Should insider trading be legal?

[I spent the winter writing songs about getting better]

In addition to Richius, apparentely the Libertarian Party of the US thinks this.

I of couse vote no.

[dazzleman]

No, most definitely not.  The most equal information possible is the foundation of well-functioning free market system.

Of course, in reality, there will always be insider trading.  It's sort of like speeding.  It's happening all over the place, and it can only be sporadically caught and punished.  But when a person is caught, they should be punished severely.  That's why I favored a prison term of Martha Stewart, to make an example of her.

One area with a big problem with another version of insider trading is real estate, and not just stocks.  Brokers find out about the best deals before anybody knows about them.  The internet has definitely helped but has not totally solved the problem.

[7,052,770]

This brings up another question...if you get an insider tip, should you take it?  I can't say that I wouldn't..

[MaC]

This brings up another question...if you get an insider tip, should you take it?  I can't say that I wouldn't..

aren't people who get this information only acting within their own self interest? 

Better yet, my concern with the legality is:  How can you tell if someone knows something or not, you'd need some kind of mind-reading to be able to tell if they actually heard this information, or it's coincidence.

[dazzleman]

This brings up another question...if you get an insider tip, should you take it?  I can't say that I wouldn't..

aren't people who get this information only acting within their own self interest? 

Better yet, my concern with the legality is:  How can you tell if someone knows something or not, you'd need some kind of mind-reading to be able to tell if they actually heard this information, or it's coincidence.

It depends on the type of information.  Often, insider trading involves knowledge of something like a merger that has not yet been announced to the public.  The person with that information therefore knows for sure the direction the stock will move in, and can buy the stock from a person without this information.  This is how many on Wall Street make a lot of money.

In the case of Martha Stewart, she had inside information that the FDA was not going to approve a drug that Imclone was marketing.  This was sure to cause a huge hit to the Imclone stock, so Martha sold her stock at a high price to somebody who thought the FDA was going to approve the drug.

It's extremely important to maintain some degree of public confidence in the market.  It will never be perfect, but every effort has to be made to keep a level playing field with respect to information.  Of course, people can have another person buy the stock for them, and it can be very hard to prove.

When most people are going to do something they know is illegal, they weigh the punishment against the probability of being caught.  Since the probability of being caught is relatively low with insider trading if you do it right, the punishment has to be severe in order to be a deterrent.  Light punishments are only effective when the probability of being caught is low.

[phk]

Of course it should be legal. This isn't a communistic country.

[Richard]

Yes it should be legal.  There is nothing wrong or criminal about knowing more (or less) about a company than other people and basing investment decisions around that.

[○∙◄☻¥tπ[╪AV┼cVê└]

6-5 in favor? We sure have a lot of extremists on this board. I'm guessing that similar numbers of Americans are against inside trading as who are for raising the minimum wage (86%).

[Richard]

There is nothing "extreme" about knowing more than other people and making a decision.  Knowledge isn't come collective entity to which everyone is entitled.

[dazzleman]

There is nothing "extreme" about knowing more than other people and making a decision.  Knowledge isn't come collective entity to which everyone is entitled.

Richius, do you care that insider trading allows Wall Street bankers to use confidential information to make money from regular investors?

Recognize that the market doesn't function effectively without some level of public support.  Hogs eventually get slaughtered.

Keep in mind also that I work for a Wall Street firm.  I know how this game is played.

[Filuwaúrdjan]

Interesting to know that Richius wants to collapse the entire capitalist system...

[○∙◄☻¥tπ[╪AV┼cVê└]

Interesting to know that Richius wants to collapse the entire capitalist system...

He's obviously a closet communist.

[Giant Saguaro]

Well I voted no. I think legalizing this would turn investment from investment into a big racket. Information for sale, kick-backs, I can just imagine how cutthroat it could become. And yes, I agree that it would smash public confidence in the market - there are 'inner circles' now to investment, something like this would make them more powerful.

[dazzleman]

Interesting to know that Richius wants to collapse the entire capitalist system...

He's on an ideological extreme that would effectively tolerate robber baron capitalism.  But capitalism will not survive if it is allowed to get that far out of control.

We should look at capitalism like a football game.  There have to rules, controls and referees, but within those confines, play your guts out and may the best men win.

[Richard]

Europeans wouldn't know capitalism if it hit them in the face.  Please don't lecture me about capitalism.  Your regulated "capitalism" is planned economics that Marx advocate.

Here is a good article about insider trading.
http://capitalism.org/faq/insider_trading.htm

[Richard]

Interesting to know that Richius wants to collapse the entire capitalist system...

Right.  Because, capitalism collapsed many times before the last 1960s, when insider trading became illegal.

[Filuwaúrdjan]

Europeans wouldn't know capitalism if it hit them in the face.

Know what the City of London is? Know what the Stock Exchange is? Heard of the FTSE?

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No, no it isn't.

[Richard]

Europeans wouldn't know capitalism if it hit them in the face.

Know what the City of London is? Know what the Stock Exchange is? Heard of the FTSE?

The place where you buy and sell what the government allows you to buy and sell?  Where quantities are restricted by the government?  Where the government tells a company whether they're allows to issue stocks or not?

Yeah.  Marx would be more impressed with the system than Adam Smith and Carnegie.

[Filuwaúrdjan]

The place where you buy and sell what the government allows you to buy and sell?  Where quantities are restricted by the government?  Where the government tells a company whether they're allows to issue stocks or not?

Clearly the City is part of a massive Marxist plot

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Never actually read Adam Smith have you? Interesting guy. Don't know why you like him (barr that one quote). As for Carnegie... well I kinda hope that people like Carnegie wouldn't like our current setup actually...

[Giant Saguaro]

Richard, how much of Marx have you actually read? I just think the more you read his philosophical works the more you would understand he would in no way, shape, or form never ever approve of the current system. He felt so alienated by the fledgling capitalist system in his day that he wouldn't even really participate in IT. He mainly lived off his friends. He wouldn't work. He would take a look at the average work week alone for the average American and want to go back into his grave.

[MODU]

Don't we already have a thread on this?

[True Federalist (진정한 연방 주의자)]

Insider trading is fraud pure and simple -- fraud conducted against the very stockholders that the insiders have a fiduciary, moral, and legal obligation to act in the interests of.

[Gabu]

It seems to me that if insider trading were legal, there would be a huge incentive to just stay with one's own company's stock and there would be no incentive to buy stock in other companies, given that you know that you have the giant advantage of likely being able to predict very well when your own stock will rise and fall.  Hence, the current situation where companies' stock is purchased by many people throughout a country such that every company has a diverse array of stockholders would very, very quickly grind to a halt and fall apart, being replaced by a scenario where the only people who own stock in a company are those who actually work there.  There will be no mystery at all to it; right before a stock falls, everyone would sell, and right before the stock rises, everyone would buy.  Slowly but surely, companies would just lose more and more money as it gets funnelled out to the stockholders, all of whom who know exactly what to do and when to do it.

As far as I can tell, we might as well not even have a stock market at all if we make insider trading legal.

[John Dibble]

One thing people who buy and sell stock should be wary of - if an insider wants to buy your stock in their company or sell theirs to you, shouldn't you be wary of that automatically given they have inside info?

[MODU]

One thing people who buy and sell stock should be wary of - if an insider wants to buy your stock in their company or sell theirs to you, shouldn't you be wary of that automatically given they have inside info?

Depending on the quantity of the shares involved, they have to do a filing of intent to go with the transaction.  You can normally find these on the SEC filing website and gauge your response accordingly.