
House Passes Bill Establishing a Clear Definition of Insider Trading - JumpCrisscross
https://www.wsj.com/articles/house-passes-bill-establishing-a-clear-definition-of-insider-trading-11575586960
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OscarCunningham
As always, Matt Levine commentary on this is very lucid.
[https://www.bloomberg.com/opinion/articles/2019-12-06/green-...](https://www.bloomberg.com/opinion/articles/2019-12-06/green-
bonds-without-the-bonds)

> I wrote about it back in 2015, when it was proposed, and it hasn’t changed
> materially in the four and a half years between then and when it was passed
> by the House yesterday. What I said then was that this bill is more or less
> an effort to codify _existing_ insider trading law: “It just keeps as much
> of current law as possible consistent with throwing out the controversial
> Newman conclusion,” I wrote, and since then the court decision in U.S. v.
> _Newman_ has been pretty much reversed anyway, which means that this mostly
> keeps the law the same as it currently is.

> Now some people think that current U.S. insider trading law is too strict,
> and lots of other people think that it is too lenient, and if you think
> either of those things then you will probably have objections to this bill.
> In particular, many many many many people think that U.S. law should have a
> “parity of information” standard in which anyone who has material nonpublic
> information, no matter how they obtained it, should not be allowed to trade.
> If you want a parity-of-information standard, you will be disappointed in
> this bill, which maintains the current U.S. rule that trading on material
> nonpublic information is only illegal if “such information has been obtained
> wrongfully.” “Wrongfully” includes getting information by theft, bribery,
> computer hacking, or through “a breach of any fiduciary duty, a breach of a
> confidentiality agreement, a breach of contract, or a breach of any other
> personal or other relationship of trust and confidence.”

> [...]

> The real point here is:

> 1\. the current law is what it is, but

> 2\. it is uncertain and shifting and judge-made and not written down in any
> one place, so

> 3\. just writing it down is an improvement.

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lacker
It seems weird if you were not allowed to trade on legally obtained
information. Like let’s say a company claims they will manufacture chemical X
from inputs Y and Z. You research the chemistry and discover it is impossible.
Should it be illegal to short sell their stock, because your research is not
public? That doesn’t seem right.

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steve19
That is not quite the same as what people object to. They object to someone
trading because they overhead two CEOs discussing a merger at the table next
to them at a restaurant.

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jessriedel
Sure, that is the sort of thing they have in mind, but what is the _principle_
that is supposed to distinguish that intuitive case from the chemical one?

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DennisP
If you got the information from someone legally classified as an insider, then
it's insider trading. If you developed it yourself from public sources, it's
not.

(I'm not a lawyer, but that's what I've read.)

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jessriedel
Thanks, that's useful. By "public sources" do you mean "anywhere that's not an
insider-as-currently-defined-by-law", rather than literally public? This is
important because incentivizing the _making public_ of non-public(-but-not-
insider-obtained) info is a crucial job of markets.

I'd be interested in a link to further reading if you can recommend one.

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DennisP
I don't have a source handy but yes, that's my understanding.

An example I saw in one article was a hedge fund that bought satellite
imagery, and counted cars in parking lots to estimate how well a business was
doing. That's fine, because it wasn't information that came from an insider.

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obituary_latte
Non paywalled article: [https://finance.yahoo.com/news/bipartisan-bill-
defines-insid...](https://finance.yahoo.com/news/bipartisan-bill-defines-
insider-trading-193542752.html)

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jeffdavis
Are Congressmen now also subject to the insider trading laws?

~~~
JumpCrisscross
> _Are Congressmen now also subject to the insider trading laws?_

They have been since 2012 [1].

[1]
[https://en.wikipedia.org/wiki/STOCK_Act#Section_4](https://en.wikipedia.org/wiki/STOCK_Act#Section_4)

~~~
jquery
Unfortunately they have stonewalled enforcement of that Act.

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nkozyra
Given the paywall I assume this in no way addresses the congressional
loopholes for insider trading?

~~~
jquery
It's interesting that Senators do better than people in the House of
Representatives[1]. It's exactly what you would expect if they were trading on
inside knowledge. In my opinion, everyone in Congress should be required to
invest in a blind trust, if they want to invest at all. They should not be
allowed to pick individual stocks. The temptation to enrich themselves is too
great.

[1] [https://investmentu.com/why-congressional-insider-trading-
le...](https://investmentu.com/why-congressional-insider-trading-legal-
profitable/)

~~~
nordsieck
> In my opinion, everyone in Congress should be required to invest in a blind
> trust, if they want to invest at all.

We already have TSP[1]. That seems sufficient.

___

1\. [https://www.tsp.gov/index.html](https://www.tsp.gov/index.html)

~~~
harikb
Can you explain what TSP is? The link goes to a login page.

~~~
nordsieck
I guess wikipedia [1] has a better explanation.

The short version is, TSP is a small series of extremely well run index funds
that are only available to government employees.

___

1\.
[https://en.wikipedia.org/wiki/Thrift_Savings_Plan](https://en.wikipedia.org/wiki/Thrift_Savings_Plan)

