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That insider trading debate…

This entry was posted by Paul Murphy on Friday, May 9th, 2008 at 9:42 and is filed under Capital markets. Tagged with fsa. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

1. May 12   13:09 Posted by Why Is Insider Trading Illegal? | Investors Paradise [report]

   […] The meme of the day, as admirably summed up by Paul Murphy, is the question of why exactly insider trading is illegal, and whether it should be. I seem to recall a trenchant column by Holman Jenkins in the WSJ around the time of the Martha Stewart case arguing that it shouldn’t be, but I can’t find it right now, partly because the WSJ keeps on telling me that “search is momentarily unavailable”. […]

2. May 12   2:41 Posted by R Peterson [report]

   That’s just nonsense. There have been reams of studies over the past 10 years documenting the economic costs of insider trading. Bhattacharya and Daouk is just one example.

3. May 09   14:54 Posted by Anonymous [report]

   Economists strive for a perfectly efficient market, and usually that runs in the face of regulation and meddling eg VAT. In this case however, insider dealing makes the market inefficient for all those except the priveleged few. A rule that would allow perfect market information for everyone wouldn’t really work, so a rule where information is regulated so as to be perfectly distributed is about the best we can do.

   Whats the point in studying the markets and learning them based on a set of rules, for somebody to break them and render all your own knowledge useless. Surely anybody who has a network of insider trading isn’t that good at the real markets? Is this likely to include the Oxford, Cambridge, Eaton etc circuit?

4. May 09   13:32 Posted by D Heasman [report]

   Sadly it’s the same as with the drug laws. Any unilateral move by the UK to make sensible changes would trigger sanctions and possibly an invasion (if McCain gets in) from the US.

5. May 09   12:46 Posted by Moneyterms Blog > Why insider trading matters [report]

   […] This is, in many way, just part of a wider debate on how regulated capital markets should be. I believe that they need heavy regulation, because there are so many opportunities to cheat, and these ultimately undermine the markets themselves. I was planning to write a post on the wider issues, when the FT drew my attention to this particular one. […]

6. May 09   11:03 Posted by bsb [report]

   like it would actually make any difference either way

   when was the last time someone was prosecuted for insider trading?

7. May 09   11:03 Posted by Monkey [report]

   Excellent - legalise insider trading and we can make some serious money 80’s style! Screw the small time investor - and let the weathy with access to better information and circle of highly paid company informants (not to mention the Oxford/Cambridge/Eton old boys network) get even wealthier.

   Remember greed is good

8. May 09   10:45 Posted by G Cox [report]

   ‘All things considered, I can see moral arguments against insider trading, but I have yet to have anyone show me a compelling economic argument against it.’

   Economic Argument 1

   Mr Giberson ignores, for starters, the economic damage to companies from insider activity..

   Insider revelation on the market can cause great disruption to the efficiency of, for example ,deal making, planning a reorganisation , new product initiatives or research and make such processes less than optimal and hence economically wasteful if the plans are revealed prematurely in public. The process of planning and implementation together needs time and parties are bound under NDAs / employment contracts not to talk. For quoted companies, insider laws assist listed companies organise optimally for an insider can make money via the stock market anonymously and without risk, whereas revelations from a private company can only make money for the insider if they tell a competitor and that cannot be done anonymously or without significant risk of discovery . Making insider trading legal would damage economic growth from these factors alone and greater enforcement would therefore aid the economy .

9. May 09   10:40 Posted by VP [report]

   Insider trading used to be legal of course; have to say it feels “right” that it be illegal, that there’s no incentive to cultivate a circle of informers. Also it’s all very well to say it goes on anyway/the mkt price will move to reflect the unreleased information, but it puts the advantage in the hands of the same few people (advisers, directors), against the interests of the “small guy”.

   My view is: if insider trading’s illegal, bloody well make it so - don’t put out total nonsense press releases saying things like “We’re doing really well this year, only 26.3% of deals were leaked vs 29.1% last year”.

   Get some high-profile scalps, particularly at hedge funds who have a massive incentive to “chat” to their former colleagues, & work out why 99% of deals are leaked into the market.

10. May 09   10:04 Posted by N Not Set [report]

    Which just proves my prejudice that economics, as usually discussed, and morals have no common denominator. Happily, it is morals which lie at the bedrock of crimes. Economists prove over and over that they cannot be left to their own devices, however instructive they may otherwise be.