House Passes Bill Establishing a Clear Definition of Insider Trading
wsj.com
wsj.com
> I wrote about it back in 2015, when it was proposed, and it hasn’t changed materially in the four and a half years between then and when it was passed by the House yesterday. What I said then was that this bill is more or less an effort to codify existing insider trading law: “It just keeps as much of current law as possible consistent with throwing out the controversial Newman conclusion,” I wrote, and since then the court decision in U.S. v. Newman has been pretty much reversed anyway, which means that this mostly keeps the law the same as it currently is.
> Now some people think that current U.S. insider trading law is too strict, and lots of other people think that it is too lenient, and if you think either of those things then you will probably have objections to this bill. In particular, many many many many people think that U.S. law should have a “parity of information” standard in which anyone who has material nonpublic information, no matter how they obtained it, should not be allowed to trade. If you want a parity-of-information standard, you will be disappointed in this bill, which maintains the current U.S. rule that trading on material nonpublic information is only illegal if “such information has been obtained wrongfully.” “Wrongfully” includes getting information by theft, bribery, computer hacking, or through “a breach of any fiduciary duty, a breach of a confidentiality agreement, a breach of contract, or a breach of any other personal or other relationship of trust and confidence.”
> [...]
> The real point here is:
> 1. the current law is what it is, but
> 2. it is uncertain and shifting and judge-made and not written down in any one place, so
> 3. just writing it down is an improvement.
In the new bill I do like the automatic trading exemption, and ability for the SEC to exempt whole securities and transactions from being subject to any insider trading prohibition
Overall I think this can add confidence in the markets
It doesn’t address existing 10b5 violations, so its almost like the SEC can use both now
No amount of research can produce the same information.
That said "just overheard" is not a sure thing either, so it can be argued that it's possible to get similar quality of information from other sources. (Eg looking at their trash, looking at who goes to their office, which law firm offices do they visit.)
But this is what courts determine post hoc. If the overhearing was a baseless rumor/joke, or the merger simply went nowhere for some reason, no one will care about this proto-crime.
Also, it's up for debate for the courts which kinds of information can be determined from public sources. Is there a "holographic principle" for insider material information or not? (And even if there is the practical accessibility, computational requirements and so on make a big difference.)
> Leaving things up to the court is defensible when the ambiguities are unforeseeable or impossibly numerous, but neither apply here.
It appears you said one thing, and then the opposite.
Was that intentional? As it makes your comment seem internally inconsistent.
If there isn’t a clear line, how will legislators set demarcation points that people won’t argue in court?
However, I am suggesting that we simply not draw the line between A and B and have them both be legal because:
(1) The "bad" one is actually not that bad, both morally and efficiency-wise, especially when we clearly announce "this behavior is going to be legal, so everyone needs to be careful and protect themselves"; and
(2) there are other places to draw the line that are not so hopelessly disputable.
Since I am suggesting we put the line somewhere else where it can be made unambiguous, we are not forced to rely (nearly as much) on court interpretation.
(I'm not a lawyer, but that's what I've read.)
I'd be interested in a link to further reading if you can recommend one.
An example I saw in one article was a hedge fund that bought satellite imagery, and counted cars in parking lots to estimate how well a business was doing. That's fine, because it wasn't information that came from an insider.
I would say that is literally the most public information in the universe.
They have been since 2012 [1].
[1] https://investmentu.com/why-congressional-insider-trading-le...
Now mind you, lower interest rates was a very good thing in the 80s. Whether you think lower is better even now, one thing is certain: Greenspan did have a conflict of interest even as he showed how much he didn't.
We already have TSP[1]. That seems sufficient.
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The short version is, TSP is a small series of extremely well run index funds that are only available to government employees.
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