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What I outlined above is why your BD acting in bad faith is illegal under the securities law. It's not even a grey area. Put your security research hat on for

by 001sky 13y ago

What I outlined above is why your BD acting in bad faith is illegal under the securities law. It's not even a grey area. Put your security research hat on for a moment. The "other side" of the trade wants to get the info subject to BD confidentiality (pt 2) and the exploit them (pt 3,4). When your BD does this it is expressly illegal. This has a name but mentioning it here would just confuse the issue. The question is this: what tools are available to this "other side" that would put the NPI in the hands of the "other side" but not divulge it more broadly? Would a bad-faith offer to do a ("sweet") biz deal be good enough bait to social engineer selective disclosure? Unless you can rule this out technologically, you have to rule it in for consideration. It's best not to get sidetracked on whether the divulged info is legally NPI or PI (just yet) and look at it purely from a pragmatic perspective like a security credential. The BD either has it under control or not. And is it physically possible in terms of bits to have selective disclosure? And if it is does the pretext matter? Make no mistake: the BD cannot hide if he abuses the information directly. He's like an authorized user. The issue is what level of authorization you give the counter-party and how to protect its abuse. The technical details and legality of pretexting security credentials is something I'm sure you could speak authoritatively to. I'm only using it as an example here for illustrative purposes.

tptacek 13y ago
Canceling an order isn't "illegal under the securities law". In fact, neither is backing out of a term sheet.
- 001sky 13y ago
  BD == your agent, has fiduciary duty to you...etc "When executing trade orders on behalf of a customer, the institution is said to be acting as a broker" https://en.wikipedia.org/wiki/Broker-dealer https://en.wikipedia.org/wiki/Broker-dealer
  - tptacek 13y ago
    Nobody you are talking about in either scenario is doing that.
    - 001sky 13y ago
      Explain 'nobody', 'scenario' and 'that'? This sidebar conv. seems to be degrading a bit. General comment: I think you are over simplifying the P&L of a trader. The HFT stuff impacts hedging costs. And the ability to solicit grey/NPI. Note they are not urelated. Also, if you just look at bid/ask and Volume...you never see the $$ value of this. Las comment: the so called: "profit guarantees" just means perfectly hedged trades with no ∆ (net exposure). its not literal its a simplification yet directionally correct.
      - tptacek 13y ago
        With all due respect, this discussion is degrading because you've responded to each of my comments with a non-sequitur. I write responses to you with zero hope of us coming any closer to shared understanding; I have the feeling less of building anything interesting in these discussions, but instead of having taken the bait.
        001sky 13y ago
        Look: As a general rule, people should act in good faith. That is the point I raised here when you jumped in. Its a fair counter-point to say that adding strategic uncertainty is not blanket illegal. But as a general rule, we don't encourage bad faith actors. Same is my view on posting comments to HN. The reason I raised this point with the sub-thread op is as follows. Not goint to use my own words to provide some objectivity. This is from PG, so I hope you respect it at face value. To founders, the behavior of investors is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of investors combine horribly with the wishful thinking of inexperienced founders. At YC we're always warning founders about this danger, and investors are probably more circumspect with YC startups than with other companies they talk to, and even so we witness a constant series of explosions as these two volatile components combine.[1] This is important insight. It mentions the risk of bad faith dealings specifically and at a general level of abstraction that is intuitive to grasp. Its good reading for its intended audience. I'm going to re-word this to put this in a slightly different context (but one relevant to this thread). These are words I would not have a problem putting in front of a rookie trader on day 1 of the job: To [a rookie], the behavior of [deal counter-parties] is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of [counter-parties] combine horribly with the wishful thinking of inexperienced [rookies -- that are unprepared]. At [Co X] we're always warning [rookies] about this danger, and [counter-parties] are probably more circumspect with [our trades] than with other companies they talk to, and even so we witness a constant series of explosions as these two volatile components combine. The motivations and ways trades can go wrong have similarities accross asset classes. Market practitioners can speak to this from experience. Over tha past 15 years or so, in particular more shops have become "stage agnostic" in PE and "asset class agnostic" in various other vehicles. The reason this is possible is because these abstractions have become better known. [1] http://paulgraham.com/fr.html http://paulgraham.com/fr.html

by 001sky 13y ago

tptacek 13y ago

Canceling an order isn't "illegal under the securities law". In fact, neither is backing out of a term sheet.

001sky 13y ago
BD == your agent, has fiduciary duty to you...etc "When executing trade orders on behalf of a customer, the institution is said to be acting as a broker" https://en.wikipedia.org/wiki/Broker-dealer https://en.wikipedia.org/wiki/Broker-dealer
- tptacek 13y ago
  Nobody you are talking about in either scenario is doing that.
  - 001sky 13y ago
    Explain 'nobody', 'scenario' and 'that'? This sidebar conv. seems to be degrading a bit. General comment: I think you are over simplifying the P&L of a trader. The HFT stuff impacts hedging costs. And the ability to solicit grey/NPI. Note they are not urelated. Also, if you just look at bid/ask and Volume...you never see the $$ value of this. Las comment: the so called: "profit guarantees" just means perfectly hedged trades with no ∆ (net exposure). its not literal its a simplification yet directionally correct.
    - tptacek 13y ago
      With all due respect, this discussion is degrading because you've responded to each of my comments with a non-sequitur. I write responses to you with zero hope of us coming any closer to shared understanding; I have the feeling less of building anything interesting in these discussions, but instead of having taken the bait.
      - 001sky 13y ago
        Look: As a general rule, people should act in good faith. That is the point I raised here when you jumped in. Its a fair counter-point to say that adding strategic uncertainty is not blanket illegal. But as a general rule, we don't encourage bad faith actors. Same is my view on posting comments to HN. The reason I raised this point with the sub-thread op is as follows. Not goint to use my own words to provide some objectivity. This is from PG, so I hope you respect it at face value. To founders, the behavior of investors is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of investors combine horribly with the wishful thinking of inexperienced founders. At YC we're always warning founders about this danger, and investors are probably more circumspect with YC startups than with other companies they talk to, and even so we witness a constant series of explosions as these two volatile components combine.[1] This is important insight. It mentions the risk of bad faith dealings specifically and at a general level of abstraction that is intuitive to grasp. Its good reading for its intended audience. I'm going to re-word this to put this in a slightly different context (but one relevant to this thread). These are words I would not have a problem putting in front of a rookie trader on day 1 of the job: To [a rookie], the behavior of [deal counter-parties] is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of [counter-parties] combine horribly with the wishful thinking of inexperienced [rookies -- that are unprepared]. At [Co X] we're always warning [rookies] about this danger, and [counter-parties] are probably more circumspect with [our trades] than with other companies they talk to, and even so we witness a constant series of explosions as these two volatile components combine. The motivations and ways trades can go wrong have similarities accross asset classes. Market practitioners can speak to this from experience. Over tha past 15 years or so, in particular more shops have become "stage agnostic" in PE and "asset class agnostic" in various other vehicles. The reason this is possible is because these abstractions have become better known. [1] http://paulgraham.com/fr.html http://paulgraham.com/fr.html