This will not be a popular opinion, but just to give my random 2 cents.
I theorize that the best way to solve the fairness issue of insider trading is to make it legal, but incredibly transparent. There is no way to catch the overwhelming majority of the actual insider trading that happens short of a dystopian SEC that continuously monitors everybody's phone calls, movements, emails, and all of their finances or just banning employees of publicly traded corporations from investing in their hard work, which also seems unfair.
The best way to benefit the public is for price speculation by insiders to be telegraphed either in real-time, or preferably with advance notice, to any member of the public.
If Joe Sixpack working at Apple wants to buy or sell stock or options the day before earnings (or any other day) based on some knowledge he has, I'd say it should be legal. He should just have to report that intent to some SEC website. Any member of the public should be able to go to some well-designed SEC website the day before and see that Joe along with 465 other employees plan to buy XXXX calls. If insiders want to trade in publicly traded companies, people should be able to have data on that to notice patterns and benefit from this information. If they decide they want to sell some stock, that should be reported at least in real time, or preferably with at least 1 day notice. If the goal is to benefit the greater public, the information should be designed to flow to the public.
This pre-knowledge of their trades is the rule I especially want to impose on the corrupt legislators, some of whom are known as suspiciously good traders for senile old people. The rules that they can wait 30 days before disclosing their deals are BS. They should be reported at least in real-time, or preferably at least a day before. This seems like a small price to pay for making the rules that pick the winners and losers in the marketplace, as well as the overall direction of the economy.
This is basically no change to the current system as it depends on honesty.
Now, it is "Don't do this and be honest about it"
You propose "Do this, and be honest about it"
I mean, if you weren't being honest before, I highly doubt you'd be honest now. It'll be like buying a used car at that point. All the seller has to do is lie, which will be easy if there are only 5 people in the company that knows of its doom. It isn't like they are going to talk to the buyer personally, either.
Yeah. It also does nothing to solve an insider sharing nonpublic information with a third party investor (with whom he/she then in some way share the profit made by trade).
I mean, it does. Because why bother if you can do the trades on your own account and share nothing?
If your trading broadcasts information moving the share price in the direction you're predicting... that's better for you. It's giving every insider a micro Buffet effect to their trades. Why in Gods name would they not use it?
Original comment suggest making insider trading transparent, by sharing insider trades in real-time or even with at least 1 day advance notice. So, there is data being shared. Outsourcing trades to a 3rd party would circumvent that data sharing (assuming insider trade reporting is automatic).
I mean, sure the advance notice version is bad and you just cheat the same way you do now. But if you just have to declare your trades immediately with a tag... there is no reason at all to hide that?
I completely agree that making insiders' trade public and real time (so it's legal to trade with insider info) makes a lot of sense. Information asymmetry is the problem with insider trading, which is solvable by making this info public via the trade action, and not the idea that some people are advantaged via insider info (i don't care if such and such senator or exec gets a good trade using insider info - i care that the info is late to the market and the public can't know it in time).
However, there's still one aspect which cannot be captured by such a transparent info source - the change of heart; i.e., if an insider were going to sell, but hears private insider news that makes it good to "keep" the stock, this info doesn't flow out. Inaction is also an important piece of insider info which insiders "act" on.
I suppose if the good news makes the previously intended sale not happen, it _should_ theoretically also make the insider want to buy more (subject to cash i guess). So hopefully, such insider "inaction" doesn't happen very often.
You don't necessarily need a programmable cryptocurrency to accomplish this, but think in terms of what's possible with smart contracts. If condition X is met, then take action Y.
Insider trades could be locked in with some form of conditional logic. If price goes over X on this date, then sell. If price goes under X on this date, then buy. Etc.
What about if the trader had to disclose the trade but also give conditions under which it would happen (to protect the trader from changes in the market), e.g. they could say to buy only if the price is within a certain range. The trade would be locked in from that point.
> He should just have to report that intent to some SEC website.
And how would you enforce that?
Even if you could, without the dystopian SEC that you fear, it would still be unfair if in real-time. With advance notice, it'd be completely gameable:
1. Musk advertises his intent to buy TWTR
2. Public reacts
3. Musk sells, but doesn't follow through on the buy.
I'm surprised it's not a popular opinion. It seems to fit well with libertarian/laissez-faire ideology.
If it was legal, retail might better understand that they're less knowledgable about a stock than the insiders. Instead we have the compromise where retail believes insider trading doesn't happen but it's actually rampant and retail are the least likely to benefit from it.
"Blue" about SOME social issues, extremely right-wing libertarian regarding other topics like economics, foreign policy and the environment. It is pretty much aligned with mainstream Democrats so at the end you are correct.
Very much so, yes. Anarcho-capitalist is the prevailing economic inclination of most people on HN. On the social scale, it seems more evenly split between progressive, conservative, with some reactionaries here and there.
Mapping that on the stupid US blue vs red scale is downright impossible.
> Anarcho-capitalist is the prevailing economic inclination of most people on HN.
Most people? What?
You're entitled to any perception of reality that you want, but I find it hard to believe that anybody can genuinely perceive ancaps to be the prevailing economic opinion here.
Well that's just the impression i get, it's not like we can have actual data on the matter.
But every discussion I've seen where economics have been brought up, anti-regulation, pro-business, "free market will fix everything", "all the problems come from the regulation and because it's not a true free market" opinions seem to be the majority. Regardless of the topic - be it environmental regulations, monetary policies, the amount of work required to open a restaurant, EU regulatory work against Bit Tech or other oligopolies, etc.
I'm not sure they are the majority opinion but I agree they are common. It's not surprising given the number of CEOs and venture capitalists on the site.
This adresses the problem partially. The insider often doesn't trade the stocks of their corporation, instead they tip others to trade it. There are networks of C-execs constantly tipping each other.
I feel like religiously throw those guys in prison when you catch them and ban them for life from trading paper, working in the finance industry, or serving as a corporate officer is what you aught to to.
Much better than the current, the stockholders will pay protection to the Feds to keep corporate offices from going to prison or facing any other repercussions.
This is the popular libertarian opinion and it is half thought out and wrong, like most libertarian opinions.
Say you are not an insider. Most investors in the public markets are not insiders. If a company wanted to be owned by insiders only it would never need to enter the public market. So say you, like most investors are considering stock where you are not an insider. Would you buy stock from an insider? Even if he properly discloses he is an insider. Is he selling because he needs the money to buy a new house or because he knows that something happened and the company is doomed. It does not feel very comfortable does it. So most investors would not feel safe and comfortable buying most stocks. So, good job, you just removed 90% of demand of stocks.
What people do not understand is that the american public markets are very unique, unlikely, and downright amazing phenomenon that is a very important factor in the wealth of the USA and even the world for the second half of the 20th and 21st century. It is amazing that people have the confidence to pay a bunch of money to own a part of a company based only on published information. But that is what makes America rich. It is that ability to quickly move money from where it is not needed to where it is needed and to reward the person sending the not needed money.
Now here is another hypothetical. Say you are insider of a company with a lot of stock in that company. You have just learned that something secret has happened which has doomed your company. Your biggest client said they would stop buying from you or something like that. You want to sell your stock. If insider trading is legal would you inform the public of the bad news? Or would you make sure you sell all of your stock first. Now say the same thing is true but insider trading is banned. You are a big stockholder and you know the SEC is watching you. What do you do? Well you inform the public asap, so that you may sell your stock legally albeit at reduced prices. Which of these outcomes is better for society, and for the well being of the stock market?
I suppose insider trading is hard to enforce. Well actually it is not that hard to enforce for the important people -- the company leadership that have all the important insider information. But there are other crimes that are also hard to enforce but we keep them crimes, because they are terrible, cause a lot of damage and we as a society should do what we can to avoid them. Should we make bicycle theft legal because it is so hard to catch bike thieves? How about date rape?
> This is the popular libertarian opinion and it is half thought out and wrong, like most libertarian opinions.
I'm not a libertarian exactly, but it always boggles my mind how the philosophy that at least tries to remain consistent with the ideal of not aggressing on the life, liberty, or property of others receives some of the most derisive comments.
> Would you buy stock from an insider?
Yes, because I understand that corporate employees qualify as people too and need to pay bills now.
But it's important to recognize patterns. If 3 out 5,000 employees are selling their stock in the week before earnings, it's probably just normal bill shuffling. If 3,000 out of 5,000 employees are selling their stock in the week before earnings, that probably means something far more significant. Let the market figure out what the patterns mean.
> Now here is another hypothetical.
IMO, any hypothetical you can come up with can be answered by pointing out that financial speculators perform a useful social service. By trying to buy low and sell high as soon as possible, speculators speed up price adjustments to their optimal point and make stock prices less volatile than they otherwise would be. This ultimately means that price discovery should happen faster and resources should flow quicker to wherever they'd be more useful.
> Should we make bicycle theft legal because it is so hard to catch bike thieves? How about date rape?
A bike thief or a rapist unambiguously violates the right to life, liberty, or property of another human being.
Insider trading is different in that it's labeled as a crime where there's arguably no victim.
> I'm not a libertarian exactly, but it always boggles my mind how the philosophy that at least tries to remain consistent with the ideal of not aggressing on the life, liberty, or property of others receives some of the most derisive comments.
If you care to unboggled, it’s because a lot of libertarianism’s consistency is owed to it reducing a lot of real-world scenarios to very simple models where a specific freedom’s primacy is preordained by the choice of model.
For whatever that means to the libertarian, it leaves a lot of room for other people to see it as reductive — ignoring the difficulty of reconciling conflicting freedoms and often dismissive of higher-order freedoms.
It’s a philosophy that’s been championed by some very smart, very committed thinkers, but it’s also one that’s very easy to exercise naively and very inviting to criticize on those grounds.
Even when libertarian arguments are put forth in good faith it frequently falls victim to spherical cows reasoning.
And too frequently libertarian arguments appeal to first principles reasoning in order to take an ahistorical view towards specific issues, especially if the person making the argument currently benefits from the historical context.
> I'm not a libertarian exactly, but it always boggles my mind how the philosophy that at least tries to remain consistent with the ideal of not aggressing on the life, liberty, or property of others receives some of the most derisive comments.
Because every time you need to apply such a reductive philosophy to reality, it falls apart. This would be fine if they adopted it as a purely personal lifestyle but they try to push it as a feasible form of government.
They do this by mostly ignoring the real world complexity and real historical issues when aspects of their philosophy were actually applied.
Examples? I’ve seen arguments police should be entirely privately funded, insider trading should be legal.
> I’ve seen arguments police should be entirely privately funded
Not by an actual libertarian. Under actual libertarianism, using force against others is in the purview of government. I.e. the police are specially empowered to use force against people.
This cannot be privately funded, because then you have private armies running around oppressing anyone their employer doesn't like.
> But it's important to recognize patterns. If 3 out 5,000 employees are selling their stock in the week before earnings, it's probably just normal bill shuffling. If 3,000 out of 5,000 employees are selling their stock in the week before earnings, that probably means something far more significant. Let the market figure out what the patterns mean.
I'm not saying it's impossible, or doesn't happen, but IME it's incredibly unlikely that 3k of 5k employees would know about earnings before they were anounced to the public. Corporations just don't work that way. The C*Os and some of the finance team will know, but >95% of the employees will find out when the public finds out.
> The C*Os and some of the finance team will know, but >95% of the employees will find out when the public finds out.
That 3,000 number was just a hypothetical, but I'd say that even knowing that 1 key insider bought some massive dollar value of calls leading up to earnings or sold a large number of shares before earnings is a valuable data point that provides better information to the public.
>how the philosophy that at least tries to remain consistent with the ideal of not aggressing on the life, liberty, or property of others receives some of the most derisive comments.
If you combine the libertarian idea that a property owner can fully control what happens to their property along with the idea that the right to contract is absolute what happens when the entity that owns the road in front of my home says I can no longer use it unless I shop only at his stores?
A lot of libertarian ideas simply do not work when combined together due to human nature to enrich themselves at the expense of others.
> If you combine the libertarian idea that a property owner can fully control what happens to their property along with the idea that the right to contract is absolute what happens when the entity that owns the road in front of my home says I can no longer use it unless I shop only at his stores?
Of all of the hypothetical arguments against libertarianism you might have picked, this is one of the least questionable ones.
If you buy a property today where property access might be a theoretical issue with no direct street access, the real estate agent, lawyer, or title clerk is already recommending/ensuring that explicit easement rights are added into the contract or the deal usually falls apart. Additionally, even if access isn't explicit in a contract, as far as I understand it, courts generally recognize a common-law right to access your property and have a number of doctrines available to ensure that nobody is just boxed in and trapped in a property with no recourse available to access it.
The courts of today don't follow libertarian principles which changes the outcome of my little what if.
A decent amount of libertarian ideas run into issues like this where the assumption is that current non-libertarian systems will keep them in check but this sort of mixed system isn't what a large segment of libertarians appear to want.
I theorize that the best way to solve the fairness issue of insider trading is to make it legal, but incredibly transparent. There is no way to catch the overwhelming majority of the actual insider trading that happens short of a dystopian SEC that continuously monitors everybody's phone calls, movements, emails, and all of their finances or just banning employees of publicly traded corporations from investing in their hard work, which also seems unfair.
The best way to benefit the public is for price speculation by insiders to be telegraphed either in real-time, or preferably with advance notice, to any member of the public.
If Joe Sixpack working at Apple wants to buy or sell stock or options the day before earnings (or any other day) based on some knowledge he has, I'd say it should be legal. He should just have to report that intent to some SEC website. Any member of the public should be able to go to some well-designed SEC website the day before and see that Joe along with 465 other employees plan to buy XXXX calls. If insiders want to trade in publicly traded companies, people should be able to have data on that to notice patterns and benefit from this information. If they decide they want to sell some stock, that should be reported at least in real time, or preferably with at least 1 day notice. If the goal is to benefit the greater public, the information should be designed to flow to the public.
This pre-knowledge of their trades is the rule I especially want to impose on the corrupt legislators, some of whom are known as suspiciously good traders for senile old people. The rules that they can wait 30 days before disclosing their deals are BS. They should be reported at least in real-time, or preferably at least a day before. This seems like a small price to pay for making the rules that pick the winners and losers in the marketplace, as well as the overall direction of the economy.