4 ms·
Your other comments show that you don't understand three concepts when it comes to insider: 1) who an insider is 2) what information is privileged and 3) why is
by hervature 5y ago
Your other comments show that you don't understand three concepts when it comes to insider: 1) who an insider is 2) what information is privileged and 3) why is it bad.
1) Many jurisdictions have specific people (officers and major owners) designated. The US is fairly unique in that an insider is someone who trade on material non-public information that violates trust. This is what allows for these friends of low level marketing/accounting people to be charged. Overhearing something doesn't put you in a position of trust. Being sent an email accidentally and being notified that you can't trade on it is something else.
2) Material non-public information means information that has not been publicized and that will definitely impact the price of the stock. People "trash talking" their coworkers is not material because you have no way of knowing if that is their sentiment or if the company is actually falling apart. Someone saying "We are getting rid of our entire engineering department because I don't like them. Look here is all the legal paperwork." is something completely different.
3) Insider trading is bad because it erodes the trust of outside investors. As an outsider, you want the confidence that insiders aren't going to get the better end of the deal always. That in the event of something bad happening, the insiders don't get to bail first. Without outside investors, there is no stock market.
- deleted 5y ago[deleted]
- dheera 5y ago> That in the event of something bad happening, the insiders don't get to bail first. I don't get this. What's wrong with victimized insiders, who are just drones and aren't responsible for the decisions of the company, bailing first? What I think makes much more sense is to not let large shareholders, especially executives with decision-making power, bail first. Small insiders are typically victims, not perpetrators, of bad news, and not rewarded enough for good news. How about a system in which if a low-paid worker of a company (say a warehouse worker, driver, etc. who is having trouble paying their rent) trades 1 share, it goes through in 1ms, giving them an edge over the hedge funds, but if the CEO trades 100000 shares, it takes 3 months before the order goes into the order book and gets executed? In such a system we could allow insider trading, it's just that those trying to bail out of millions of dollars just can't.
- hervature 5y agoYou are failing to understand the information component again. Insiders can definitely trade. The low-paid worker and CEO can trade just like outside investors. But the CEO is under much closer scrutiny and thus usually have regular stock sales so that they can claim "I have been selling 1,000 shares every month for the last 3 years" when faced with criticism. Again, the low-paid worker is free to trade whenever. But if the SEC spots an someone who consistently gets outsized returns in peculiarly timed trades, they are going to investigate. That person better have no proof of material non-public information at the time of those trades.
- mirker 5y agoYou’d have to also control external “laundering” of money through the insiders. The hedge funds could pay the insiders for trades or information.