Legalize insider trading. You can't prevent it.
Why can't we first try actively prosecuting the individuals who take part in these frauds?
That seems to be the one action missing from the recent banking scandals.
Why can't we first try actively prosecuting the individuals who take part in these frauds?
That seems to be the one action missing from the recent banking scandals.
One interesting point is if it was legal, it would be in the open, and market forces might intensely force it out. You vs your ex- and future- coworkers in the regulatory agencies is pretty easy to outsmart, you vs every other player is harder to outsmart.
Another interesting point is in the olden days when stocks were traded by telegram and fractional prices and computers were human females with arithmetic skills, an abstract false market where we pretend there's no insider trading is simpler and simpler was computationally required. In 2014 thats not a valid argument anymore.
20 firms with 20 slightly false insider modified prices are just going to result in slightly wealthier arb players and slightly less false prices.
Rather than not knowing who will get screwed when by insider trading but there being a long term average cost to the economy of X making it all public would result in a known predetermined measurable and predictable cost of perhaps X/10 or X/100.
There are a bazillion different forms of insider trading, and this discussion would be somewhat separate from the classic trade secret brokering, where stocks trade hands before a confidential public announcement.
This is why some people, myself included, believe insider trading is a victimless "crime" which should be decriminalized.
If one investor has a friend inside the company and another doesn't, that's different. That's not a difference in resources, that's a difference in how the company itself is treating its investors. It's inequitable on the face; more pragmatically, it makes it much easier for the rich to exploit their advantages if they can just walk up to company officers and bribe them, which exacerbates inequality. Anything the company tells one investor, it is and should be obliged to tell all of them (and all at the same time).
Insider trading laws don't try to make everyone have equal access to information, they try to make everyone have equal access to a very constrained subset of information, because any legal scheme that tried to do more than that would be destined to fail.
It is altogether sinful to have recourse to deceit in order to sell a thing for more than its just price, because this is to deceive one's neighbor so as to injure him.[1]
It seems to me, generally in the case of publicly traded securities, that you may assume that your counterparty in any trade has access to all the same information you do in making their decision to buy what you are selling or to sell what you are buying.
However, this assumption no longer holds if you knowingly make use of insider information in making a trade. In this case, it is more likely than not that the counterparty to your trade does not hold the same information that you do, and hence executing such a trade can rightly be called fraudulent.
An obvious exception would be that you can make the same trade, off-exchange, with someone you know personally and to whom you can privately relate the relevant insider information before making the trade. Is this the type of circumstance you meant when you said "merely trading based on insider knowledge... there is no deception"?