Should "insider trading" be illegal?

[teacherone]

Why? Why not? Who should enforce it? etc...

[Seraphim]

The way things are now; Yes. But not jail time. Pay back what was made through fines plus community service.


In a truly free market, I say no.

[mojobo]

Absolutely, its a form of fraud. If you sell somebody something that you know is worthless and know there is no information available to them to know something is going to happen then you are defrauding them. Once the information becomes public they can do whatever they want with their shares, and if somebody buys a share without being aware that there was a report or other information showing the stock was likely worth a lot less then thats legal, but the information has to be available to the public.

[denison]

Absolutely, its a form of fraud. If you sell somebody something that you know is worthless and know there is no information available to them to know something is going to happen then you are defrauding them. Once the information becomes public they can do whatever they want with their shares, and if somebody buys a share without being aware that there was a report or other information showing the stock was likely worth a lot less then thats legal, but the information has to be available to the public.

if it's illegal, what should the punishment be? do you believe in imprisonment for non-violent crimes?

[denison]

In a truly free market, I say no.

why?

[MRoCkEd]

Why Anti-Insider Trading Laws Are Insane (http://www.businessinsider.com/why-insider-trading-should-not-be-illegal)

Business Insider | John Carney
23 Nov 2010

Keep in mind that we've already refuted quite a few of the arguments people tend to make in favor of criminalizing insider trading.

Buyers are hurt because insider trading buyers push up prices. That's true but diversified investors are as likely to be sellers as buyers in insider trades, so it ends up breaking even.

Sellers are induced to sell too low because they don't have the inside scoop. If anything, sellers are helped by insiders willing to buy their shares at the price the sellers are demanding. If the insiders are the only buyers at that price, then the seller would have been forced to sell at a lower price or hold a stock he wanted to sell.

Fewer investors will buy individual stocks if they are worried about insider trading. Ordinary investors tend to lose out when they try to pick stocks. They're actually benefitting if they avoid stock picking in favor of broad diversification and index funds.

Less money will come into stock markets if people are worried about insider trading. This probably isn't true. Insider trading leads to better pricing, which means that investors can be more confident in prices rather than less. Surprising quarterly results, for instance, will create less volatility in a market where insiders have been trading the stock.

Insider trading means that ordinary investors are disadvantaged when it comes to the pros. Unfortunately, this is the case regardless of insider trading regulations. People who are professionally dealing with stocks will always have a leg up on the investor who holds down a job and invests his money on the side.
...

SOURCE:
http://www.businessinsider.com/why-insider-trading-should-not-be-illegal#ixzz16JlaJCTb

[teacherone]

Absolutely, its a form of fraud. If you sell somebody something that you know is worthless and know there is no information available to them to know something is going to happen then you are defrauding them. Once the information becomes public they can do whatever they want with their shares, and if somebody buys a share without being aware that there was a report or other information showing the stock was likely worth a lot less then thats legal, but the information has to be available to the public.

you're describing fraud--not insider trading: discussing financial information between parties.

[Seraphim]

why?

Remove Corporate Fascism and state controlled economy and you are left with a market place that functions as it sees fit. The flow of information within that market place is no different. Someone will always be first to get information and someone will always be last.

It is not necessarily fair, but little is fair. Some people are born stunningly beautiful and will have lapdogs their whole life as a result. Are we to jail the good lookers so that the ugly people can succeed more?

We either get insider trading/information in a controlled state economy or in a free market. It's ALWAYS going to be the case. At least in a free market that information would be more accessible and quicker to reach the general market place, rather than a tightly controlled, profitable for the few, system.

Are we to punish someone who reads a "burried" article about Afghanistans resource supplies and gets the information before most people and profits from that information? No, absolutely not. In the free market, information passed between people is not something you can control, nor should it be controlled.

[Original_Intent]

Why Anti-Insider Trading Laws Are Insane (http://www.businessinsider.com/why-insider-trading-should-not-be-illegal)

Business Insider | John Carney
23 Nov 2010

Keep in mind that we've already refuted quite a few of the arguments people tend to make in favor of criminalizing insider trading.

Buyers are hurt because insider trading buyers push up prices. That's true but diversified investors are as likely to be sellers as buyers in insider trades, so it ends up breaking even. False. It does not break even as those trading on insider information are always winners, meaning there is a corresponding loser on the trade.

Sellers are induced to sell too low because they don't have the inside scoop. If anything, sellers are helped by insiders willing to buy their shares at the price the sellers are demanding. If the insiders are the only buyers at that price, then the seller would have been forced to sell at a lower price or hold a stock he wanted to sell. What about those who sell based on insider information right before the price drops. For instance they know the quarterly earning to be announced next week are terrible.

Fewer investors will buy individual stocks if they are worried about insider trading. Ordinary investors tend to lose out when they try to pick stocks. They're actually benefitting if they avoid stock picking in favor of broad diversification and index funds.

Less money will come into stock markets if people are worried about insider trading. This probably isn't true. Insider trading leads to better pricing, which means that investors can be more confident in prices rather than less. Surprising quarterly results, for instance, will create less volatility in a market where insiders have been trading the stock.

Insider trading means that ordinary investors are disadvantaged when it comes to the pros. Unfortunately, this is the case regardless of insider trading regulations. People who are professionally dealing with stocks will always have a leg up on the investor who holds down a job and invests his money on the side.
...

SOURCE:
http://www.businessinsider.com/why-insider-trading-should-not-be-illegal#ixzz16JlaJCTb

Insider trading absolutely should be illegal. I understand the Kennedy's amassed their fortune based up bootlegging and insider trading (which wasn't illegal at the time, in fact many of the trading rules in place I understand are in place due to the practices of the Kennedy family.

[Melissa]

I am still learning all this but from everything I read in a free market it should be legal. If I do the leg work Like I am doing now on watching and reading and I get an inside scoop because of my persistance in learning and watching and talking to the right person then so what it is my money and time

[cubical]

The NYSE or other exchanges and private regulation groups should handle it. They can make it against the rules or not. As long as a private group is making the rules and the punishment(enforced by contracts) its fine. You can chose to participate or not. If not enough people participate they will find out why and change the rules.

[Melissa]

The NYSE or other exchanges and private regulation groups should handle it. They can make it against the rules or not. As long as a private group is making the rules and the punishment(enforced by contracts) its fine. You can chose to participate or not. If not enough people participate they will find out why and change the rules.

I am good with this option too

[jclay2]

We have gone without insider trading rules for 100's of years. I think we will manage without government regulation.

[Jeez]

Problem is how do you now if someone traded with insider information? It will come to down he said she said argument opening up pretty much anyone for prosecution.

[MelissaWV]

Problem is how do you now if someone traded with insider information? It will come to down he said she said argument opening up pretty much anyone for prosecution.

Which is why companies should handle it, specifically via non-disclosure clauses in contracts. Most insider trading traces back to (duh) an insider who has some kind of surprise information. If you work for XYZ Pharmaceuticals, and you know that their new drug tanked in its clinical trials (side effect: testicular attrition in men, nipple inversion in women), you might tell your buddies to dump their XYZ stock as soon as they can. You might even include information as to when this will become public knowledge. The stock might have gone up in anticipation of this new drug, but you know it's going to tank... so now you and your friends came out ahead.

XYZ Pharmaceuticals would probably be pretty unhappy to learn that its employee made money off of its misfortune, with the foresight to realize that if this became common practice some employee might one day sabotage a trial or two (after hyping up how awesome the drug was ahead of time, of course). The company would need to deal with that employee. Might the employee have made enough money to not care? Not really in this particular scenario.

"Illegal" brings with it the baggage of an investigation and the cops probing around to "approve" transactions' morality/legality.

[Original_Intent]

I am still learning all this but from everything I read in a free market it should be legal. If I do the leg work Like I am doing now on watching and reading and I get an inside scoop because of my persistance in learning and watching and talking to the right person then so what it is my money and time

That would not qualify as insider trading.

[Melissa]

That would not qualify as insider trading.

Yes but it can be a fine line right? So what do you use as an example of insider trading?

[Original_Intent]

Yes but it can be a fine line right? So what do you use as an example of insider trading?

It would be if a CTO who knew that the company he worked for was about to release a groundbreaking product, and went and bought up all the stock that he could before there was a public announcement.

It would also be a Congressman selling stock in a company right before they passed a regulation that they knew was going to hurt the company (or buying it when they were about to pass a law that would help the company OR hurt their competitors. Amazingly, this type of insider trading is STILL ALLOWED.

[axiomata]

Should the accurate pricing of equities by the natural price discovery process be illegal?