or 1 points and no comments. I think that one problem with dupes is that the previous submission have some interesting comments that are "lost", so if I find a very interesting comment I quote part of it in the new submission.
  - akg_67 11y ago
    I reposted the story after receiving email from mod requesting to repost. Your search list shows that I posted the same story five days ago and appear to be the first one. I guess mods are experimenting with certain stories that they consider good but didn't get traction.
Dylan16807 11y ago
If "material nonpublic information" is illegal to trade on, then the entire job of the intelligent investor ceases to exist. It becomes illegal to do thorough research. So of course the source of the information matters. I'm sympathetic to the argument that it's bad to take illegally obtained data and pass it along in a don't ask, don't tell manner to avoid prosecution. But that Dell data? The guy's job at Dell was to share company info with investors. To say the information was obviously dodgy is total nonsense.
- notacoward 11y ago
  > It becomes illegal to do thorough research. Ridiculous. Having access to information others don't is privilege, not thoroughness. You can be just as thorough as you want, so long as others are not prevented from being likewise. Without that, capital markets cease to be open. That way lies oligarchy.
  - enraged_camel 11y ago
    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.
    - Dylan16807 11y ago
      "insider trading isn't about fairness, it's about theft"
      - enraged_camel 11y ago
        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 you made a trade based on non-public information, and the law has deemed that to be unfair and illegal.
jessaustin 11y ago
Unfortunately the headline is mistaken. Insider trading law was only ever intended to reserve for senior executives the privilege of trading on inside information. This latest interpretation is a confirmation of that purpose, not a repudiation of it. Bharara has been a true believer, but if he's going to stray from the South Asian beat, he's going to have to learn the real rules.
- lambdapie 11y ago
  What does "if he's going to stray from the South Asian beat" refer to?
  - beachstartup 11y ago
    probably just your standard garden-variety racism.
    - jessaustin 11y ago
      By observing that the USA criminal justice system is racist, I am proving myself to be a "garden-variety" racist? Please, pay more attention.
  - jessaustin 11y ago
    Perhaps I'm influenced by those cases that the news media has chosen to publicize. Clearly Mathew Martoma would still be "guilty" under the newly-clarified rules. I really wonder about e.g. Raj Rajaratnam, Anil Kumar, or Rajat Gupta, however.
    - mrchicity 11y ago
      Didn't Gupta sit on the board of public corporations and slip Rajaratnam earnings information right after a board meeting? That seems about as clear-cut as it gets. Gupta had a clear duty of confidentiality serving as a high-level executive and the information was obviously material to the share price. You don't get much more material than quarterly earnings.
mbcz0 11y ago
http://www.wsj.com/articles/SB10001424052748704224004574489324091790350 http://www.wsj.com/articles/SB100014240527487042240045744893...
nanis 11y ago
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.
- bediger4000 11y ago
  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.
  - losvedir 11y ago
    > 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. Sounds like a good outcome to me, since that's basically the case anyway...
- Natanael_L 11y ago
  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 losses for others that otherwise wouldn't have happened.
  - nanis 11y ago
    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.
gtani 11y ago
Profs Fischel and Easterbrook were working on the analytical framework (efficient continuous release of information, if i remember), starting in the 80's: http://www.law.uchicago.edu/node/514/publications http://www.law.uchicago.edu/node/514/publications
mstade 11y ago
> 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 trading if he didn’t know he was doing so at the time? This quote is interesting. I know that in some countries (including my own,) dealing in stolen goods is in fact illegal, regardless of whether or not you knew the goods were stolen in the first place. The onus lies on the buyer of the goods to remove doubts of where the goods came from, which often amounts to simply asking the reseller for a receipt. If you're given one which is bogus, you can claim ignorance and whoever you bought it from would be guilty of fraud as well as dealing in stolen goods. Now, I don't know what the law says about dealing in stolen physical goods in the US, but if it's anything like the above then why should illegally obtained information be any different? Shouldn't it be reasonable then to ask whoever is dealing in this information to ask for a receipt, as it were?
- Tomte 11y ago
  Which country is that? Does "illegal" mean criminal liability or just that the sale is void?
  - pgeorgi 11y ago
    I suppose you already know about §259 StGB in Germany. (up to 5 years for handling goods that were stolen by somebody else)
    - evanpw 11y ago
      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) https://en.wikipedia.org/wiki/Strict_liability_(criminal)
lambdapie 11y ago
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 is as erroneous as saying "eating meat is ok because those cows would have been killed anyway". Put more technically, when you buy a share, you do so by shifting up the demand curve a tiny bit, with your demand, which in turn shifts the price slightly up and causes a seller to sell, who would not otherwise have. Market microstructure, together with the fact that supply/demand curves really form a single curve, can obscure this fundamental economic fact. Given this, insider trading does cause harm to some people. And how could it not? If a person can make money from insider trading, then, to first order, someone else must lose money. There are some externalities from information revelation, but only a tiny fraction of these benefits go to the marginal buyer/seller who lost out because of insider trading. How does this compare to public releases of information? Well unlike insider trading, public information can shift prices without any transactions occurring (or in practice, very few). This is because while insider trading only moves the price by the mechanism of moving the supply/demand curve, while public information is revealed to all traders at once. So while insider trading does reveal information (which is a good thing) it does so in a way that reduces liquidity, because people don't want to be on the wrong side of insider trading. I'll admit that the above narrative isn't watertight. I think it's the best analysis that can be done verbally. The only models that allow a meaningful discussion of welfare in the context of financial markets are so called noise-trader models, which explicitly model the (irrational) reasons why most people trade. The whole field is vastly complicated by the fact that theory predicts almost no trade in stocks if people were completely rational. [0] http://www.marketwatch.com/story/why-insider-trading-should-be-legal-2011-05-17 http://www.marketwatch.com/story/why-insider-trading-should-...
- deleted 11y ago
  [deleted]
- bobcostas55 11y ago
  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 greater information asymmetries will decrease liquidity/widen spreads, but is this a sufficient justification for banning inside trading? Also, information asymmetry is a matter of degree, not a binary thing. A skilled fund manager may have assembled public information (the "mosaic" view) that when put together is tantamount to insider info. You could use the exact same argument to ban him from trading.
runn1ng 11y ago
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.
- msbarnett 11y ago
  The New Yorker has a famously idiosyncratic house style, which includes the use of diaereses on doubled vowels: https://en.m.wikipedia.org/wiki/The_New_Yorker#Style https://en.m.wikipedia.org/wiki/The_New_Yorker#Style
- nostromo 11y ago
  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-the-diaeresis 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.
  - rdancer 11y ago
    Just to add further explanation, it's the same reason we write naïve: to hint it is to be pronounced /na-yeev/, not /neivə/.
- dllthomas 11y ago
  https://en.wikipedia.org/wiki/Diacritic#English https://en.wikipedia.org/wiki/Diacritic#English "English speakers and writers once used the diaeresis more often than now in words such as coöperation (from Fr. coopération), zoölogy (from Grk. zoologia), and seeër (now more commonly see-er or simply seer), but this practice has become far less common. The New Yorker magazine is a major publication that uses it."
- monochromatic 11y ago
  It's just the New Yorker being pedantic. It's a fight I sometimes agree with, but there's no way "coöperating" is ever going to become standard--it's always going to look weird to the vast majority of readers.
jostmey 11y ago
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.
- lmm 11y ago
  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 certainly possible to make a living out of good old-fashioned detective work based on public information - recent clever tricks have been e.g. tracking the tail numbers of CEOs' private planes to know when they're on holiday and/or negotiating a merger).
  - jostmey 11y ago
    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.
    - netheril96 11y ago
      Economy is a zero sum game in a perfect market. It is not a zero sum game because markets are not perfect.
      - eru 11y ago
        You don't believe different rates of economic growth are possible?
      - hawkice 11y ago
        This assumes (quite wrongly) that the same goods have the same utility across the population. It's similar to saying, in a perfectly efficient economy, there would be no trades. There are, because there is a benefit to that trade -- and there is no reason for that benefit to be evenly distributed.
mark_l_watson 11y ago
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.
- tptacek 11y ago
  Hold on. It's not the market's job to correct for income inequality. It's the job of a market to rapidly incorporate information into prices, so that everyone who needs to participate in commerce can do so with a shared picture of the value of different things. Income inequality may be worth correcting for (I sure think it is), but it does not follow from that view that markets should be distorted to try to accomplish that. There are plenty of other instruments we can apply to that problem that will be more effective and will harm the economy less.
- rhino369 11y ago
  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.
marincounty 11y ago
Could an attorney chime on on this article? I'm hung over, and a bit fuzzy. Yea--Halloween! "It’s not that it will be impossible to bring insider-trading cases from now on; it’s that, at a hedge fund, all of the legal liability will now rest with the analysts and traders on the front lines of information gathering—with the initial knowing recipients of a tip. (Incidentally, if you’re a junior portfolio manager, this might be a good time to ask your boss for a raise?" 1. This means anyone, such as a home trader, hires a worker who receives insider financial tips from and passes that information on to me. I can then make the trade, and profit. I am legally protected, as long as the employee didn't tell me about the origins of the tip? The only person liable would be the employee? "With billions of dollars to be made in betting on the market, whether or not you see cause for alarm in any of this will likely depend on just how scrupulous or unscrupulous you think the average investor is." Of course the average investor is unscrupulous. For as long as I can remember, the successful investors used insider information to make money on investments. Growing up they openly exchanged tips at church functions. Hell, the only real money my father made in the market was off an insider tip. My father didn't even know it was inside information. He just trusted his new father in-law. My point is ever successful trader, I tangentially knew, used insider information to make a profit. My second question to the lawyer. The boys at Google/Bing can see every every IP. They can map every IP to an address, and most likely a name. They probally know exactly who's who in all financial institutions throughout the world. Could Google/Bing hire an analyst to scrape the data/information are pass that information to a higher up. The "Higher ups" could then make stock trades on this in data. (yes--I know Google only scrapes information in emails for "advertising" data.) 2. Could, if a search engine was combining IP to a name, address, and maybe where an stock trader works. Could The search engine put all that info. together and use that information to buy stocks? They might even call it big data mining for financial gain? Or, would this senerio be invasion of privacy, and wiretapping? (I have two questions poorly laid out in this mess of a paragraph. Sorry. I will number the sentences with my final question, as 1, and 2.)
maxxxxx 11y ago
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.
- wj 11y ago
  What is a 401(k) if not participation in the stock (and/or bond) market?
  - maxxxxx 11y ago
    That's my point. 401k pushes people into the stock market.
    - wj 11y ago
      Ah. I misparsed your sentence.
  - deleted 11y ago
    [deleted]
- evanpw 11y ago
  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.
oldpond 11y ago
Bring back the Inquisition for these guys.

142 points by akg_67 11y ago

deleted 11y ago

[deleted]

Same article posted yesterday: https://news.ycombinator.com/item?id=10483032 https://news.ycombinator.com/item?id=10483032

Dylan16807 11y ago
I'm sorry you didn't get upvotes out of randomness or timing but it doesn't help to link a previous submission with no comments.
- kawera 11y ago
  Thanks but I'm not looking for upvotes, I just wanted to signal that the dupe detector isn't working very well since it's the same title and url and have been posted only hours before this.
  - Dylan16807 11y ago
    The dupe detector has been weakened on purpose.
  - dang 11y ago
    Please see the FAQ. It doesn't count as a duplicate until the story has had significant attention on HN. If we didn't have this rule, many good stories would go unnoticed because there's so much randomness in what gets liftoff from /newest. https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html Edit: One side-effect of our recent experiments in resuscitating solid articles is that it increases the number of reposts in the story stream. Given the number of comments we've seen about that, it seems users don't like this, so we've begun working on an alternative approach.
- DanBC 11y ago
  Pointing to the five or so posts of this story helps to highlight the fact that New Yorker[1] gets very many duplicate submissions, most of which get very few comments / upvotes. Some other sites get similar beneficial multiple submissions. But many sites don't get this and repeat submissions just count as dupes. Look at this: https://news.ycombinator.com/from?site=newyorker.com https://news.ycombinator.com/from?site=newyorker.com It's crammed full of dupes. [1] or NYT or WSJ or etc.
gus_massa 11y ago
This was reposted a few times: https://hn.algolia.com/?query=Making%20Insider%20Trading%20Legal&sort=byDate&dateRange=all&type=story&storyText=false&prefix&page=0 https://hn.algolia.com/?query=Making%20Insider%20Trading%20L... From the FAQ: > Are reposts ok? > If a story has had significant attention in the last year or so, we kill reposts as duplicates. If not, a small number of reposts is ok. It's not very clear what significant means, but all the previous submissions have 0 or 1 points and no comments. I think that one problem with dupes is that the previous submission have some interesting comments that are "lost", so if I find a very interesting comment I quote part of it in the new submission.
- akg_67 11y ago
  I reposted the story after receiving email from mod requesting to repost. Your search list shows that I posted the same story five days ago and appear to be the first one. I guess mods are experimenting with certain stories that they consider good but didn't get traction.

Dylan16807 11y ago

If "material nonpublic information" is illegal to trade on, then the entire job of the intelligent investor ceases to exist. It becomes illegal to do thorough research. So of course the source of the information matters. I'm sympathetic to the argument that it's bad to take illegally obtained data and pass it along in a don't ask, don't tell manner to avoid prosecution. But that Dell data? The guy's job at Dell was to share company info with investors. To say the information was obviously dodgy is total nonsense.

notacoward 11y ago
> It becomes illegal to do thorough research. Ridiculous. Having access to information others don't is privilege, not thoroughness. You can be just as thorough as you want, so long as others are not prevented from being likewise. Without that, capital markets cease to be open. That way lies oligarchy.
- enraged_camel 11y ago
  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.
  - Dylan16807 11y ago
    "insider trading isn't about fairness, it's about theft"
    - enraged_camel 11y ago
      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 you made a trade based on non-public information, and the law has deemed that to be unfair and illegal.

jessaustin 11y ago

Unfortunately the headline is mistaken. Insider trading law was only ever intended to reserve for senior executives the privilege of trading on inside information. This latest interpretation is a confirmation of that purpose, not a repudiation of it. Bharara has been a true believer, but if he's going to stray from the South Asian beat, he's going to have to learn the real rules.

lambdapie 11y ago
What does "if he's going to stray from the South Asian beat" refer to?
- beachstartup 11y ago
  probably just your standard garden-variety racism.
  - jessaustin 11y ago
    By observing that the USA criminal justice system is racist, I am proving myself to be a "garden-variety" racist? Please, pay more attention.
- jessaustin 11y ago
  Perhaps I'm influenced by those cases that the news media has chosen to publicize. Clearly Mathew Martoma would still be "guilty" under the newly-clarified rules. I really wonder about e.g. Raj Rajaratnam, Anil Kumar, or Rajat Gupta, however.
  - mrchicity 11y ago
    Didn't Gupta sit on the board of public corporations and slip Rajaratnam earnings information right after a board meeting? That seems about as clear-cut as it gets. Gupta had a clear duty of confidentiality serving as a high-level executive and the information was obviously material to the share price. You don't get much more material than quarterly earnings.

mbcz0 11y ago

http://www.wsj.com/articles/SB10001424052748704224004574489324091790350 http://www.wsj.com/articles/SB100014240527487042240045744893...

nanis 11y ago

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.

bediger4000 11y ago
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.
- losvedir 11y ago
  > 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. Sounds like a good outcome to me, since that's basically the case anyway...
Natanael_L 11y ago
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 losses for others that otherwise wouldn't have happened.
- nanis 11y ago
  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.

gtani 11y ago

Profs Fischel and Easterbrook were working on the analytical framework (efficient continuous release of information, if i remember), starting in the 80's: http://www.law.uchicago.edu/node/514/publications http://www.law.uchicago.edu/node/514/publications

mstade 11y ago

> 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 trading if he didn’t know he was doing so at the time? This quote is interesting. I know that in some countries (including my own,) dealing in stolen goods is in fact illegal, regardless of whether or not you knew the goods were stolen in the first place. The onus lies on the buyer of the goods to remove doubts of where the goods came from, which often amounts to simply asking the reseller for a receipt. If you're given one which is bogus, you can claim ignorance and whoever you bought it from would be guilty of fraud as well as dealing in stolen goods. Now, I don't know what the law says about dealing in stolen physical goods in the US, but if it's anything like the above then why should illegally obtained information be any different? Shouldn't it be reasonable then to ask whoever is dealing in this information to ask for a receipt, as it were?

Tomte 11y ago
Which country is that? Does "illegal" mean criminal liability or just that the sale is void?
- pgeorgi 11y ago
  I suppose you already know about §259 StGB in Germany. (up to 5 years for handling goods that were stolen by somebody else)
  - evanpw 11y ago
    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) https://en.wikipedia.org/wiki/Strict_liability_(criminal)

lambdapie 11y ago

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 is as erroneous as saying "eating meat is ok because those cows would have been killed anyway". Put more technically, when you buy a share, you do so by shifting up the demand curve a tiny bit, with your demand, which in turn shifts the price slightly up and causes a seller to sell, who would not otherwise have. Market microstructure, together with the fact that supply/demand curves really form a single curve, can obscure this fundamental economic fact. Given this, insider trading does cause harm to some people. And how could it not? If a person can make money from insider trading, then, to first order, someone else must lose money. There are some externalities from information revelation, but only a tiny fraction of these benefits go to the marginal buyer/seller who lost out because of insider trading. How does this compare to public releases of information? Well unlike insider trading, public information can shift prices without any transactions occurring (or in practice, very few). This is because while insider trading only moves the price by the mechanism of moving the supply/demand curve, while public information is revealed to all traders at once. So while insider trading does reveal information (which is a good thing) it does so in a way that reduces liquidity, because people don't want to be on the wrong side of insider trading. I'll admit that the above narrative isn't watertight. I think it's the best analysis that can be done verbally. The only models that allow a meaningful discussion of welfare in the context of financial markets are so called noise-trader models, which explicitly model the (irrational) reasons why most people trade. The whole field is vastly complicated by the fact that theory predicts almost no trade in stocks if people were completely rational. [0] http://www.marketwatch.com/story/why-insider-trading-should-be-legal-2011-05-17 http://www.marketwatch.com/story/why-insider-trading-should-...

deleted 11y ago
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bobcostas55 11y ago
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 greater information asymmetries will decrease liquidity/widen spreads, but is this a sufficient justification for banning inside trading? Also, information asymmetry is a matter of degree, not a binary thing. A skilled fund manager may have assembled public information (the "mosaic" view) that when put together is tantamount to insider info. You could use the exact same argument to ban him from trading.

runn1ng 11y ago

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.

msbarnett 11y ago
The New Yorker has a famously idiosyncratic house style, which includes the use of diaereses on doubled vowels: https://en.m.wikipedia.org/wiki/The_New_Yorker#Style https://en.m.wikipedia.org/wiki/The_New_Yorker#Style
nostromo 11y ago
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-the-diaeresis 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.
- rdancer 11y ago
  Just to add further explanation, it's the same reason we write naïve: to hint it is to be pronounced /na-yeev/, not /neivə/.
dllthomas 11y ago
https://en.wikipedia.org/wiki/Diacritic#English https://en.wikipedia.org/wiki/Diacritic#English "English speakers and writers once used the diaeresis more often than now in words such as coöperation (from Fr. coopération), zoölogy (from Grk. zoologia), and seeër (now more commonly see-er or simply seer), but this practice has become far less common. The New Yorker magazine is a major publication that uses it."
monochromatic 11y ago
It's just the New Yorker being pedantic. It's a fight I sometimes agree with, but there's no way "coöperating" is ever going to become standard--it's always going to look weird to the vast majority of readers.

jostmey 11y ago

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.

lmm 11y ago
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 certainly possible to make a living out of good old-fashioned detective work based on public information - recent clever tricks have been e.g. tracking the tail numbers of CEOs' private planes to know when they're on holiday and/or negotiating a merger).
- jostmey 11y ago
  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.
  - netheril96 11y ago
    Economy is a zero sum game in a perfect market. It is not a zero sum game because markets are not perfect.
    - eru 11y ago
      You don't believe different rates of economic growth are possible?
    - hawkice 11y ago
      This assumes (quite wrongly) that the same goods have the same utility across the population. It's similar to saying, in a perfectly efficient economy, there would be no trades. There are, because there is a benefit to that trade -- and there is no reason for that benefit to be evenly distributed.

mark_l_watson 11y ago

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.

tptacek 11y ago
Hold on. It's not the market's job to correct for income inequality. It's the job of a market to rapidly incorporate information into prices, so that everyone who needs to participate in commerce can do so with a shared picture of the value of different things. Income inequality may be worth correcting for (I sure think it is), but it does not follow from that view that markets should be distorted to try to accomplish that. There are plenty of other instruments we can apply to that problem that will be more effective and will harm the economy less.
rhino369 11y ago
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.

marincounty 11y ago

Could an attorney chime on on this article? I'm hung over, and a bit fuzzy. Yea--Halloween! "It’s not that it will be impossible to bring insider-trading cases from now on; it’s that, at a hedge fund, all of the legal liability will now rest with the analysts and traders on the front lines of information gathering—with the initial knowing recipients of a tip. (Incidentally, if you’re a junior portfolio manager, this might be a good time to ask your boss for a raise?" 1. This means anyone, such as a home trader, hires a worker who receives insider financial tips from and passes that information on to me. I can then make the trade, and profit. I am legally protected, as long as the employee didn't tell me about the origins of the tip? The only person liable would be the employee? "With billions of dollars to be made in betting on the market, whether or not you see cause for alarm in any of this will likely depend on just how scrupulous or unscrupulous you think the average investor is." Of course the average investor is unscrupulous. For as long as I can remember, the successful investors used insider information to make money on investments. Growing up they openly exchanged tips at church functions. Hell, the only real money my father made in the market was off an insider tip. My father didn't even know it was inside information. He just trusted his new father in-law. My point is ever successful trader, I tangentially knew, used insider information to make a profit. My second question to the lawyer. The boys at Google/Bing can see every every IP. They can map every IP to an address, and most likely a name. They probally know exactly who's who in all financial institutions throughout the world. Could Google/Bing hire an analyst to scrape the data/information are pass that information to a higher up. The "Higher ups" could then make stock trades on this in data. (yes--I know Google only scrapes information in emails for "advertising" data.) 2. Could, if a search engine was combining IP to a name, address, and maybe where an stock trader works. Could The search engine put all that info. together and use that information to buy stocks? They might even call it big data mining for financial gain? Or, would this senerio be invasion of privacy, and wiretapping? (I have two questions poorly laid out in this mess of a paragraph. Sorry. I will number the sentences with my final question, as 1, and 2.)

maxxxxx 11y ago

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.

wj 11y ago
What is a 401(k) if not participation in the stock (and/or bond) market?
- maxxxxx 11y ago
  That's my point. 401k pushes people into the stock market.
  - wj 11y ago
    Ah. I misparsed your sentence.
- deleted 11y ago
  [deleted]
evanpw 11y ago
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.

oldpond 11y ago

Bring back the Inquisition for these guys.