Insider trading in stocks are prohibited but not for the reason most people think. It has nothing to do with someone having an unfair advantage in an informational sense, and everything to do with fiduciary responsibility.
The CEO and executive team has fiduciary responsibility to act in the financial best interest of the shareholders. Your broker too.
If you have insider info (Obtained legally) but no fiduciary responsibility you can act on it. That’s why congress members trading US equities based on decisions they’re privy to is not, from a legal perspective, insider trading. They don’t have a fiduciary responsibility to their constituents
1. The misappropriation theory of insider trading covers anyone who trades on material non public information sourced through a trusted relationship regardless of any fiduciary duty to the company. For example, if I tell my personal attorney a non public fact about the company I work at, and they trade on that information, they absolutely can be found guilty of insider trading despite having no relationship to the company at hand.
2. Congress is explicitly covered by insider trading law, which was affirmed in the STOCK Act of 2012. The fact that they’re rarely indicted has more to do with the legal and political challenges associated with doing so, not the legality of the act.
> The misappropriation theory of insider trading covers anyone who trades on material non public information sourced through a trusted relationship regardless of any fiduciary duty to the company. For example, if I tell my personal attorney a non public fact about the company I work at, and they trade on that information, they absolutely can be found guilty of insider trading despite having no relationship to the company at hand.
Huh. The lawyer example works because attorneys have a very specific, enforceable duty of confidentiality. Swap that relationship out and the conclusion may change. As written, the comment slides from "duty-based misuse of information" to "any private knowledge you shouldn’t have," which is not the same thing.
A lawyer (not my lawyer) gave me his off-the-cuff opinion on this scenario:
A pharmacologically-literate clinical trial participant for a novel new drug strongly suspects he did not receive the placebo/comparator drug, based on the subjective effects, plus their own pharmacology knowledge, experience with the placebo, and the research on the candidate drug.
However, this drug was not therapeutic for him, the side effects were onerous, or perhaps he believes the trial will be halted. Whatever their reasoning behind his inference, no details of others’ experiences were leaked to him, blinding was maintained; protocol was followed. He didn’t base this on a lab readout.
Based on his understanding of published research on the candidate drug, and projecting from his lived experience as lab rat, he believes this trial should disappoint shareholders. At the very least, shares may be priced too high.
Can the participant, based on this inference, invest $$$ shorting the pharma firm? This drug is considered the firm’s last best hope.
Their answer was yes, basically. He can trade on this non-public info.
This scenario seems very different because nobody gave the person any material non-public information at all, they simply deduced it from their experience participating in the trial. This feels similar to the question of "can a passenger on the Boeing jet with the door plug that blew out trade on that information" to which the answer appears to be yes.
Misappropriation theory is the following:
> The misappropriation theory of insider trading is a form of insider trading where an individual trades stock in a corporation, with whom they are unaffiliated, on the basis of material non-public information they obtained through a breach of a fiduciary duty owed to the source of the information
The important part, which you're right was unclear in my comment is that the recipient of the information must have a fiduciary relationship with the source of the information, even if they do not have one with the company in question at all. That's the distinction.
When you are negotiating payment for any good and service, you care only what the end cost is to you.
It doesn't matter how you decide to slice it - "this share you pay, this share I pay" at the end of the day it will be seen through the lens of Total Cost of Ownership.
I like how you didn't answer my question. If you don't see it as a paycut then it's not part of your salary.
>>you care only what the end cost is to you.
Yes, so I care what my salary is. What the employer has to legally pay to employ me is literally irrelevant other than academically. It's not my salary, the same how their cost of maintaining an office or providing me with equipment to do my job isn't my salary.
Also it just changes the nature of the game. There's no incentive to interact with the batch until the absolute last microsecond. It will still be dominated by latency-sensitive participants, just in a manner where the difference between visible liquidity and latent liquidity is even more diverged from reality (on average).
The assumption that companies won't offshore is doing a lot of heavy lifting.
Companies already do a lot of offshoring - you think any rational actor in this space that was hiring H1Bs isn't going to simply relocate them to more friendly jurisdictions for immigration?
On top of this, these are workers who would have otherwise paid tax in the US!
It feels as if you're insinuating that we shouldn't be taking measures to prevent offshoring and there's nothing to do but allow our labor markets to be subverted.
>you think any rational actor in this space that was hiring H1Bs isn't going to simply relocate them to more friendly jurisdictions for immigration?
This was true before and after today.
Put another way, if all the H-1B jobs really can be offshored quickly and easily the way so many Indians and anti-Trump people here and elsewhere confidently predict, *that would have happened already*.
I'd argue that it doesn't happen more because it's (relatively) easy to bring labor onshore.
But yes, if that path doesn't exist, I don't think that global companies are going to start hiring American, they're going to continue hiring globally but take the path of least resistance towards bringing this talent onboard.
How valid is this premise in an increasingly global world?
Most of the companies that are paying salaries could (and already do!) have offices in other jurisdictions where they could hire the same talent.
Better to bring this talent onshore, where the wages are taxed, than force these companies to hire from satellite offices?
It doesn't make much financial sense for companies to stop sourcing talent globally just because they can't be brought onshore, especially given enough time.
Purely anecdotal, but for me personally this wouldn't change who or how I hire, just the location.
This seems virtually impossible to enforce. It's trivial to restructure hiring a developer to write software, as licensing software from a foreign development firm, or any number of other workarounds.
This is not just a hypothetical, this is something that already happens when companies are looking to optimize their tax burden. Corporate structuring and income shifting are big businesses in their own right and serve to find the minimum amount of changes required to be able to legally reclassify income.
In the case of this bill specifically, in the unlikely even it passes, a simple corporate inversion will solve this problem. Instead of the US company owning foreign subsidiaries, the structure is inverted: the parent company becomes foreign, which will own a domestic US corporation. When the multinational wants to hire or retain offshore talent, it simply pays out from the parent company. Again these aren't hypotheticals, these are real tax avoidance strategies that are already in place and are well-trodden paths.
You can come up with an infinite amount of regulation to try to halt this (this problem is also called tax base erosion) but it ends up doing more harm than good - eventually you end up with a tax code and regulatory environment so complex that that alone disincentivizes new investment.
The goal is not just to retain existing capital and talent by forcing them to be locked in - it's to compete for the next dollar, the next startup, the next factory - new investment will follow the path of least resistance, while older companies eventually close up shop due to one reason or another.
If your worldview is one of "We already have the best capital and talent, so we don't need to bother to compete to acquire new capital and talent", the world you live in will stagnate and wither with respect to societies that will bend over backwards for this.
corporate charters should be treated as the tools they are. such businesses do not exist without being tied to a particular set of laws in a particular jurisdiction.
It's not a great video. It's basically outrage bait for people who don't understand economics, by someone who also doesn't understand economics but uses words that sound like an economist uses them.
Faster transaction times result in tighter spreads, as HFT firms compete each other on the price-time priority queue. HFT firms compete against each other on time, and while yes, that's a zero sum game, the end-result to the broader market is useful.
An analogy might be something like Uber and Lyft competing with each other for clients and drivers. From the perspective of everyone else, it doesn't matter much if they ride Uber or they ride Lyft. But the adversarial games that they play against each other [Uber and Lyft] are beneficial to both riders and drivers. Perhaps a duopoly isn't the best example, so you may extrapolate this to any industry where there's a sufficient amount of participants to keep things competitive.
But the spread in many-to-most stocks is limited by the sub-penny rule (SEC rules, as of 2005, say you can't have a spread < $0.01) rather than by the supply of market makers in that stock. Extra competition in those markets is negative-sum.
The SEC rule is that one may not quote a spread less than 0.01, but that does not mean one can not trade with a spread less than 0.01. There are several workarounds available that are well known, the simplest is in the form of mid-point pegged orders that allow spreads down to half a penny. On top of that U.S. exchanges offer a variety of different fee combinations, including negative fees which can be used to decrease the fee even further. All HFT firms take advantage of these fees, furthermore there are liquidity enhancing programs offered by the major exchanges as well as by ETFs. These can all be used to reduce the spread of a stock below the 1 cent limit.
The CEO and executive team has fiduciary responsibility to act in the financial best interest of the shareholders. Your broker too.
If you have insider info (Obtained legally) but no fiduciary responsibility you can act on it. That’s why congress members trading US equities based on decisions they’re privy to is not, from a legal perspective, insider trading. They don’t have a fiduciary responsibility to their constituents