4 ms·

Indeed, insider trading benefits everybody by adding more information to the markets, leading to more accurate prices.

• daenz 5y ago
  To people disagreeing with this, can you give a counter argument? On face value, what rosndo said seems to make sense.
  • mchusma 5y ago
    I actually agree it should be legal, but the argument is basically one of fairness. That in the market, retail investors compete against insiders. In practice. The world is unfair, and retail investors must compete against all kinds of people with unfair advantages. If insiders could legally trade, then the ability to profit off insider trading would go down.
    • economist6373 5y ago
      It’s important to understand that the usual argument against insider trading isn’t actually about true fairness, but rather the impression of fairness. These are two different things. The argument that insider trading should be banned because it is somehow disproportionately unfair is quite weak, the argument that it creates an impression of unfairness is a much stronger one. I personally don’t believe it is a particularly good argument, but it is certainly the strongest version of the argument against insider trading.
  • deObfuscate 5y ago
    Their obviously wasn't much thought put in to this. Anywhere that a conflict of interest occurs has potential for abuse. If the officer/employee/agent has the ability to influence the result and profit then their is a conflict of interest. The legal ramifications are lessened and the cost to benefit subsequently decreases. Auditors are a good example. They have privileged information and are responsible for the fairness of financial information / disclosure. Their incentives are already complicated by the compensation structure, i.e. the company they attest for pays their fee and ultimately decides whether they will work together in the future. In this instance, an abolishment to insider trading regulation would ultimately undermine trust in the financial reporting system. The auditors could potentially place bets on their engagements and negotiate results based on their interests. Impartiality would be compromised. There are safeguards in place currently, penalties for insider trading are part of the remedy.
    • economist9374 5y ago
      > The auditors could potentially place bets on their engagements and negotiate results based on their interests. Impartiality would be compromised This is a very odd straw man. What you are describing would still be a crime in a world in which insider trading is legal. I think you are the one who didn’t put much thought into this.
  • QuadmasterXLII 5y ago
    One argument would be that the people who accumulate wealth through insider trading go on to be destructive.
• mlazos 5y ago
  Prices are a function of number of market participants and information of each participant. If insider trading is legal, fewer people will participate in the market because they will lose out due to information asymmetry and this will lead to pricing inefficiencies. What’s interesting is that what others are willing to pay is key public information as well.
  • economist9374 5y ago
    > If insider trading is legal, fewer people will participate in the market because they will lose out due to information asymmetry and this will lead to pricing inefficiencies. This only makes sense in a world where regulators can effectively prevent insider trading, that’s not the world we live in though.
    • viraptor 5y ago
      Does it really? We have a lot of laws and activities where we know there not perfect, yet we set the right incentives. Having laws against murder does not effectively prevent most of murder from happening.
      • economist5932 5y ago