The result becomes obvious. But not the cause. People can see I sold my holdings in a certain company but they don’t know why. Did I do it because of my insightful analysis of publically known economic trends or did I do it because I got inside information from a board member?
Because a fair amount of my retirement savings is tied up in the stock market. It’s diversified and mostly in some very safe places, but I still worry a little. The SEC and other such agencies help prevent crap like Enron that could wipe out my savings.
Conflict of interest and trust in the market. If people won’t put their money in the market because they think it’s rigged, then bad things happen. And if people in positions of trust have a reason to abuse the trust, they have a conflict of interest.
So, it’s a protection for the market as a whole, and it’s a protection for the shareholders of individual entities within the market.
The SEC didn’t do jack-shit to prevent Enron from happening. In fact, the SEC did nothing as Enron’s stock was tanking, primarily as a result of some basic research done by journalists operating of their own accord. They even had an SEC office co-located in the Enron building, if you can believe that.
The SEC also regulated Bernie Madoff’s operation. Supposedly. I suggest you read the history of that affair, especially the part about how whistle blowers were sending them letters and they did nothing.
You are deluding yourself if you think the SEC is protecting you from incidents like this.
I disagree. These things are the exception, not the rule. Without the SEC they’d be the rule. What you’re suggesting is analogous to saying that because murders still happen, we shouldn’t bother having cops.
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Your attitude is not uncommon in the world. Per wikipedia Japan only’ made it a crime in the 1980s, and IIRC Hong Kong is similar.
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Laws get made because some influential people or group want them to be made. In this case the people who run stock exchanges thought that it would be beneficial to them that the stock market not be a complete free-for-all, because that way, more people would buy and sell stocks and pay more money in commissions.
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If you take a step back, the stock market isn’t all of or even a very big part of the national economy of the US, and much less so in other countries. If you feel that the rules and regulations that the stock market has chosen to be governed by are too onerous, well no one is stopping you from finding someone who doesn’t offer the disclosure or adhere to the rules on insider trading that the stock markets insist on to take your investment dollars. Think your next door neighbour is the next Steve Jobs? Give him all your money, no worries about insider trading there. So even if these rules were somehow economically inefficient, I don’t see any sort of natural-law reason why they SHOULDN’T exist.
Here’s why you should care. If small investors believe that the stock market is largely a rigged casino (which it was arguably during the 1920s and is not today) then fewer will invest in it. Under those conditions, investment would still occur, but financing would be done through banks and bonds. That may not be a horrible thing actually. But it would be a different form of capitalism than the US has now, one closer to what Germany and perhaps Japan and South Korea have.
[sort of a hijack]The SEC has curbed much of the most blatant financial nonsense (with exceptions of course - they dragged their feet with the Mohler Skycar for example) and pushed dubious practices into the land of the esoteric (think of derivatives, structured vehicles and very high frequency trading). But if the published numbers aren’t entirely transparent at least they are decipherable, something which they were not during the 1920s and are not today in the case of private companies (not that the latter is typically a problem). I’m a big supporter of requiring professionalism in financial reporting. [/sort of a hijack]
Ah, yes. What we need is more government oversight, not less. More enforcement authority. More rules. That will stop them.
Buying or selling shares in a company is a purely voluntary activity, with incentiveson both sides to engage in honest activity. Neither side is being forced to do anything. Nobody is forcing you to buy stock in any company that you don’t trust.
If you can’t honestly see the difference between that and a purely involuntary activity like murder, God help you.
Yes, but that presumes that trading in publicly listed companies is somehow supra-essential to natonal well-being, a positive externaility as it were. As you rightly point out above (which I expected from a smart cookie like you, M4M) there are many, many other ways to connect providers and recipients of captial other than the public markets. You’ve mentioned banks and bonds. Of course there are many other options such as VC, PE and private placements. Those occur with lots of regularity in today’s world and are as large, if not larger, than the public markets.
Also, your assumption is that this externality is so important, and so critical, that self-regulating measures would not spring up to ensure some level of fairness. That if millions of people wanting to invest in the market continued to get burned, year after year, by investing in unregulated companies there would be no incentive for either side, or a 3rd party agent like a licensing company, to do anything.
It’s a well framed hypothesis. I’m just not buying it.
I like you, ThroatWG. Come back and post more often.
So is listing your shares on a public exchange. Don’t like the “no insider trading” rule, don’t list your shares publicly, problem solved.
If you want to take advantage of publicly listing shares of your company for sale, you don’t get to fuck over the public by trading on information that you (as an insider) have refused to make available to them.
The history of securities regulation in the US is pretty well documented. Sometimes, self-regulating mechanisms spring into being organically, and sometimes they don’t. In the case of the US securities market, they didn’t.
The distinction between publicly traded securities and the “alternatives” you mention is that the latter invariably involve sophisticated investors, and thus inherently require less regulation. Hell, the whole point of a private placement is that you avoid SEC registration by carefully selecting sophisticated buyers.
If what you want is a market that is only open to the savviest investor, that’s fine, but I don’t see why that would benefit anyone.
You seem to believe that the only way that millions of small investors can be matched to willing recipients is via the benevolent hand of government intervention.
There are new funding mechanisms popping up every day that match the two sides…both via P2P lending networks and crowdsourcing.
The regulation that you so believe in is actually driving this innovation, since it makes it so costly and time-consuming for a public company to offer shares to the public.
Did you quote the correct post? Yours doesn’t appear to have anything to do with what I posted.
Haha. Too funny. What they have is every incentive to not get caught lying to you (too often).
Have you observed mankind in the wild before? It is a tricksy species, and individuals can be counted on (in general) to use any advantage at their disposal to increase their social status within the group.
That, and in a large group there’s always going to be difference of interest. Some people are going to get a bigger personal benefit from short-term change, or even damage. And at times, this group can get pretty large. Even if nobody’s intending conspiracies or bad moves, by sheer chance among all companies, or even just large ones, you’re going to end up with some people in a position where their self-interest moves them towards cheating.
Enron didn’t start out manipulating markets and cheating their clients; it happened over time due to a toxic culture and the fact that once they started, made a few mistakes or went wrong, it was hard to turn around. Note that the company could certainly have come clean early on and would likely have faced no punishment or penalty. But doing one bad deed made it easier to do another, then another. Then the whole ccompany was sick.
That’s not how it works, in any market or nation on earth as far as I know. The information doesn’t have to be gathered conveniently in one place. It just has to be publicly available and the company has a responsibility to make it so; at the same time, they can’t execute trades against information not publicly known. If you’re planning to make big investments, a lot of data-gathering and research is still involved. Nobody has to hand it to you on a platter.
What about banning corporations from keeping earnings, etc. data secret for any meaningful length of time? A typical case of insider trading involves an “insider” knowing that earnings will be greater than projected and buying lots of stock in the company before quarterly earnings are announced. What if there weren’t quarterly earning announcements at all, and companies had to keep their books open at all times? Interested investors could then call Conglom-O at 3:30 in the afternoon on a Tuesday and have a copy of all accounting records since the last formal earnings report by close of business? Better yet, make them publish it online.
Oh my, BigCorp just sold 300 widgets today, there was a meeting to discuss potentially firing the CEO, and the company rejected an offer from CompuGlobalHyperMegaNet to buy the company at $45 a share.
More, or simply better, yes. That will stop them.
Forgive me for saying so, but you have never worked in a large company, have you? It is a major effort on a daily basis for everyone with a piece of data to put that piece of data with the piece of data from the person down the hall, etc. etc. etc. until you have a consolidated pile of data. Then it has to be crunched and then checked, etc. etc. etc. And then corrected and revised, etc. etc. etc. So just getting the information out in a raw form would be very time consuming. Next comes analyzing the data to make some rudimentary sense of it. Are you suggesting every Tom and Harry with and internet connection be given all of the daily raw data from General Electric?
So, assuming the answer is, “No, of course not. I expect to see the consolidated totals.” Well, someone somewhere in the organization has seen the raw data a week ago, and they know that the result is going to have an impact on the final numbers - insider information.
Now do you see?
Whence comes this absurd statement? It ain’t never done so before, and all the rules in the world haven’t stopped it so far. Your assertion is based on faith, and a particularly blind faith at that.