Why is insider trading illegal?

[kimo'sabby]

Two people make exactly the same amount of money in one day from the same market, but one is then jailed for insider trading.

They both made more or less the same trades but now one is in jail.

Why?

 

[arabianights]

It's extremely hard to justify actually.

The usual reason given is that preventing insider trading leads to a level playing field as all market participants get information at the same time.

The more you look at the issue though, the more you realise there's nothing wrong with it at all.

 

[kimo'sabby]

It's extremely hard to justify actually.

The usual reason given is that preventing insider trading leads to a level playing field as all market participants get information at the same time.

The more you look at the issue though, the more you realise there's nothing wrong with it at all.

Hello arabianights.

This it, if we call the 'info' 'news', then there are always the ones who are going to get the 'news' before someone else. I suppose news is never really spread around at a totally fair rate.

 

[Hoggums]

I used to work in the stock exchange with the monitoring and survellance dept - and in the 1.5 years I was there they never had a successful prosecution. It's very hard to prove that a trade wasn't a lucky punt.

 

[Martinghoul]

Well, I am sure it was originally designed to protect shareholders against being front-run by corporate insiders, so I can kinda see the point.

 

[N Rothschild]

insider trading is rife at the moment because everyone knows the SEC is beyond useless. so many blatant cases of insider trading going about.

 

[everyonerich]

well.. does news really can determine exact direction of the market?

 

[gooseman]

yep. yep it does.

 

[everyonerich]

yep. yep it does.

if it does.. werent central banks suppose gamble all their treasury money, then country's deficit can be solved in split seconds? u still sure it does?

 

[nine]

There is a simple reason why it is illegal.

Insider trading reduces confidence in the markets. It's essentially a form of corruption. In either case the erosion reduces effectiveness of the markets, trade, and capitalism. So it needs to be illegal for the efficiency of the system.

 

[gooseman]

if it does.. werent central banks suppose gamble all their treasury money, then country's deficit can be solved in split seconds? u still sure it does?

are you saying the central banks should front-run the markets? i don't follow what you're saying here.

 

[everyonerich]

are you saying the central banks should front-run the markets? i don't follow what you're saying here.

no, im just saying if ur holy grail theory is right, then why not use it to solve the country's deficit? u still sure news really determine the market direction?

 

[gooseman]

i have no clue what you're getting at....you need to expand.

 

[everyonerich]

There is a simple reason why it is illegal.

Insider trading reduces confidence in the markets. It's essentially a form of corruption. In either case the erosion reduces effectiveness of the markets, trade, and capitalism. So it needs to be illegal for the efficiency of the system.

i think its quite unfair to sums it up like that, although generally seems like right perception. assume, other players already know particular market has been insider trading, then no one really would participate anymore, and the insider will turned out to be loser because no one bidding higher and vice versa?

 

[meanreversion]

How are people supposed to know someone else has inside information?

 

[gooseman]

use it how? i don't understand your mechanics.

 

[N Rothschild]

How are people supposed to know someone else has inside information?

easy, last year one of the small state banks in the US was being taken over by bank of america. in the close the night before somsone bought stupid amounts of calls and on the news release in the morning made millions. will dry dig out the link. buy huge volume calls on a smallish stock the night before it is taken over my bank of america..bit hard to justify that as a "lucky punt"

 

[N Rothschild]

http://www.zerohedge.com/article/dear-sec-your-viewing-pleasure-obvious-perot-front-running

there is some good insider trading, cant find the link for the one i was talking about

 

[everyonerich]

well.. its hard to catch the insider trader i think, ppl can just set up offshore account, then the transaction originated from oversea, SEC would chase ppl all over the globe?

 

[nine]

Most criminals are not as smart as they think (most people think their IQ is above average).

People talk. People do the obvious. People repeat until caught.

And the big ones are worth chasing. However there is plenty of it going on which is one of the reasons why technicial (price/volume) analysis works - they leave clodding great footprints.