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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

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 inside information, it's not available to people outside the tipping network at any price. This, more than the mere chance of getting "picked off" by asymmetric information, drives traders out of the market, making it less liquid. If they were just losing because they didn't have good enough analysts, they could always compete and hire more. For the same reason, regulators and exchanges try to keep manipulators out of the market even if they bring a lot of volume. Eventually people will lose confidence in the market itself and leave.

evanpw 11y ago
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.
- mrchicity 11y ago
  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.
  - evanpw 11y ago
    > 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.
losvedir 11y ago
> With inside information, it's not available to people outside the tipping network at any price. But surely this is begging the question? If there were no laws restricting trading wouldn't information that we currently call "inside information" become available at some price? I could easily see some exclusive, high priced news service selling these leaked facts. It would then cause the "true price" of the stock to be found much, much quicker.
- mrchicity 11y ago
  I don't think exclusive access would be legal, and if access isn't exclusive, the value of the information would drop, as it's only valuable to the extent that it's not known by others. Also, simply being aware that such a service exists and can release information at certain times would let uninformed traders exit the market during releases. Right now insider traders can arrive randomly at any time.
thaumasiotes 11y ago
> 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") develops a friendship with Big Mouth, and regularly goes to dinner with him. At dinner, Big Mouth tells this investor company information. - Shylock trades in Conglomacorp stock. - It's stipulated that if the information that Shylock received had been dispensed during work hours, there wouldn't have been any legal problems. But he is prosecuted on the theory that, since it was dispensed at dinner, outside of work hours, he should have been aware that trading on it was illegitimate. How does this case fit in with your ideas of insider trading? It's certainly not the case that "[the inside information is] not available to people outside the tipping network at any price". You have to be a big enough investor that the investor relations desk has time for you, but that's open to anyone.
- mrchicity 11y ago
  Answering calls with individual investors and giving out material information is illegal under Reg FD. Not sure about this particular fact pattern, but being told something officially vs. over dinner/drinks can have a different expectation as far as confidentiality goes. That seems sensible. Also, FWIW, and I'm sure this wasn't your intent, but "Shylock" is considered an Anti-Semitic slur by many people.
  - eru 11y ago
    Compare http://time.com/3394403/shylock-biden/ http://time.com/3394403/shylock-biden/
- lmm 11y ago
  "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.

evanpw 11y ago

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.

mrchicity 11y ago
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.
- evanpw 11y ago
  > 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.

losvedir 11y ago

> With inside information, it's not available to people outside the tipping network at any price. But surely this is begging the question? If there were no laws restricting trading wouldn't information that we currently call "inside information" become available at some price? I could easily see some exclusive, high priced news service selling these leaked facts. It would then cause the "true price" of the stock to be found much, much quicker.

mrchicity 11y ago
I don't think exclusive access would be legal, and if access isn't exclusive, the value of the information would drop, as it's only valuable to the extent that it's not known by others. Also, simply being aware that such a service exists and can release information at certain times would let uninformed traders exit the market during releases. Right now insider traders can arrive randomly at any time.

thaumasiotes 11y ago

> 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") develops a friendship with Big Mouth, and regularly goes to dinner with him. At dinner, Big Mouth tells this investor company information. - Shylock trades in Conglomacorp stock. - It's stipulated that if the information that Shylock received had been dispensed during work hours, there wouldn't have been any legal problems. But he is prosecuted on the theory that, since it was dispensed at dinner, outside of work hours, he should have been aware that trading on it was illegitimate. How does this case fit in with your ideas of insider trading? It's certainly not the case that "[the inside information is] not available to people outside the tipping network at any price". You have to be a big enough investor that the investor relations desk has time for you, but that's open to anyone.

mrchicity 11y ago
Answering calls with individual investors and giving out material information is illegal under Reg FD. Not sure about this particular fact pattern, but being told something officially vs. over dinner/drinks can have a different expectation as far as confidentiality goes. That seems sensible. Also, FWIW, and I'm sure this wasn't your intent, but "Shylock" is considered an Anti-Semitic slur by many people.
- eru 11y ago
  Compare http://time.com/3394403/shylock-biden/ http://time.com/3394403/shylock-biden/
lmm 11y ago
"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.