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And the people who can consistently do insider trading are also the people who can use parallel construction to justify their trading decisions. For every possi

And the people who can consistently do insider trading are also the people who can use parallel construction to justify their trading decisions. For every possible trade there are advisers out there for both sides of the trade, if you already know which side is going to win all you have to do is listen to your own choice of advisers beforehand. "Yes your Honour, I talked to Fred from Conveniently Biased Advisers LLC three days before the event. He assured me that this trade would benefit me, so I made the trade."

kerkeslager 9y ago
Can you point to an example of parallel construction being (successfully) used as a defense in an insider trading case? If the prosecution can prove that you had insider knowledge, it seems like the availability of non-insider knowledge isn't relevant because literally everyone has access to non-insider knowledge (that's the definition of what makes insider knowledge--that not everyone has access to it). I've heard of parallel construction being used to prosecute in criminal cases with illegally-collected evidence, but never as a defense. That said, I'm not a lawyer and I don't follow case law in that much detail, so I wouldn't be surprised at all if this has happened.
- pfranz 9y ago
  From the little I've seen about the law, very rarely are things air-tight. For jurors in all trials, they often talk to them about the "CSI effect" where the average person assumes to convict there's tidy, irrefutable forensic evidence. I can see how parallel construction allows someone to lean on that and help blow off any possible exposure to insider knowledge to avoid the burden proof necessary to convict. White collar crimes have always been notoriously hard to prove.
- refurb 9y ago
  I would guess the ones who are smart enough to "parallel construct" are the ones that don't get caught? The SEC looks at trading history when investigating insider trading. Never bought stock X, but 3 days before a merger you bought a ton of out-of-the-money call options? You bet the SEC will be talking to you. Have a history of investing in a sector and make a not-out-of-the-ordinary large purchase of stock 3 days before the merger? The SEC might just choose to go after the bigger fish.
- tankenmate 9y ago
  The point is you'd never have such a case, the prosecutors would never bring a case that was so easy for the defence to torpedo.
opportune 9y ago
I think there's a second, much more complicated problem looming on the horizon. Big quant, data-driven hedge funds are able to make sense of public data in ways that retail investors, and even old-school institutional investors, cannot. I'm talking about things like predicting crop yields, predicting quarterly revenues, or just seeing complex multivariate trends that others don't. Clearly it's not technically insider trading to trade on your analysis of public data, so it's not really insider trading to tell others (e.g. friends, or "yourself" if you personally trade using information you gleaned from work) about the information. But functionally, it pretty much is insider trading, because you might be the only person in the world with that knowledge. I'm curious to see how quant investing holds up over the future. Currently, retail investing is disadvantaged compared to institutional, but not so much that it's a waste of time altogether. Quant strategies will widen the gap. Hopefully average people will have the ability to invest in quant funds so they don't get left in the dust.
- froindt 9y ago
  >But functionally, it pretty much is insider trading, because you might be the only person in the world with that knowledge. That's great! It helps the markets become more efficient. You can freely tell people that info, use it exclusively for yourself, or sell it to others.
- vkou 9y ago
  The problem with insider trading is not that some people can make better trades then others - the problem is in the conflict of interest that insider trading produces.

kerkeslager 9y ago

Can you point to an example of parallel construction being (successfully) used as a defense in an insider trading case? If the prosecution can prove that you had insider knowledge, it seems like the availability of non-insider knowledge isn't relevant because literally everyone has access to non-insider knowledge (that's the definition of what makes insider knowledge--that not everyone has access to it). I've heard of parallel construction being used to prosecute in criminal cases with illegally-collected evidence, but never as a defense. That said, I'm not a lawyer and I don't follow case law in that much detail, so I wouldn't be surprised at all if this has happened.

pfranz 9y ago
From the little I've seen about the law, very rarely are things air-tight. For jurors in all trials, they often talk to them about the "CSI effect" where the average person assumes to convict there's tidy, irrefutable forensic evidence. I can see how parallel construction allows someone to lean on that and help blow off any possible exposure to insider knowledge to avoid the burden proof necessary to convict. White collar crimes have always been notoriously hard to prove.
refurb 9y ago
I would guess the ones who are smart enough to "parallel construct" are the ones that don't get caught? The SEC looks at trading history when investigating insider trading. Never bought stock X, but 3 days before a merger you bought a ton of out-of-the-money call options? You bet the SEC will be talking to you. Have a history of investing in a sector and make a not-out-of-the-ordinary large purchase of stock 3 days before the merger? The SEC might just choose to go after the bigger fish.
tankenmate 9y ago
The point is you'd never have such a case, the prosecutors would never bring a case that was so easy for the defence to torpedo.

opportune 9y ago

I think there's a second, much more complicated problem looming on the horizon. Big quant, data-driven hedge funds are able to make sense of public data in ways that retail investors, and even old-school institutional investors, cannot. I'm talking about things like predicting crop yields, predicting quarterly revenues, or just seeing complex multivariate trends that others don't. Clearly it's not technically insider trading to trade on your analysis of public data, so it's not really insider trading to tell others (e.g. friends, or "yourself" if you personally trade using information you gleaned from work) about the information. But functionally, it pretty much is insider trading, because you might be the only person in the world with that knowledge. I'm curious to see how quant investing holds up over the future. Currently, retail investing is disadvantaged compared to institutional, but not so much that it's a waste of time altogether. Quant strategies will widen the gap. Hopefully average people will have the ability to invest in quant funds so they don't get left in the dust.

froindt 9y ago
>But functionally, it pretty much is insider trading, because you might be the only person in the world with that knowledge. That's great! It helps the markets become more efficient. You can freely tell people that info, use it exclusively for yourself, or sell it to others.
vkou 9y ago
The problem with insider trading is not that some people can make better trades then others - the problem is in the conflict of interest that insider trading produces.