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| | | Just a few things I'm thinking about after the first few reads of your paper. I don't know much about securities law but did do some reading about it...anyway, first, you say that securities law is attempting to achieve the unachievable in prohibiting insider trading. On a general note, the government tries to work towards many ideals we don't think are perfectly achievable in practice (I'm thinking about equal opportunities in society for people of all races, or equal access to public school education, for example). Second, what are exactly you trying to argue here? That insider trading should no longer be prohibited? Or that the Supreme Court's opinions have simply been contradictory? (That said, I think you can make the case that insider trading should be abolished if you want to.) | |
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> | Hi Jessica, my answers to your comments are the following:
1. Of course that there are many issues that are regulated by the government that are very difficult to achieve, but one thing is to improve regulations to attain a specific purpose, no matter how difficult it may be, and another is to give legal arguments that do not make sense in order to cover a truth.
Maybe it is impossible to achieve perfect access to education or equal opportunities, but these are issues that can be improved through proper regulations and policies. On the other hand, the capital markets are designed based on differences among investors. As mentioned in my paper, if all investors put their money in the same stocks and trade in the same direction, the market would not work because there would be not enough liquidity (provided by people who trade in the opposite direction). Therefore, capital markets are designed based on differences among investors, provided, among other aspects, in their access to information. Giving legal arguments to cover this is just transcendental nonsense.
2. Related with the first point, what I am arguing is that the justifications provided by courts to abolish insider trading are contradictory and don't make sense. Of course that you can make a strong case defending that insider trading should be abolished, but it should be based on good reasoning and coherent ideas and not just in false beliefs. If equality in the markets cannot be an argument to adopt a prohibition, as explained before, maybe the argument could be based in property rights over the information, but again, courts should face the consequences of such argument. The main consequence would be that the owner of material confidential information could dispose from it and other people then would have a right to use such information and trade lawfully with informational advantages. The problem is that such idea reveals the truth about the markets, that they are not “fair” or provide equal opportunities.
By saying this I am not making an attack against capital markets. I am just stating how things are, which is the purpose of my paper. | | | Also, I think there are a few more legitimate motivations for banning insider trading and I think you should refute them more forcefully (rather than saying they're wrong because the Supreme Court hasn't always referenced each or listed them in an opinion). | |
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> | In my paper I am not favoring or attacking the prohibition on insider trading per se. It is debatable whether insider trading should be allowed and there are arguments favoring both sides. In any case, if you read the links on the paper you will realize that the main arguments favoring the prohibition are based basically in ideas of fairness and equal access to information, which I don’t consider strong enough because of the reasons already mentioned. | | | The whole reason these laws were made, as I understand, was that in the 1930s people thought that the entire system was unfair. The 1933 act was an attempt to restore integrity to the stock market - which after the 1929 crash came to be viewed as a place that was routinely exploited by people with an edge. The whole country suffers as a result if it becomes harder to sell pieces of your business to the general public if they think the game is rigged. Arguably it's good for the whole country if someone can quickly raise capital if they have a good idea and want to spread it. People are more willing to invest in your business if they think there's going to be a liquid market for selling the shares they buy. | |
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> | First, notwithstanding all the insider trading regulations that exist today, as opposed to 1929, I don’t think that it is possible to state that the market woks better and that the game is not rigged (think in the Goldman Sachs case, Enron, etc. that although are not based on insider trading, the basic issue is fraud on the market by people with advantages in it). Additionally, there are many scholars explaining that insider trading does provide liquidity and, moreover, that regulations on the subject do not really change the behavior of investors nor the performing of the markets. | | | I understand that once people invest money in the market, they are as you say, "on their own." However, our society allows - and enables - people to specialize in all sorts of things. While your average trader hypothetically shouldn't have nonpublic information about a company, he may have some fancy computer technique to analyze markets that you or I may not. By the same token, and I hope this isn't too much of a stretch, we are now gaining the tools to analyze legal problems by virtue of our enrolling at Columbia Law School. I guess you could say this is unfair to the rest of people with legal problems in another manner. | |
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> | I am not sure if I understood the first example with the relation to the legal education in Columbia. However, this is the whole point, there are people with more advantages than others and the capital market is one of the main places in which those advantages come into play. The Supreme Court had to recognize this in Chiarella and any further statement in the contrary has not been able to be sustained. | | | -- JessicaCohen
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