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Eventually an anonymous prediction market will take off, and that will be the end of insider trading enforcement. People in the know will bet on the stock price

Eventually an anonymous prediction market will take off, and that will be the end of insider trading enforcement. People in the know will bet on the stock price via the prediction market, and the market will react based on those bets.

chatmasta 8y ago
Or the stock market will adjust to the predictions and any advantage will be lost.
rossdavidh 8y ago
In theory, once that happens, anyone who does not have insider trading knowledge will leave the market, either because they keep losing and don't like that, or because they run out of money to lose.
paulpauper 8y ago
insider trading is not proof of material information though, and inside trades as per SEC are disclosed to public. it only becomes illegal when it's done knowingly in anticipation of disclosure materially significant news, but even if one could see the trades being done, one would have no way of knowing why unless they were insiders themselves. Just blinding following insider trades will likely lead to many false signals.
lordnacho 8y ago
https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons essential paper for thinking about this.
gruez 8y ago
options/futures are essentially prediction markets, and they already exist.
- currymj 8y ago
  but not anonymous — they are definitely monitored, not really useful for insiders to do insider trading. after all, Matt Levine’s second rule of insider trading is “don’t do it by buying short-dated out-of-the-money call options on merger targets”.
dooglius 8y ago
How would this differ from people now communicating with insiders anonymously, say via Tor?
- baddox 8y ago
  The main difference I see is that you wouldn’t trust an anonymous tip by a supposed insider, but you would trust transactions in a well-reputed anonymous prediction market.
nabla9 8y ago
If you make substantial sum of money and try to use it in the real world, they have to show it's origin or it's confiscated. In most of the world anything larger than $10,000 or 10,000 EUR is tracked. We have anonymous money for the most of the history and laundering the money into legitimate money has always been difficult and expensive process. It can be done but you pay typically 20-30% for the service and it's risky.
baq 8y ago
The article clearly says what will happen: there won't be enough participants that would be willing to be suckers in that market, hence it'll die quicky.
- gpm 8y ago
  You could make guaranteed money on it as a "sucker", just run an arbitrage between it and the stock market.
  - dmurray 8y ago
    That's not being a sucker. The sucker is the guy who takes the other side of your arbitrage bets, when he could get a better price going to the stock market directly. And unless the prediction market has really good marketing, that guy doesn't exist.
    - gpm 8y ago
      Oh, I assumed that he meant the people participating in this anonymous prediction market without insider knowledge are suckers. As someone with insider knowledge I can also make (practically) guaranteed money. I just can't do it on the stock market since it's blatantly illegal and the stock market isn't anonymous. So I (assuming I am unethical and willing to take the risk of being caught) will also participate.
      - dmurray 8y ago
        Whether this is illegal depends on your jurisdiction. In the US, running a prediction market on US-listed stocks is very illegal. I'm not clear whether it's illegal to participate in one, even as an insider (this is not legal advice). In Europe you can run a shadow stock market like this - currently CFDs are the popular way to do it - but it's generally illegal to insider trade on one.
- arisAlexis 8y ago
  an article cannot clearly predict what will happen. It can assume. Don't take it as Bible and keep an open mind into the future.

chatmasta 8y ago

Or the stock market will adjust to the predictions and any advantage will be lost.

rossdavidh 8y ago

In theory, once that happens, anyone who does not have insider trading knowledge will leave the market, either because they keep losing and don't like that, or because they run out of money to lose.

paulpauper 8y ago

insider trading is not proof of material information though, and inside trades as per SEC are disclosed to public. it only becomes illegal when it's done knowingly in anticipation of disclosure materially significant news, but even if one could see the trades being done, one would have no way of knowing why unless they were insiders themselves. Just blinding following insider trades will likely lead to many false signals.

lordnacho 8y ago

https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons essential paper for thinking about this.

gruez 8y ago

options/futures are essentially prediction markets, and they already exist.

currymj 8y ago
but not anonymous — they are definitely monitored, not really useful for insiders to do insider trading. after all, Matt Levine’s second rule of insider trading is “don’t do it by buying short-dated out-of-the-money call options on merger targets”.

dooglius 8y ago

How would this differ from people now communicating with insiders anonymously, say via Tor?

baddox 8y ago
The main difference I see is that you wouldn’t trust an anonymous tip by a supposed insider, but you would trust transactions in a well-reputed anonymous prediction market.

nabla9 8y ago

If you make substantial sum of money and try to use it in the real world, they have to show it's origin or it's confiscated. In most of the world anything larger than $10,000 or 10,000 EUR is tracked. We have anonymous money for the most of the history and laundering the money into legitimate money has always been difficult and expensive process. It can be done but you pay typically 20-30% for the service and it's risky.

baq 8y ago

The article clearly says what will happen: there won't be enough participants that would be willing to be suckers in that market, hence it'll die quicky.

gpm 8y ago
You could make guaranteed money on it as a "sucker", just run an arbitrage between it and the stock market.
- dmurray 8y ago
  That's not being a sucker. The sucker is the guy who takes the other side of your arbitrage bets, when he could get a better price going to the stock market directly. And unless the prediction market has really good marketing, that guy doesn't exist.
  - gpm 8y ago
    Oh, I assumed that he meant the people participating in this anonymous prediction market without insider knowledge are suckers. As someone with insider knowledge I can also make (practically) guaranteed money. I just can't do it on the stock market since it's blatantly illegal and the stock market isn't anonymous. So I (assuming I am unethical and willing to take the risk of being caught) will also participate.
    - dmurray 8y ago
      Whether this is illegal depends on your jurisdiction. In the US, running a prediction market on US-listed stocks is very illegal. I'm not clear whether it's illegal to participate in one, even as an insider (this is not legal advice). In Europe you can run a shadow stock market like this - currently CFDs are the popular way to do it - but it's generally illegal to insider trade on one.
arisAlexis 8y ago
an article cannot clearly predict what will happen. It can assume. Don't take it as Bible and keep an open mind into the future.