That is not true. An executive that is allowed to insider trade can make a lot more money mismanaging the company in volatile ways.

Deliberately mismanaging a company would be a violation of the executive’s fiduciary responsibility.

The problem is that you’re moving from a simple easily-proven fact to something which requires two judgement calls. Any prosecutor can show that you made a trade before certain information became public, but proving that something was mismanagement (as opposed to a mistake or bad luck) or that it was a deliberate attempt to play share price games is so much harder that most executives would evade punishment even if pretty much everyone would find their actions hard to explain otherwise. White collar crimes are already enforced laxly due to the challenge of needing to prove intent in many cases, there’s no benefit to making it even easier to defraud investors.

Well then good thing it was only "accidental."

This also ignores the large number of people with insider information who are not execs at the company. Clients, partnering firms, etc. If it's all about fiduciary duty, then the law firm doing a large M+A deal should mismanage that deal, so they can trade on it for their own profit.

And then would be fired. Getting their golden parachute and insider trading bonus.

Only problem is humans constantly fail to take, or purposefully avoid, responsibility.

Good luck proving it.

It's not a question of morals, but a fundamental requirement for the publicly traded stock market to function.

If insider trading is allowed, the market will turn into a game called 'who has the best insider information'. No one will buy or sell stocks based on public information alone, because they will always be at a disadvantage.

If you’re buying stocks based on public information alone, in this age of web scraping and algorithmic trading, you’re already always at a disadvantage.

That is all public information. I'm not convinced it is valuable information, but it is pudlic and you should cunsider how pou use it

Web scraping and "algorithmic trading" both depend upon publically available information

The idea is to minimize disadvantages, not eliminate.

I'd be OK with banning automatic trading.

Insider trading being illegal encourages participation in markets for people outside the company. As well as discourages intentionally messing up within the company and profiting from short selling

The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public

Seems like a worthy tradeoff to me

> The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public

If that is true, then markets would be even more efficient is such information was made public immediately.

That sounds about right. It is hard to make all information public asap (with all the regulation), so I would assume it would be hard to get rid of the wiggle room between when an insider can place a bet and the information actually becomes public

Matt Levine's most recent article touches on insider trading pros and cons (in relation to sports betting) and is, as usual, a great read - https://archive.is/jJ25g

>>As well as discourages intentionally messing up within the company and profiting from short selling

While I do not agree with the OP on insider trading being good.... I also think short selling is a net negative and should be banned right along side insider trading

> I also think short selling is a net negative and should be banned

Why? The potential losses for shorting are infinite whereas the profit is capped, so entering a short requires high conviction. Stock markets are also a market for information: banning short selling takes away a large amount of information and has negative impacts on price discovery, liquidity etc.

> I also think short selling is a net negative and should be banned right along side insider trading

How would you incentivize people to find fraudulent companies like Enron?

Why?

If you think a stock is underpriced, you can buy it and bet your knowledge is superior to the general market’s.

Shorting is just the logical reverse, and aids price discovery in the opposite direction.

Public markets are intentionally set up to "benefits some parties that aren't really invested into the company" -- e.g. your retirement savings and your grandma's. That's a feature. Not a bug. Indeed, the main point of regulated public markets (as opposed to private ones) is to insulate your grandma's retirement funds from shenanigans like this, because before that, people would lose life savings to scammers.

If you want to allow shenanigans and / or only people with a vested interest, stay private and buy / sell only to savvy investors. That's allowed too.

Insider trading means insiders can and will:

1) Buy stock and launch (dishonest) positive press releases

2) Sell stock thereafter and launch (dishonest) negative press releases

Loop, rinse, and repeat. That happened, and if permitted, that would happen again. Much worse things happened too.

Your grandma can't do due diligence on every stock in her index fund. A savvy investor making targeted investments can.

It harms the other side of the trade that doesn’t have the information.

Insider trading is theft.

You know the stock will go up, the other party unfairly doesn't. The other party would not have sold if he had known, so you have cheated the other party.

Same if you know the stock will go down. The other party would not buy if he had known the thing you unfairly do. This is also cheating someone.

Buying a rivals stock depends on the reason why, but it would be against company interest. The SEC doesn't need to enforce this, the board should fire him for it.

Can you elaborate? It feels pretty damned unfair to me!

I might agree with buying, it's pretty damaging with selling though.

I've been thinking about it sometimes and this seems correct. Abolish this law and delay every single selling. Of course I haven't think this through and this may end catastrophically but I'd like to see a simulation.

> It only benefits some parties that aren't really invested into the company.

Whoever's on the other side of the trade is by definition invested into the company, either before the sale, after the sale, or both.

I guess morals are subjective, but I think insider trading is definitely immoral. It's theft.