One thing I rarely hear people talk about is how many libertarians believe insider trading shouldn't be a crime. There are lots of libertarians in the financial industry, so there are likely lots of people in the financial industry who believe that laws against insider trading are evil.
So when I picture insider traders, I don't picture shady organized criminals doing things they know are bad. I picture cowbows believing themselves to be the good guys for freedomizing the market.
And when you think about all the people who believe that insider trading is a positive good, you kind of have to conclude that it's rampant. It's financially lucrative, hard to detect, harder to prove, relatively easy to hide, relatively easy to pin on someone below you in the org, and people think they're good for doing it. What force is keeping it in check?
Different POV: Insider trading should be legal because is fundamentally impossible to police fairly or effectively. The one caveat is ALL trades must be public in real-time (and not via shell corps, but showing the real beneficial owner). This way, insider trading can do public good by providing good market signals. Transparency would also reduce the advantages of insider trading.
Someone can correct me if I'm wrong (which I probably am), but my understanding is that legally the harm of insider trading is to the shareholders not to the fairness of the market.
So if I have insider knowledge of some earnings at BigCo and I trade on that, I've breached my fiduciary duty and in some sense stolen that info from BigCo.
I don't see how your scheme would address that.
Or, less abstractly, if you're preparing the earnings announcement for BigCo and you trade knowing earnings are bad, then you've leaked the announcement. And that gets worse, not better, if all trades are public and real time.
So I think total transparency in trading and insider trading interact in non-obvious ways.
> harm of insider trading is to the shareholders not to the fairness of the market.
no, insider trading doesn't harm the shareholders, except the ones who sold (or bought) without using said information (compared to someone who did have it).
The harm is indeed to the market - information assymetry means the other market participants, like the above shareholder, is not buying/selling as "correctly" as the ones doing insider trading.
This also leads to mis-pricing - something that decreases market efficiency.
But being so difficult to enforce, insider trading can't be fixed tbh. The best we can do, imho, is to make the signal go faster (which is what transparency aims to do). By making the signal go faster, insiders actually have very little time to actually "inside trade".
> leaked the announcement
the market _should_ know the earnings are bad. In fact, the market _should_ be making a prediction about the earnings in the aggregate. The information from an insider trader, if it were fully transparent, means that a company's shares will accurately reflect their earnings even if they didnt annouce it, and this makes the market more efficient.
If the market had all information then there would be no trading as the price would be correct and nobody would want to buy or sell, as doing so would be money-losing.
The market works because of different information, opinions, ideas that are available to different participants.
Trading on insider information is like doing a pump and dump, and should be illegal.
> there would be no trading as the price would be correct
the trading would happen when your personal risk is different from another trader. Future events (that have not yet happened) will also make each individual trader do trading based on their predictions.
It's absolutely not true that there's not going to be any trading. After all, unless every trader's internal risk rating and funding are _exactly_ the same, trading must happen, especially if information is very transparent.
> should be illegal.
just because it's declared illegal, doesn't mean it doesn't happen, nor people don't get away with it. It's why i claim that the next best thing is to _make_ it legal, but force the trade to be revealed instantly rather than have a 1 month time gap.
In the event that an insider (or potential insider) starts making large trades, there will be people observing and making similar trades, and thus the insider information (despite being obscured) is transmitted out via this trade signal. The faster this signal gets transmitted, the less insiders will have an opportunity to profit unfairly.
>>nobody would want to buy or sell, as doing so would be money-losing.
Somewhat related, there is a saying that caused me great hesitation for many years: "Remember, whatever trade you make, someone else is making the exact opposite bet; what is the likelihood which of you is wrong?". Now, in large, this hesitation is largely good, but not to excess.
I then realized that on the exact same trade people can have very different legitimate perspectives that do NOT invalidate yours, i.e., many situations where you can both be right, for your goals. E.g., a trader may have a great reason to sell a stock this minute while a long-term investor has an equally great reason to buy and accumulate the stock. Or, stocks can go in/out of specific investing criteria such as for growth, value, momentum, etc., and different portfolio managers will be selling and buying the same stock at the same minute and both be completely correct about the stock meeting their goals.
>>You’d be prosecuting people for concealing ownership.
Yes, and concealing ownership over the long term is more difficult (in many cases, impossible, e.g., for executives with stock packages — exactly the set of most likely insider traders) and investigating and prosecuting it is far easier vs insider trading.
> It's, sadly I'd say, a totally insignificant chunk of the population and yet at every opportunity there shall be people like yourself using any excuse to accuse them of wrongthinking.
I don't understand where you're going with this paragraph. Whether they are wrong is unrelated to how many there are. And you don't need very many people to make insider trading happen.
And why are you using the term "wrongthink"? This is a discussion about actions and rules. Nobody's being punished for their thoughts and opinions, just called wrong in an internet comment. If I say people shouldn't like hot dogs I'm not accusing Chicago of wrongthink.
There are tons of libertarians in the US. If you're in Luxembourg (judging from your profile?) you may have fewer of them.
There was a big push in the 70s. Most of the ones I've known well grew up in the 70s and read more or less the same literature. The had some influence in econ in the 70s and 80s and their influence is less mainstream now, so you may have fewer younger ones. There are still lots of them in tech, especially in the bay area. Perhaps they still skew older, I don't know much about the demographics these days.
It's partially an American phenomenon because of the cold war and because it became a way for conservatives to --racism and ++drugs. Nowadays you don't need a third party for that.
Plus many more. Google around for "insider trading" plus some of the standard libertarian economics keywords like "coasian" or "austrian" and you can find some of the literature. I haven't tried smoking any of it, though, and can't advise it.
So when I picture insider traders, I don't picture shady organized criminals doing things they know are bad. I picture cowbows believing themselves to be the good guys for freedomizing the market.
And when you think about all the people who believe that insider trading is a positive good, you kind of have to conclude that it's rampant. It's financially lucrative, hard to detect, harder to prove, relatively easy to hide, relatively easy to pin on someone below you in the org, and people think they're good for doing it. What force is keeping it in check?