23 ms·

> Insider trading is one of those crimes where it is a bit ambiguous as to what the crime is (at least to me). Information travels with some speed and there wil

> Insider trading is one of those crimes where it is a bit ambiguous as to what the crime is (at least to me). Information travels with some speed and there will always be people with access to better information making better decisions. If you exploit information assymetry to make a profit, then your profit is coming at the expense of whoever had less information than you and made the transaction nonetheless. The argument goes, if you had perfect information symmetry, then the transaction would not have occurred, as the person who was willing to buy or sell the stock (for your profit, with information assymetry) would rather keep the profit for themselves. If insider trading occurs at a large enough scale, then market players begin to assume that the only plays available to them are offered by people seeking to exploit information assymetry, therefore all plays are losing plays. The result is that nobody participates in the market, and the market as a whole becomes worthless. Stop trying to think of insider trading as a crime that victimizes whoever bought or sold the shares from the person with more information, and try to see it as a crime that undermines the common infrastructure that the economy relies upon.

godzillabrennus 6y ago
Does anyone think the market is fair? The market will stay irrational longer than you stay solvent.
- Galanwe 6y ago
  The market is composed of millions of participants. Nobody is saying it is "fair" (what does it even mean? ) but it definitely is a consensus of all these participants. Don't fall in the trap of watching after-the-fact movies about previous crisis, and conclude that "some guys knew it all along but the system tried to hide it". That is not the reality. The reality is that systems at play are complex, every single day thousands of analysts predict an upcoming crisis, while other thousands predict the opposite. When you don't understand a price move, it's actually quite difficult to know whether the others are in the wrong and you know better, or if the others just know more and you're in the wrong. Watching movies about some guys that were right does not mean it's easy to know..
notahacker 6y ago
> The argument goes, if you had perfect information symmetry, then the transaction would not have occurred, as the person who was willing to buy or sell the stock (for your profit, with information assymetry) would rather keep the profit for themselves. Additional relevant context: whilst most trades can be considered to have winners and losers, in the case of insider trading the executives responsible have created losers from the [former] shareholders they're being paid to work for. Aside from undermining trust in their communication if they're intentionally concealing information to profit from, the other problem is that it's easier for executives to create insider trading opportunities by making unexpectedly bad decisions than unexpectedly positive announcements...
- solatic 6y ago
  You're right, but to be fair, you can have such a conflict of interest within privately held companies as well, where it would be well outside the scope of the SEC and entirely at the risk of private investors. Also, in some very notable examples of public companies where executives hold too large of a share of equity (primary example: Mark Zuckerberg and Facebook), public shareholders are unable to hold management accountable for decisions which public shareholders consider to be against their interests. So either one or both are true: such a scenario is better handled by corporate boards, and/or the SEC needs more teeth to prevent the consolidation of ownership / control of public companies.
vlovich123 6y ago
Except exploiting information assymetry is the raison d'etre for HFT, buying satellite pictures of parking lots [1], building private point-to-point networks & leveling mountains [2][3] One could argue the trust has been gone for a while & yet the market is still going. [1] https://www.theatlantic.com/magazine/archive/2019/05/stock-value-satellite-images-investing/586009/ https://www.theatlantic.com/magazine/archive/2019/05/stock-v... [2] https://arstechnica.com/information-technology/2016/11/private-microwave-networks-financial-hft/ https://arstechnica.com/information-technology/2016/11/priva... [3] https://www.chicagobusiness.com/article/20140717/NEWS01/140719847/chicago-high-speed-trading-firm-jump-buys-microwave-towers https://www.chicagobusiness.com/article/20140717/NEWS01/1407...

godzillabrennus 6y ago

Does anyone think the market is fair? The market will stay irrational longer than you stay solvent.

Galanwe 6y ago
The market is composed of millions of participants. Nobody is saying it is "fair" (what does it even mean? ) but it definitely is a consensus of all these participants. Don't fall in the trap of watching after-the-fact movies about previous crisis, and conclude that "some guys knew it all along but the system tried to hide it". That is not the reality. The reality is that systems at play are complex, every single day thousands of analysts predict an upcoming crisis, while other thousands predict the opposite. When you don't understand a price move, it's actually quite difficult to know whether the others are in the wrong and you know better, or if the others just know more and you're in the wrong. Watching movies about some guys that were right does not mean it's easy to know..

notahacker 6y ago

> The argument goes, if you had perfect information symmetry, then the transaction would not have occurred, as the person who was willing to buy or sell the stock (for your profit, with information assymetry) would rather keep the profit for themselves. Additional relevant context: whilst most trades can be considered to have winners and losers, in the case of insider trading the executives responsible have created losers from the [former] shareholders they're being paid to work for. Aside from undermining trust in their communication if they're intentionally concealing information to profit from, the other problem is that it's easier for executives to create insider trading opportunities by making unexpectedly bad decisions than unexpectedly positive announcements...

solatic 6y ago
You're right, but to be fair, you can have such a conflict of interest within privately held companies as well, where it would be well outside the scope of the SEC and entirely at the risk of private investors. Also, in some very notable examples of public companies where executives hold too large of a share of equity (primary example: Mark Zuckerberg and Facebook), public shareholders are unable to hold management accountable for decisions which public shareholders consider to be against their interests. So either one or both are true: such a scenario is better handled by corporate boards, and/or the SEC needs more teeth to prevent the consolidation of ownership / control of public companies.

vlovich123 6y ago

Except exploiting information assymetry is the raison d'etre for HFT, buying satellite pictures of parking lots [1], building private point-to-point networks & leveling mountains [2][3] One could argue the trust has been gone for a while & yet the market is still going. [1] https://www.theatlantic.com/magazine/archive/2019/05/stock-value-satellite-images-investing/586009/ https://www.theatlantic.com/magazine/archive/2019/05/stock-v... [2] https://arstechnica.com/information-technology/2016/11/private-microwave-networks-financial-hft/ https://arstechnica.com/information-technology/2016/11/priva... [3] https://www.chicagobusiness.com/article/20140717/NEWS01/140719847/chicago-high-speed-trading-firm-jump-buys-microwave-towers https://www.chicagobusiness.com/article/20140717/NEWS01/1407...