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That is not quite the same as what people object to. They object to someone trading because they overhead two CEOs discussing a merger at the table next to them

That is not quite the same as what people object to. They object to someone trading because they overhead two CEOs discussing a merger at the table next to them at a restaurant.

jessriedel 7y ago
Sure, that is the sort of thing they have in mind, but what is the principle that is supposed to distinguish that intuitive case from the chemical one?
- pas 7y ago
  The information asymmetry. No amount of research can produce the same information. That said "just overheard" is not a sure thing either, so it can be argued that it's possible to get similar quality of information from other sources. (Eg looking at their trash, looking at who goes to their office, which law firm offices do they visit.) But this is what courts determine post hoc. If the overhearing was a baseless rumor/joke, or the merger simply went nowhere for some reason, no one will care about this proto-crime. Also, it's up for debate for the courts which kinds of information can be determined from public sources. Is there a "holographic principle" for insider material information or not? (And even if there is the practical accessibility, computational requirements and so on make a big difference.)
  - jessriedel 7y ago
    My claim is that there isn't a remotely clear place to put a line between honest research and sifting through the garbage, and if you try and force the court to draw the line it will instantly become impossibly convoluted and inefficient, so that no non-lawyer could possibly know what's legal, and would not at all track the moral and efficiency principles we want. (The fact that courts have been put in this position in the past is not a good reason to do it again.) Like, shouldn't the legislators/regulators do as much line-drawing as possible beforehand, as part of the democratic process? Leaving things up to the court is defensible when the ambiguities are unforeseeable or impossibly numerous, but neither apply here.
    - TheSpiceIsLife 7y ago
      > there isn't a remotely clear place to put a line > Leaving things up to the court is defensible when the ambiguities are unforeseeable or impossibly numerous, but neither apply here. It appears you said one thing, and then the opposite. Was that intentional? As it makes your comment seem internally inconsistent. If there isn’t a clear line, how will legislators set demarcation points that people won’t argue in court?
      - jessriedel 7y ago
        No, it's not inconsistent, although I can see why it reads that way. Currently, you are proposing to draw a line between two cases, A and B. One is intuitively bad (to some people), the other is intuitively good. If we all agreed that the line absolutely needed to be drawn somewhere between them, and if we also agreed that there was no clear way to draw it, we'd have no choice but to pick some vague language and just trust judges to apply good judgement. (This is often the case when laws appeal to what a "reasonable" person would think.) However, I am suggesting that we simply not draw the line between A and B and have them both be legal because: (1) The "bad" one is actually not that bad, both morally and efficiency-wise, especially when we clearly announce "this behavior is going to be legal, so everyone needs to be careful and protect themselves"; and (2) there are other places to draw the line that are not so hopelessly disputable. Since I am suggesting we put the line somewhere else where it can be made unambiguous, we are not forced to rely (nearly as much) on court interpretation.
- DennisP 7y ago
  If you got the information from someone legally classified as an insider, then it's insider trading. If you developed it yourself from public sources, it's not. (I'm not a lawyer, but that's what I've read.)
  - jessriedel 7y ago
    Thanks, that's useful. By "public sources" do you mean "anywhere that's not an insider-as-currently-defined-by-law", rather than literally public? This is important because incentivizing the making public of non-public(-but-not-insider-obtained) info is a crucial job of markets. I'd be interested in a link to further reading if you can recommend one.
    - DennisP 7y ago
      I don't have a source handy but yes, that's my understanding. An example I saw in one article was a hedge fund that bought satellite imagery, and counted cars in parking lots to estimate how well a business was doing. That's fine, because it wasn't information that came from an insider.
galangalalgol 7y ago
And i think the objection is partially because that is easy to abuse. "overheard"

That is not quite the same as what people object to. They object to someone trading because they overhead two CEOs discussing a merger at the table next to them at a restaurant.

jessriedel 7y ago

Sure, that is the sort of thing they have in mind, but what is the principle that is supposed to distinguish that intuitive case from the chemical one?

pas 7y ago
The information asymmetry. No amount of research can produce the same information. That said "just overheard" is not a sure thing either, so it can be argued that it's possible to get similar quality of information from other sources. (Eg looking at their trash, looking at who goes to their office, which law firm offices do they visit.) But this is what courts determine post hoc. If the overhearing was a baseless rumor/joke, or the merger simply went nowhere for some reason, no one will care about this proto-crime. Also, it's up for debate for the courts which kinds of information can be determined from public sources. Is there a "holographic principle" for insider material information or not? (And even if there is the practical accessibility, computational requirements and so on make a big difference.)
- jessriedel 7y ago
  My claim is that there isn't a remotely clear place to put a line between honest research and sifting through the garbage, and if you try and force the court to draw the line it will instantly become impossibly convoluted and inefficient, so that no non-lawyer could possibly know what's legal, and would not at all track the moral and efficiency principles we want. (The fact that courts have been put in this position in the past is not a good reason to do it again.) Like, shouldn't the legislators/regulators do as much line-drawing as possible beforehand, as part of the democratic process? Leaving things up to the court is defensible when the ambiguities are unforeseeable or impossibly numerous, but neither apply here.
  - TheSpiceIsLife 7y ago
    > there isn't a remotely clear place to put a line > Leaving things up to the court is defensible when the ambiguities are unforeseeable or impossibly numerous, but neither apply here. It appears you said one thing, and then the opposite. Was that intentional? As it makes your comment seem internally inconsistent. If there isn’t a clear line, how will legislators set demarcation points that people won’t argue in court?
    - jessriedel 7y ago
      No, it's not inconsistent, although I can see why it reads that way. Currently, you are proposing to draw a line between two cases, A and B. One is intuitively bad (to some people), the other is intuitively good. If we all agreed that the line absolutely needed to be drawn somewhere between them, and if we also agreed that there was no clear way to draw it, we'd have no choice but to pick some vague language and just trust judges to apply good judgement. (This is often the case when laws appeal to what a "reasonable" person would think.) However, I am suggesting that we simply not draw the line between A and B and have them both be legal because: (1) The "bad" one is actually not that bad, both morally and efficiency-wise, especially when we clearly announce "this behavior is going to be legal, so everyone needs to be careful and protect themselves"; and (2) there are other places to draw the line that are not so hopelessly disputable. Since I am suggesting we put the line somewhere else where it can be made unambiguous, we are not forced to rely (nearly as much) on court interpretation.
DennisP 7y ago
If you got the information from someone legally classified as an insider, then it's insider trading. If you developed it yourself from public sources, it's not. (I'm not a lawyer, but that's what I've read.)
- jessriedel 7y ago
  Thanks, that's useful. By "public sources" do you mean "anywhere that's not an insider-as-currently-defined-by-law", rather than literally public? This is important because incentivizing the making public of non-public(-but-not-insider-obtained) info is a crucial job of markets. I'd be interested in a link to further reading if you can recommend one.
  - DennisP 7y ago
    I don't have a source handy but yes, that's my understanding. An example I saw in one article was a hedge fund that bought satellite imagery, and counted cars in parking lots to estimate how well a business was doing. That's fine, because it wasn't information that came from an insider.

galangalalgol 7y ago

And i think the objection is partially because that is easy to abuse. "overheard"