From: Lee Daniel Crocker (lee@piclab.com)
Date: Thu Jun 05 2003 - 11:31:34 MDT
> (Harvey Newstrom <mail@HarveyNewstrom.com>):
>
> Why insider trading is illegal for the company:
> The theory is that the stockholders own the company. Any material
> information that would affect purchasing or selling decisions
> must be disclosed to the owners affected. Any failure to do so
> jeopardizes the owner's assets and demonstrates a lack of due
> diligence.
But of course this could be easily handled by contract law instead of
being imposed by fiat: a stock exchange could require that all stocks
sold on its exchange meet certain requirements, including the obligation
for directors to disclose all material facts to stockholders in a timely
way before taking personal profit.
> Why insider trading is illegal for the broker:
> Stock brokers are supposed to be working for the benefit of their clients.
> It is a conflict of interest for them to selectively censor the information
> they pass to clients to manipulate their actions against their own interests
> in favor of the brokerage. To disclose different information or advice to
> different clients is clear evidence of misrepresentation.
And again, is clearly a matter for contract and tort law.
> Why insider trading is illegal for the trader:
> There is nothing in the law that prevents people from using their own
> brains to predict stocks and make lots of money. The legal problem only
> comes in from receiving information secretly that should have been delivered
> to somebody else...
> Instead of delivering the required information to the rightful owners (the
> stockholders, all of them), this valuable information is secretly diverted
> to the insider traders. Like fences, they profit from receiving the
> information only if all of the rightful owners (stockholders) are deprived
> of the information. They cannot profit from inside information if it is
> equally shared with the rest of the stockholders.
Again, all quite well handled by contract law.
I see no compelling reason for legislation in this matter. If stock
markets that contractually restrict insider trading are better than
those that don't, then they'll succeed in the marketplace. If they
don't, then the legislation is counterproductive.
-- Lee Daniel Crocker <lee@piclab.com> <http://www.piclab.com/lee/> "All inventions or works of authorship original to me, herein and past, are placed irrevocably in the public domain, and may be used or modified for any purpose, without permission, attribution, or notification."--LDC
This archive was generated by hypermail 2.1.5 : Thu Jun 05 2003 - 11:41:41 MDT