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Comment by weliketocode | Hacker News Reader

This seems pretty fine to me.

Laws forbade publishing exit pools until 10pm, so hedge funds conducted their own research independently to have better information.

That's kind of how it is supposed to work.

Bad laws/regulations preventing accurate information dissemination lead to financial incentives for those with the most accurate/up-to-date data.

I know HN isn't the most Hedge Fund friendly forum, but surely there's an appreciation here for these funds' efficiency and ability to seize opportunity.

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Except the article clearly explains that it was less "hedge funds conduct[ing] their own research independently to have better information" and more hedge funds buying early access to the polls not permitted to be released until 10pm in order to front run people speculating on them, and that doing so was a legal grey area. Sure, the people buying and selling "private" exit polls did so openly with confidence they wouldn't be prosecuted, but that doesn't mean what they were doing ought to have been legal or the original drafters of the law had intended to permit it. The safe profits weren't in trusting the polls were accurate information, but in putting big money on their predictions before most speculators were allowed to see them and taking [most of] it off at a profit when they were revealed on TV. That's really far too basic a strategy to deserve appreciation.

Throw in the article's [much more speculative] suggestions that pollsters' TV statements about the confidence of their results might have been influenced by their paying customers' strategies, and the suggestion Farage "conceded" whilst expecting to win because he wanted to bet against the people who trusted he was making an honest assessment based on good information. Neither would be likely to be illegal - people aren't obliged to be honest on TV and don't have fiduciary duties to holders of sterling - but both would be difficult to call ethical. That said, it's entirely plausible those individuals did honestly believe what they were saying at the time. Everybody expected it to be close, and as the article acknowledges, one of the reliable big pollsters' exit polls gave the wrong result.

> not permitted to be released until 10pm in order to front run people speculating on them

Exit polls are held back not for trading purposes, but so that people go to the polls and vote. If people think they know the result they won't go through the hassle of voting.

FWIW my (admittedly cumbersome) sentence was talking about the "hedge funds buying early access to exit polls...in order to front run people speculating".

If they didn't hold back exit polls (for the reason you've correctly stated) paying for priority access to polls would be a whole lot less useful for trading purposes anyway because instead of the big poll reveal at the close of voting all kinds of [partial] poll results would be accessible during the day. But as you've said all this exit polling data available would affect voter behaviour, especially in elections like the UK's with plenty of "tactical voting" going on

Or if they know it's close, then it might spur them on to vote for their desired result...

Yeah I agree. I don't see how withholding information here leads to a fairer outcome.

Extensive research has been done in this very subject, case you are interested in knowing more.

It's pretty obvious they don't want to affect the outcome of the election... Exit polling isn't super accurate to begin with, it's better for everyone if the data isn't announced until after the polls close.

If a specific 400 people had changed their mind in 2017 there would be a tory majority government rather than a minority with dup backing

If a specific 800 people had changed their mind the tories wouldn't have been able to form a government even with DUP support

However the exit poll in 2017 was pretty much dead on

I think there should have been a comma in there:

'Not permitted to be released, which they then used to trade'

If they broke the law, prosecute them. If they didn’t but what they did should have been illegal, complain to the people who wrote the law. If you had legal access to some information that let you make a good bet that a particular stock would rise tomorrow, would you refrain from buying some today on the basis that it’s unethical?

I reject your implicit argument that every action is acceptable unless there is a law that explicitly makes it illegal.

It is impossible to legislate everything. People do things that are immoral, unethical and just plain wrong even if there is no law against it, and it's perfectly OK to call them out for it.

I didn't take that as their implication at all. To me it was a rhetorical question of "are you really saying that it would be unethical?" with the obvious answer being no. As in not questioning the concept of ethics as a whole, but their relevance to this situation.

Do you really see this as an ethical issue? As far as I'm aware most laws around what information you can trade on aren't about morality, they're a pragmatic move to ensure a fat financial sector. By restricting the ways in which you can obtain information it opens the field for more players and more speculation. Reducing accuracy of prices in favour of robustness and liquidity.

Sure there's exceptions. One could argue that because they've made an agreement, there's a moral obligation for a company executive to look out for their shareholders interests and front-running trades that hurt them would be a dick move. Other situations though? A hedge fund buying polling information? There's no agreement they're breaking there. They're just beating competitors in a zero sum game, with the externality being that markets are more accurate than they otherwise would have been.

> "are you really saying that it would be unethical?" with the obvious answer being no

Did we read the same article?

Farage "twice told the world on election night that Leave had likely lost, when he had information suggesting his side had actually won..."

"feeding specious sentiment into markets..."

"he laughed about helping to push the pound higher ahead of its crash, a role he seemed to relish. "'Yeah, and a good thing—good thing'"

The obvious answer is that intentionally spreading disinformation to move markets is unethical.

That’s not my argument at all. My argument is explicitly that this is not unethical, and therefore if you want people not to do it then you should actually make it illegal and prosecute people.

Your argument was: would you refrain <doing legal thing> on the basis that it’s unethical?

Certainly, you should complain to the lawmakers because without making it a legal rule, choosing not to do the unethical thing isn't going to stop others from doing it. But that doesn't make it right to do it yourself!

Are you seriously asking whether one ought to refrain from doing something unethical, even if it's technically legal?

This is Ethics 101...

> Inside YouGov, concerns about the law limited the company's potential offerings, according to an email that YouGov founder Stephan Shakespeare shared with Bloomberg. YouGov’s chief financial officer spoke to lawyers and decided that a single hedge fund could not be considered “a section of the public” but that multiple hedge funds getting the same exit poll might cross the line. Other polling companies appear to have interpreted the law differently.

It's a grey zone whether releasing the private poll data broke the law.

What seems clear is the law hasn't caught up with the technological realities.

Also the other main point of the article was that it is questionable whether it is appropriate to use polling data to influence the markets, like Farage has potentially done.

They claim he knew which way it way going, contrary to public data. It's also clear that he was one of the figureheads of the Leave campaign, and thus his concession would carry weight.

One could see how this might be interpreted as a form of manipulation. It's not claimed in the article, but he could well have talked up Sterling in order to short it at a better level.

>What seems clear is the law hasn't caught up with the technological realities.

How is this a 'technological progress' problem? Exit polls existed before this law as did phones. Polling agencies have been able to release data before polls close for the better part of a century.

This is just a vague poorly-worded law.

Isn't the article's main concern the conflict of interest when polling companies release both public and private polls?

They have an incentive to release inaccurate results to the public in order to benefit their private clients even further.

Polling companies have an incentive already to create inaccurate polls by structuring the questions cleverly. Regulation will never do away with that.

Political polling is a tiny percentage of their business; they mostly do market research for corporates.

Every few years, polls get verified against reality at the ballot box. If you're running a polling company, would you want to sell your market research as the company whose polls were some way off the votes they'd just seen counted because you were trying to influence the electorate?

I don’t understand how those incentives would work. Could you elaborate?

Pollsters normally have a good idea what answer their customer wants to hear. Those who deliver that answer get more business.

Yes, until their customer sees that the poll results do not match reality.

Polls aren't always about matching reality. They're often used as ammunition in an argument - "Look, the majority supports my position!"

The classic example is https://www.youtube.com/watch?v=G0ZZJXw4MTA

Not every poll is a push poll.

Push polls aren’t even polls. They’re just advertising.

There is no definitive difference between a push poll and a poll that is not a push poll. There are shameless push polls, but objective published polls are about as likely as objective public news; I'd need an existence proof for either. Published polls on how people say they will vote have virtually no utility for the vast majority of individuals. A small minority of individuals may need to plan for contingencies based on the likelihood of a particular result, but that utility drops drastically the shorter the planning window gets (i.e. the closer the vote is), which might be somewhat offset by a possibly greater accuracy. But instead of slowing as the date arrives, the polls get faster and faster.

However, the utility of a "push" poll goes up closer to the vote, because voters will have less opportunity to review and correct misimpressions that the poll gave them. Hence the time between polls goes to zero as time to the vote approaches zero, and why some governments feel that they have to step in to create a prohibited window before a vote.

Also, a traditional definition of a "push" poll is one that is meant to change the minds of the people taking the poll, but more effective in many circumstances, and definitely more common (because it is cheaper) is a poll which uses strange phrasing to get results that can be reported (after being carefully framed in a press release) in a way that implies far greater support or opposition for something that would be indicated by a more direct questioning. The fact that every vote is to some extent a Keynesian beauty contest, even if that's simply because people are convinced by ad populum and question themselves if they see that the crowd disagrees with them, means that even an "objective" poll would push.

There’s a lot to unpack here, but you seem to misunderstand why election polls are reported, and reported more frequently the closer it gets to Election Day.

Tracking polls aren’t for informing some secret cabal, or even to inform. It’s the horse race. It sells papers. But there’s nothing biased about “Is the country on the right track, or the wrong track?”

But surely if it's possible to make £500 million in one day, that's quite a big incentive to artificially 'twang' the markets because hedge funds profit from instability no? If you throw a rock in a pond there are lots of short term fluctuations.

I mean, how expensive was all that Cambridge Analytica stuff in comparison to how much money could be made from this?

Hedge funds don't profit from generic 'instability'. They profit from correctly anticipating market movements, which isn't the same thing. Apply a truly random force to market prices and hedge funds will average out to break even. There were certainly plenty of financial institutions that got it wrong and lost money as a result of betting on Remain too.

Yes true, but if there's no instability then there is no opportunity; there are no losers, but also no winners.

EDIT: Also by analysing FX market movements in relation to polling in the weeks and months leading up, it wouldn't be hard to make a correlation between Leave and lower priced GBP. All the economic institutions were saying Leave would be bad for the UK economy, so a leave vote is bound to shake confidence in GBP.

Aren’t there ways to set up a bet that a particular price will move, where you profit if it goes up or down but lose out if it stays the same? If you can cause instability then that could be used to profit from it even if you don’t know which way it will go. Some quick searching tells me this is called a “long straddle” but I could be way off.

By trading on this private information on the public market, one could argue they did indirectly disseminate the information though, which would be explicitly illegal.

Edit: because the direction of the trades would be publicly visible and highly correlated with the poll results.

I guess you mean "fine" as in "legal", not "fine" as in "ethically unobjectionable".

What is unethical about it?

The reason publishing poll results is forbidden because they could affect the outcome of the election. If you do polls only for private use that's not the case.

What is ethically objectionable about rich people gambling against other rich people, and some of them winning? It's not like these funds stole money directly from normal people.

In fact the money probably benefited some normal people. Tons of university endowments, sovereign wealth funds, and pension funds invest in hedge funds.

Given where the money they won comes from, surely an equal value (plus overhead) was lost by similar organisations?

Care to explain what you find is objectionable about this?

I love stuff like this. Finance is an art.

The laws also forbid sharing inside information, yet if you have a company conducts its own “research” to discover inside information from others before its published that doesn’t make it legal.

The point of many trading laws is to prevent trading based on non public information. Privately conducted polls on political votes is definately non-public information, and in order for them to trade based on them they should publish first, which would likely also deminish the returns since suddenly they aren’t the only ones aware of the public/poll disconnect.

> discover inside information

>prevent trading based on non public information

You completely misunderstand what inside trading means. Inside trading prevents company insiders from trading with the company they work for. Insider trading laws are there to protect shareholders.

It's completely fine to use non public information about world events to trade.

Note however that you completely misunderstand that the US definition of insider trading is not the same as that used in other countries. In particular, there is no requirement in the UK that the non-public information originate from a company insider.

The key issue is that insider information must be about the internal issues of the publicly traded company (even in UK)

How people voted is not insider information.

What kind of inside information would not come from inside an organisation?

Are we talking about unauthorised access of information or something else?

I believe the intent is regarding, e.g. “Huh, this spreadsheet says we’ve made a massive loss this quarter, but the investors don’t know that yet, I should sell all my stock before they find out” and vice versa.

But in this case they literally asked the public to get the info. It wasn't a secret, anyone has the ability to ask the public.

>>It's completely fine to use non public information about world events to trade.

I don't believe it is legal for outsiders to make trades based on non-public information they have acquired from company insiders. For example, if I am the CFO of a publicly traded company, I cannot come to you and whisper in your ear that we just got hit with a massive data breach, because doing so would give you the opportunity to dump your stocks based on that non-public information.

There is a major schism in this between the US and Europe (that I only learned about in a recent HN thread).

In the US insider trading laws are geared around protecting shareholders from insiders. Solving for the agency problem. In that case an outsider who finds non-public data and trades on it is likely (though the complexity of this is one of the downsides of the regine) not insider trading.

In many European regimes the goal is information parity. In that case outsiders can generate material non-public data, and thus illegally trade on it.

As someone who spent a lot of time under the US regime the European model blows my mind, but in objective terms there isn’t anything bizarre about it.

> outsiders can generate material non-public data, and thus illegally trade on it.

It does seem (more than) a little bizarre to me.

If I understand your post correctly, in Europe, I could do traffic counts at malls, conclude (correctly) something about a company's sales from that, trade profitably based on that conclusion, and be prosecuted successfully for it?

If that's the case, how should I create my own opinion about the state of a company in order to decide how much to bid (or ask) for the shares of that company? Am I just supposed to blindly make investments since any amount of private research is bound to be deemed illegal? It seems that the entire purpose of research is to generate an informed opinion which differs from the current public opinion.

We've found hedge funds placing orders with the presumed intention of deriving order volume information from sequential IDs that we inadvertently leaked in the shipping process (since fixed). My view is "good on them for thinking of it!" Is trading based on that illegal as well?

I am clearly not an expert on this, but I suspect the answer is not “don’t do research” it’s “disclose the result”.

As for where the lines are drawn I’d guess there is a whole industry around determining that just like in the States.

It varies from country to country. But in any case the inside information is information related to the corporation coming from inside the corporation. Poll results are not that kind of information.

People have been prosecuted for sitting in on a court case and trading the second the ruling was made because it was deemed that the information was not yet public information.

It’s definately not ok to trade based on insider information. Doesn’t matter if you just heard from you cousin who’s the CEO of a company that they are about to tank or reach for the moon. You might not work for the company but you are still guilty of trading on non-public insider information.

Polls are not insider information.

Polls are information about the environment where companies operate, not non-public fact regarding the plans or condition of a publicly traded company.

I think this is a UK/US disconnect. In the UK (and much of Europe) the point of many trading laws is to prevent trading on non-public information. In the US we tend to think this is a dumb goal because much of the point of markets is to incentive price discovery, which is done primarily via trading on research. Thus, we tend to have a hard time believing that that is what the law really means, even if it is what it says.

I think much of Europe is like this, not so much Britain.

Matt Levine (highly recommend) spends time discussing this type of thing.

A recent somewhat relevant article https://www.bloomberg.com/opinion/articles/2018-12-03/inside...

At least in the US, trading based on non-public information is totally fine, unless trading on it would violate a duty of trust to the source of the information [1] (which can be indirect, e.g. an employee tells his wife about some insider information: she had a duty of trust to him, and he to the company/shareholders, so she can be prosecuted for trading on that.)

The savvy prediction of events exogenous to a company’s operations is very much not insider trading.

[1] It’s a little more complicated, but I think this is as good a succinct formulation as one can hope for.

Indeed, there's an article I recall reading (here on HN I think, but I can't find it) that was about, essentially, a person who would short companies (I think specifically pharma companies) and then publish negative articles about them. Think "company A's research about xyz drug is false and misleading". This wasn't fraud because these articles were true.

This is entirely legal. Indeed, there's arguments to be made that this should be encouraged, since it indirectly provides a financial incentive for people to do research into firms and keep the market fully informed. Of course, you have to have a very specific savvy to gain from that kind of scheme, but still.

Well, market manipulation is illegal. If the articles are true (factual), the activity is probably OK, but if the individual is making up rumours with the primary goal of affecting the market to profit from it, that is definitely illegal.

Hence my clarification that it wasn't fraud because the articles were true (or at least based on enough evidence to clearly not be fabrication).

Fraudulent market manipulation is illegal (such as that based on fabricated or material nonpublic information). Market manipulation when based on good-faith information discovered legally is entirely legal.

> This wasn't fraud because these articles were true.

And it wasn’t insider trading because the reports didn’t include new non-public information. If he had information about for instance he outcome of a phase 3 drug trial and bought based on it And then released the results early he would have been breaking the law.

Not a lawyer, but if my understanding is correct, this is only relevant if it is a phase 3 drug trial by that company.

In other words, if pharma company A is doing research on a drug and is publishing stuff, and organization B is also doing similar work (and to simplify, let's say they aren't public, they're a private research lab that isn't related to company A), if org B finds evidence that company A is wrong, they can short A then publish. (and this is pretty much exactly what happened with brexit)

I don't know where exactly this gets to when shorting competitors. In other words, if Pfizer and Merck are both rushing to get the same compound/drug trialed and onto the market, and Pfizer is running ahead of Merck, but finds that their drug fails in phase 3, they obviously can't short themselves, but they might be able to short Merck, because they don't actually have any MNP about Merck's trial.

But again, I'm not really sure how that works in general.

> The savvy prediction of events exogenous to a company’s operations is very much not insider trading.

So asking a representative subset of Tesla’s employees what their numbers are going to be prior to reveal is not insider trading? If that’s the case then I need to start gathering fundes enough to pay them for the info and make a huge bet.

That would be illegal because the employees of firm have a duty not to share confidential info about the company.

But, say, inferring that a retailer will do well by counting cars in the parking lot or doing customer polls would be fine in the US. The customers can talk all they want.

(Not legal advice. I get this from Matt Levine, who is also not a lawyer.)

>But, say, inferring that a retailer will do well by counting cars in the parking lot or doing customer polls would be fine in the US. The customers can talk all they want.

It’s worth noting that if you got that information by virtue of working for a company that did such research, and that company had a policy preventing you from sharing that information, then you could be found guilty of insider trading, under the misappropriation theory.

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