Insider trading results in more accurate pricing.
Insider trading is not real buy-side demand pricing information because the insider (typically) intends to sell as soon as the price pops, once more market participants have been pulled into the trade because it's going up -- key knowledge the insider knew the market did not.
Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
Insider trading is not illegal because insiders possess knowledge the rest of the market does not.
Insider trading is illegal because it creates a false perception of unfairness among less sophisticated market participants. (There are other decent reasons too, Matt Levine has written about this extensively too. Yours isn’t one of them)
> Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
This only makes sense in a context where all parties have access to equal resources, but that’s not true. A hedge fund paying visa for transaction flow, or flying spy planes above a factory to track production will have more information than other participants.
Whether or not insider trading should be illegal is a hotly contested topic among economists.
>It doesn't really matter why, it is, and for good reasons
Would you like to share the good reasons why it doesn’t matter?
It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders.
Suffice to say the dominant trend in crypto markets is not rapid convergence on a relatively stable price...
That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to.
> It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders.
In the US that’s just called “wire fraud” and not “insider trading”.
Of course there is. When prices go up, insiders profit at the expense of shareholders who sell to them. In the absence of insider traders, non-insider shareholders collectively achieve better returns; ergo they are harmed by the presence of insider trading on positive or negative information.
(The only time it wouldn't be the case is if the prices move in the opposite direction to the one the insiders are expecting due to some other unanticipated development which is far more significant than their information advantage)
> In the US that’s just called “wire fraud” and not “insider trading”.
Much easier to prove the insider trading in the run up to a profit warning than prove an entity was intentionally mismanaged to create that opportunity and its earlier predictions of success were fraudulent and not just incorrect.
US regulators would rather specialist companies with the fastest algorithms and connections to process corporate announcements reap all the benefits.
However, because it’s 2022 and we have the internet and all I’m not sure it really makes sense to focus on specific market centers instead of the market as a whole.
Of course HFT makes this far more complicated so it’s difficult to come up with a clear answer in either direction.
The Clean sweep study (https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff297...) seems to suggest that ISOs have a greater impact on prices and add more information to markets than “regular” orders.
“Latency” just means that the future isn’t priced in, which results in less accurate pricing.
Insider trading adds to consensus knowledge.
It’s a handful of connected individuals in either case.
But I can't, without bribing executives, hacking into corporate servers or being at the negotiating table myself, front-run MNPI.
That difference is kind of the point behind free markets.
I struggle to wrap my head around someone thinking insider trading being a net positive. The only justification I see is if said person would like to themselves profit off of MNPI they have access to without fear of reprisal, in which case you should consider a career in the US senate.
> Because I could, given enough experience in the industry and money to have servers close enough if it's highly time-sensitive signal, compete with said funds and specialists.
What benefit does the existence of this competition provide as opposed to insider trading? Why do you think that artificially enabling such an industry is a net positive?
That's like playing poker with someone sitting at the table who's connected to the casino's management and knows the order of the cards coming up. We'll never come to an agreement that this behavior should be accepted and is beneficial for the game.