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Insider trading is about theft of intellectual property not fairness: i.e these individuals were stealing from Netflix. It's just that corporate lobbyists have
by smabie 5y ago
Insider trading is about theft of intellectual property not fairness: i.e these individuals were stealing from Netflix. It's just that corporate lobbyists have convinced the government to take up the fight for then.
In my opinion it should be a civil matter.
- a-dub 5y agohuh. insider trading is about information asymmetry. material nonpublic information harms those who take the other side of tipped trades and therefore harms everyone in the market. intellectual property is about actual things and how they're made, and unlike mnpi it has intrinsic value outside of speculating on securities prices. tradable material nonpublic information isn't useful as most intellectual property is, but intellectual property, or knowledge of its development, can be tradable material nonpublic information. netflix isn't harmed when their employees leak business performance numbers and their associates trade on them, the people who took the other side of those trades are the ones who are harmed. if it happens a lot, the whole market is harmed, if it happens a lot in one company, then that one company is harmed. it ain't rocket science.
- cwkoss 5y ago> and therefore harms everyone in the market. I've heard this argument before and I'm not sure I buy it. Isn't 'efficient price discovery' the primary selling point of markets? Does the artificial suppression of information until "everyone" (but in practice mostly just HFTs these days) has equal chance to react to it meaningfully hurt retail investors, or is it mostly just taking profits from other people trying to game earnings announcements for profit?
- a-dub 5y agowhat do you think would happen if insider trading were not illegal?
- cwkoss 5y agoThere would be less volatility around earnings announcements, because the market would have already reacted to that information. i.e. markets would become accurate more quickly
- a-dub 5y agoright, but all those reacting would be insiders. wouldn't that mean that my 401k, or my college endowment, or my favorite foundation's endowment would be left holding the bag? why would any institutions invest in such a system?
- cwkoss 5y agoHmmm. I wonder to what extent institutional investors are able to get out early when there is an earnings miss. I guess I assume they usually get front run by day traders anyways, but not sure how/where to find data to answer that question.
- a-dub 5y agomoreover, if insiders within a listed company were able to trade that company's stock freely, wouldn't it be more consistently profitable for them to intentionally generate surprise volatility in their company's stock price, and then trade against the market with the alpha that they've engineered for themselves? how many other schemes that ultimately defraud investors could be cooked up? imagine a company that reported realtime profit and loss through the magic of computers in a world with no insider trading regs. the sales team (or whatever team has the biggest ability to impact realtime pnl) would be making and cancelling deals just so they could trade on them. quarterly earnings and embargoes around them are kind of the last bastion of the idea of ensuring long term incentives, if anything we need more long term incentives, not less.
- m101 5y agoPart of my point is that people's ability to make an algorithm to react quickly is unequal, even if the opportunity to do so is equalised under insider trading regs. The profit will flow towards those with the ability, which the regulations favour.