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I have a huge incentive to steal all the cash that I come into contact with. Fortunately, in both of these scenarios, our actions are illegal.

by ouid 9y ago

qeternity 9y ago
Most people fundamentally misunderstand material non public information (MNPI) and the laws around insider trading. Having a research desk that generates MNPI is not illegal, nor is trading on this info. Say for instance that I discover a new killer Apple product buried deep in Apple code. It's not illegal for me to trade on this info, but it is illegal for Tim Cook to. Or let's say I use satellite imagery to determine McDonald's quarterly sales, the same applies.
- tptacek 9y ago
  Not only is it not illegal, but the whole idea of public trading markets depends on people doing it.
  - Armisael16 9y ago
    What laws or regulations does it violate? It certainly isn't insider trading if you aren't an insider. EDIT: Oops, missed the double negative.
    - tptacek 9y ago
      We're saying the same thing. You missed the "not" in my sentence. :)
  - qeternity 9y ago
    Exactly. Thorough price discovery is how markets efficiently allocate capital. Traders and investors are compensated for their contributions to this process.
- rwallace 9y ago
  I read a story a while ago about a guy on an airline flight, looked out the window and happened to see smoke coming from a factory; on landing, he made a phone call from the airport to sell his shares in the company that owned the factory, and was subsequently convicted of insider trading. It sounds from what you're saying like this story should not be accurate?
  - qeternity 9y ago
    Unless he set the fire, this story is absolutely false.
dsacco 9y ago
It is not illegal to trade on material, non-public information if it is not acquired from an insider with a confidentiality agreement and you don’t have such an agreement either. I used to find, collect and analyze supply chain data to sell exceptionally accurate earnings forecasts to a variety of funds. In every case I can recall, the analysts at these funds were extremely careful to make sure the data was legally sourced. In one particular case, a competing firm became a bit overeager and used data that broke the terms of service of a company’s website - in doing so, they threw each fund they sold the forecast to into a compliance-mandated trading lockdown on corresponding equities and derivative securities once they disclosed to the funds that they overstepped. People have a lot of misconceived ideas about what constitutes insider trading. Information asymmetry does not constitute insider trading. In fact, it would be virtually impossible to yield a positive return in trading were it not for information asymmetry. This is fundamentally why research departments exist.
- Gibbon1 9y ago
  "Information asymmetry does not constitute insider trading" Worked for a marketing department once. My boss had a monthly report on consumer product orders and sales. Cost $500,000 a year. That would be exactly the sort of thing an investment manager might have access too that a small time investor does not.

I have a huge incentive to steal all the cash that I come into contact with. Fortunately, in both of these scenarios, our actions are illegal.

by ouid 9y ago

I have a huge incentive to steal all the cash that I come into contact with. Fortunately, in both of these scenarios, our actions are illegal.

qeternity 9y ago

Most people fundamentally misunderstand material non public information (MNPI) and the laws around insider trading. Having a research desk that generates MNPI is not illegal, nor is trading on this info. Say for instance that I discover a new killer Apple product buried deep in Apple code. It's not illegal for me to trade on this info, but it is illegal for Tim Cook to. Or let's say I use satellite imagery to determine McDonald's quarterly sales, the same applies.

tptacek 9y ago
Not only is it not illegal, but the whole idea of public trading markets depends on people doing it.
- Armisael16 9y ago
  What laws or regulations does it violate? It certainly isn't insider trading if you aren't an insider. EDIT: Oops, missed the double negative.
  - tptacek 9y ago
    We're saying the same thing. You missed the "not" in my sentence. :)
- qeternity 9y ago
  Exactly. Thorough price discovery is how markets efficiently allocate capital. Traders and investors are compensated for their contributions to this process.
rwallace 9y ago
I read a story a while ago about a guy on an airline flight, looked out the window and happened to see smoke coming from a factory; on landing, he made a phone call from the airport to sell his shares in the company that owned the factory, and was subsequently convicted of insider trading. It sounds from what you're saying like this story should not be accurate?
- qeternity 9y ago
  Unless he set the fire, this story is absolutely false.

dsacco 9y ago

It is not illegal to trade on material, non-public information if it is not acquired from an insider with a confidentiality agreement and you don’t have such an agreement either. I used to find, collect and analyze supply chain data to sell exceptionally accurate earnings forecasts to a variety of funds. In every case I can recall, the analysts at these funds were extremely careful to make sure the data was legally sourced. In one particular case, a competing firm became a bit overeager and used data that broke the terms of service of a company’s website - in doing so, they threw each fund they sold the forecast to into a compliance-mandated trading lockdown on corresponding equities and derivative securities once they disclosed to the funds that they overstepped. People have a lot of misconceived ideas about what constitutes insider trading. Information asymmetry does not constitute insider trading. In fact, it would be virtually impossible to yield a positive return in trading were it not for information asymmetry. This is fundamentally why research departments exist.

Gibbon1 9y ago
"Information asymmetry does not constitute insider trading" Worked for a marketing department once. My boss had a monthly report on consumer product orders and sales. Cost $500,000 a year. That would be exactly the sort of thing an investment manager might have access too that a small time investor does not.