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Laws against insider trading should be abolished. The statutory prohibitions cause real economic harm by making markets less efficient, while there isn't actual

by rvern 9y ago

Laws against insider trading should be abolished. The statutory prohibitions cause real economic harm by making markets less efficient, while there isn't actually anything immoral about insider trading. It's not fraud, it's a victimless crime, and markets getting non-public information faster is good because it allows faster correction of the allocation of capital to companies that are worth more or less than is publicly known. People who have knowledge of the deficiencies of a company should have an incentive to make the public aware of them and correct the price at the same time, and a trade does just that.

conanbatt 9y ago
I generally agree with Friedman that insider trading is not as bad as it is portrayed for some of the reasons you mention. But there is also another side of the coin, particularly with CEO's: he had the command to disclose there was a high impact security issue, and chose not to and profited from it. In this case, he was participant in creating the trade. As such, he sold stock to people that didnt know about a piece of information he was withholding. So im not so convinced there shouldnt be any insider trader laws.
- rvern 9y ago
  He did not profit from it at their expense, though. The people he sold stock to were already going to buy stock at the same or worse price, just from someone else. There may be a good case to be made that he should have been required to disclose that there was an important vulnerability, but insider trading laws don't solve this problem or make the people he sold to better off. The people he is profiting at the expense of are not the investors who buy the stocks he sells or the investors who would have otherwise sold to the former investors, but the investors who would, many months later, once the vulnerability was public, sell or short the Intel stock. There isn't really any reason these people should profit from the information rather than anyone else, and the CEO isn't interacting with them in any way.
  - conanbatt 9y ago
    > He did not profit from it at their expense, though. The people he sold stock to were already going to buy stock at the same or worse price, just from someone else That's not really true, it is so in an individually imperceptible way but its there. If he then after stock plummeted 10% went back and bought back shares and kept the 10% as a profit, where did that money come from? It has to come from someone elses pocket, it was created out of thin air. Its just impossible to return that money to who it belongs to, because it belongs to everyone that traded the stock in a certain interim. This is all related to information disclosure, which sometimes is necessary and sometimes isn't. A guy selling stock is a poor proxy to a disclosure of a security issue like this. I think intel is more responsible for untimely disclosure than the CEO for untimely selling.
    - rvern 9y ago
      It is really true. The money does come from somewhere, but instead of being the people he's selling to it's the people who would have reacted to the news of the vulnerability months later. These people are not being deceived or defrauded by the CEO in any way so they are only victims in the sense that they are not going to have this opportunity to make a profit months later because the price will already have been corrected. Realistically, the people who were hurt by this trade (assuming for the sake of argument that it was insider trading) are investment bankers, hedge fund and portfolio managers, and analysts.
      - amdavidson 9y ago
        All of whom are managing money for other people including pensions, 401k, and mutual funds. If you chase it all the way down the chain, I hold funds that track the S&P500, which includes Intel. A tiny portion of that money he makes by insider trading comes out of my pocket.
        rvern 9y ago
        Yes, to some extent. But why do you and other people who had nothing to do with Intel, the CEO, or the vulnerability deserve to make money off of this any more than the researchers who discovered the vulnerability or, if the researchers decided not to make money off of it, the insiders who can correct the price before the disclosure? If this is just about wealth redistribution, there are much better ways to do wealth redistribution. If this is about how Intel should have disclosed that there was a vulnerability earlier, then laws against insider trading didn't make Intel do that anyway. If this is about how people shouldn't be allowed to trade with asymmetric information, the prohibition against insider trading doesn't apply to the security researchers.
alien_at_work 9y ago
>It's not fraud, it's a victimless crime, Wow, I've always considered american libertarianism a mental disease but this really takes the cake. So you have someone standing there saying "Hey, want to buy these stock? They're great!" knowing the value is about to dramically drop (and that the other party can't possibly know that!) and for you that still isn't doing anything wrong? Out of curiousity, are you also lobbying against punishing people for selling fake iPhones claiming they're real, etc.? Completely victimless crimes, right?
- rvern 9y ago
  > So you have someone standing there saying "Hey, want to buy these stock? They're great!" No, you have someone sending an order to sell stock to their broker. The other party had already sent a buy order and was already going to buy stock, so is not made worse off by this.

by rvern 9y ago

conanbatt 9y ago

I generally agree with Friedman that insider trading is not as bad as it is portrayed for some of the reasons you mention. But there is also another side of the coin, particularly with CEO's: he had the command to disclose there was a high impact security issue, and chose not to and profited from it. In this case, he was participant in creating the trade. As such, he sold stock to people that didnt know about a piece of information he was withholding. So im not so convinced there shouldnt be any insider trader laws.

rvern 9y ago
He did not profit from it at their expense, though. The people he sold stock to were already going to buy stock at the same or worse price, just from someone else. There may be a good case to be made that he should have been required to disclose that there was an important vulnerability, but insider trading laws don't solve this problem or make the people he sold to better off. The people he is profiting at the expense of are not the investors who buy the stocks he sells or the investors who would have otherwise sold to the former investors, but the investors who would, many months later, once the vulnerability was public, sell or short the Intel stock. There isn't really any reason these people should profit from the information rather than anyone else, and the CEO isn't interacting with them in any way.
- conanbatt 9y ago
  > He did not profit from it at their expense, though. The people he sold stock to were already going to buy stock at the same or worse price, just from someone else That's not really true, it is so in an individually imperceptible way but its there. If he then after stock plummeted 10% went back and bought back shares and kept the 10% as a profit, where did that money come from? It has to come from someone elses pocket, it was created out of thin air. Its just impossible to return that money to who it belongs to, because it belongs to everyone that traded the stock in a certain interim. This is all related to information disclosure, which sometimes is necessary and sometimes isn't. A guy selling stock is a poor proxy to a disclosure of a security issue like this. I think intel is more responsible for untimely disclosure than the CEO for untimely selling.
  - rvern 9y ago
    It is really true. The money does come from somewhere, but instead of being the people he's selling to it's the people who would have reacted to the news of the vulnerability months later. These people are not being deceived or defrauded by the CEO in any way so they are only victims in the sense that they are not going to have this opportunity to make a profit months later because the price will already have been corrected. Realistically, the people who were hurt by this trade (assuming for the sake of argument that it was insider trading) are investment bankers, hedge fund and portfolio managers, and analysts.
    - amdavidson 9y ago
      All of whom are managing money for other people including pensions, 401k, and mutual funds. If you chase it all the way down the chain, I hold funds that track the S&P500, which includes Intel. A tiny portion of that money he makes by insider trading comes out of my pocket.
      - rvern 9y ago
        Yes, to some extent. But why do you and other people who had nothing to do with Intel, the CEO, or the vulnerability deserve to make money off of this any more than the researchers who discovered the vulnerability or, if the researchers decided not to make money off of it, the insiders who can correct the price before the disclosure? If this is just about wealth redistribution, there are much better ways to do wealth redistribution. If this is about how Intel should have disclosed that there was a vulnerability earlier, then laws against insider trading didn't make Intel do that anyway. If this is about how people shouldn't be allowed to trade with asymmetric information, the prohibition against insider trading doesn't apply to the security researchers.

alien_at_work 9y ago

>It's not fraud, it's a victimless crime, Wow, I've always considered american libertarianism a mental disease but this really takes the cake. So you have someone standing there saying "Hey, want to buy these stock? They're great!" knowing the value is about to dramically drop (and that the other party can't possibly know that!) and for you that still isn't doing anything wrong? Out of curiousity, are you also lobbying against punishing people for selling fake iPhones claiming they're real, etc.? Completely victimless crimes, right?

rvern 9y ago
> So you have someone standing there saying "Hey, want to buy these stock? They're great!" No, you have someone sending an order to sell stock to their broker. The other party had already sent a buy order and was already going to buy stock, so is not made worse off by this.