Modern society would collapse if insider trading was legal. It would about as well as making bribery legal.
You mean like how lobbying is legal in the US?
Nice.
Ostensibly, lobbyists exist to inform legislative staff about issues which they have no experience with, like an expert witness. You can't expect all ~550 legislators to have an in-depth understanding of every topic that they vote on.
The problem is that our legislative staffs started letting lobbyists come to them, instead of seeking out reliable impartial groups to work with. So when they need information about an upcoming vote, they end up soliciting advice from the wealthiest groups in those industries which the vote would impact.
It's an insidious form of regulatory capture. It might even be worse than bribery, because ordinary citizens cannot participate.
There's no insider trading laws in commodities or real estate, have those markets collapsed?
I didn't check, but is this really true? If a mining company executive knows that for whatever reason they will see a 10% drop in yield next quarter, but it's not public knowledge, they can buy futures, no problem? All the execs can get together if there's something going on and invest on that info as long as they're investing in the commodity, not stock?
How exactly do you think this happens? If I know that a stock is about to rise significantly, I can just buy it at the current price all the way up to the day the information becomes public, and I will not have changed its price at all, but will profit massively off of my inside information.
The market will not reach the correct price until material information becomes public.
Of course you will have, buying affects the price.
>Insider trading makes someone richer at the expense of others
This just shows that your understanding of markets is at elementary school level.
How exactly does insider trading cost anybody else money? It simply allows for more accurate pricing.
If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.
It is a type of fraud because the insider is selling you a stock at a price they know is wrong (or buying it from you). They are hiding from you information that they know would affect your decision to trade.
Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud?
> If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.
Again, you're assuming that the insider would trade at the new price. This is a completely unfounded assumption.
If I'm an insider and know that a company whose shares are currently worth 100$ will announce 0 revenue two months from now, I will sell my shares at 100$ to someone who still believes the company is doing ok. Depending on how big of an insider I am, I will have to do this carefully so as to keep up the ruse as long as possible - hopefully all the way to the announcement, when the stocks will plummet to 10$, and all the dupes who I got to pay me 100$ will be left holding the bag.
Now of course, if all insiders start trading away their stock, the price will start dropping, so maybe they won't be able to sell all their shares at 100$, maybe the price will settle at 90$ or 80$ or even lower. But if the market has been told the company is doing well in terms of sales (even though the insiders know its not) they will not allow the price to drop as low as it should.
So it would also be fraud if I sold a stock because I happened to overhear the executives of a company in a restaurant discussing some Very Bad thing that was about to happen to the company?
In reality this simply isn’t fraud. The stock is just worth different amounts to different people with different knowledge.
> Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud
This is obviously illegal regardless of the existence of “insider trading”.
Not if the EMH is true.
Real estate is an especially bad example too because when selling a house you have to disclose any information about the property that may affect it's future value or risk legal action - but still real estate fraud continues.
That doesn’t stop people from trying to get away with it under the radar tho (small front-running order ahead of large institutional order). The innovation in crypto is frontrunning at the transaction time is more difficult (trades are encrypted, not made in some open outcry pit).
However this doesn’t stop exchanges from screwing over customers by creating demand and someone inside trading their pre-listed asset.
To prevent that programmatically you’d need a crypto protocol for establishing new listings where everyone is aware of new listings in advance and agrees via some fair consensus.