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Comment by codeslinger | Hacker News Reader

The problem with your assessment is that it proves Don's point in the article. The B trader will reveal his inside information much more rapidly than if he were not able to act on it, thus increasing the amount of information available to the market as a whole, enabling better decisions by others regarding the security in question.

I agree, the "B" traders are more likely, but that's a good thing.

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I don't follow you at all. If the information available to the market is provided at the point the insider executes the "sell" then it is the B trader who provides his information later, and all the B traders will tend to act nearly at once.

In the A scenario, the A traders sell immediately, and act upon receipt of the inside information, rather than react to each other, so the information is furnished to the market gradually by all A traders.

Please tell me in more detail what you think of the scenario that I posed, and how it makes the point of the article.

More problematic are the "C" traders. People with access to inside information who therefore believe that they'll get news of things that will shift prices before anyone else. These people are then able to take risks and time more aggressively, trusting that they'll be able to jump ship at need. These people therefore avoid revealing inside information until the last possible moment.

But the real trouble is the "D" traders. People with no access to inside information who have no interest in providing excess rents to traders A, B or C. When this group of people gets the impressions that the real gains in stocks go to insiders, and outsiders get the shaft, they stay away in droves. In fact the desire to encourage this group to invest is one of the primary reasons for the insider trading laws in the first place.

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