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Why Not Insider Trade on Every Company? (bloombergview.com)
265 points by dsri on Aug 11, 2015 | hide | past | web | favorite | 124 comments



It's actually still possible to perform a specific type of legal insider trading.

Example: you are an executive at E Corp and the company will announce its acquisition in two months. You had previously set up planned trades to sell x number of shares each month before then. Because the acquisition is at a premium on the current price, you will make much less money if you go forward with your trades before the announcement. So, what do you do? You cancel the trades.

Was this insider trading according to the SEC? Surprisingly, no! Even though you're profiting from insider information, the SEC rules are such that for insider trading to occur, you actually need a trade.

https://en.wikipedia.org/wiki/SEC_Rule_10b5-1#A_possible_loo...

Martha Stewart did exactly this before her company was acquired earlier this year:

http://i.imgur.com/ZikHCpP.jpg


What was that about how most problems in Computer Science can be solved with an additional level of indirection? Maybe the same is true for Insider Trading? Instead of buying options on the stock of a company, use options on the stock of another company that owns options on the 1st company. Perhaps derivatives have gotten so complicated in recent years as a means of hiding insider trading? (Perhaps there are quants with Comp Sci degrees figuring out ways to make detection of insider trades an NP-Complete problem?)


use options on the stock of another company that owns options on the 1st company

Not viable -- think how many options e.g. Google would have to own on e.g. Microsoft to meaningfully move the needle at Google.

I think you're right overall, though. "Buy exposure to a symbol you are not allowed to trade in." is easy if a) there exists an ETF which you are allowed to trade in, b) you know what the constituents of the ETF are and what their weighting is (trivial), c) you can program a computer to successfully do 4th grade math, d) you are good at trade execution (highly non-trivial).


Politicians in Congress are explicitly allowed to insider trade based on information they hear about. This is why congressmen's stock portfolios are far more profitable than an average person's.


It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns.

Of course, the answer to that is to require all Congressmen to put their assets in a blind trust.


>It makes sense to insulate Congressman from insider trading charges. They are exposed to so much inside information that the executive could bring charges against them on a whim. Which would have significant separation of powers concerns.

How about disallowing them to trade altogether in the first place for as long as they hold office?


I agree with that (hence the blind trust suggestion).


This would make more sense if there weren't career Congress-critters, though perhaps this would encourage movement in that direction...


Yeah, that is a huge issue in itself. Public office should not be a career but something you take time out of your career to perform.


It makes sense if an idiot were to come up with a solution in 5 seconds.

The answer is NOT to give them free reign to do it. It's to prevent them from being allowed to choose stock investments entirely. They get enough perks, they don't need free reign over the market.


Or to decriminalize all insider trading.


What about public disclosure of their stock holdings?


They are disclosed, but offline.


For staff only, for the actual congresspersons they are online:

http://clerk.house.gov/public_disc/financial.aspx


what does offline mean here?

I agree that public disclosure of their trades is viable, because if they decide to trade based on information they have, the public (whom they _serve_!) should also get the same opportunity.


So can you do a FOIA? Or go to an office in DC?


Legislative Resource Center 135 Cannon House Office Building Washington DC, 20515-6612 Phone: (202) 226-5200 Office Hours: 9:00 am - 6:00 pm

You can go here and make copies.


Wait, Wait. Hold a second. I am not sure I read that correctly.

Are you telling me that until 2012, for every confidential hearing that American congressman could attend, every budget proposal or allocation they had to vote on, every bill (say on the environment, or regarding corporate or financial regulation) they had to pass, or every declaration of war they had to approve, they were allowed to choose the outcome and personally profit from it?


SEC employees also do pretty well for themselves: http://www.bloombergview.com/articles/2014-02-27/the-sec-sho...


Doesn't the STOCK Act (https://en.wikipedia.org/wiki/STOCK_Act) explicitly ban Congresspeople from insider trading?

The only study on the performance on Congressional stock portfolios is from 2004 [1]. Do you know of any post-STOCK studies?

[1]: Ziobrowski, A.J., Cheng, P.X., Boyd, J.W., and Ziobrowski, B.J. (2004) “Abnormal Returns from the Common Stock Investments of Members of the United States Senate.” Journal of Financial and Quantitative Analysis, Vol. 39, No. 4, pp. 661-676. (http://www.walkerd.people.cofc.edu/400/Sobel/P-04.%20Ziobrow...)


NOPE!

"Congress Quickly And Quietly Rolls Back Insider Trading Rules For Itself"

"It was such a national risk that Congress did the whole thing quietly, with no debate. The bill was introduced in the Senate on Thursday and quickly voted on late that night when no one was paying attention. Friday afternoon (the best time to sneak through news), the House picked it up by unanimous consent. The House ignored its own promise to give Congress three days to read a bill before holding a vote, because this kind of thing is too important to let anyone read the bill before Congress had to pass it."

https://www.techdirt.com/articles/20130416/08344222725/congr...


I already explained this in my reply to bsbechtel's comment (https://news.ycombinator.com/item?id=10045388). The amendment makes retrieving disclosure reports more difficult, but does not repeal the STOCK Act's explicit prohibition on insider trading by politicians.


I'm pretty sure the key provisions of the STOCK Act were repealed the same weekend as the Boston Marathon Bombings. See the amendment section of the Wikipedia article you linked to.


The amendment makes it significantly more difficult to detect insider trading (since financial disclosure reports are not available online), but I wouldn't describe it as a repeal of the law's "key provisions". See http://www.npr.org/sections/itsallpolitics/2013/04/16/177496... :

"Still, two major elements of the law remain. Insider trading is illegal, even for members of Congress and the executive branch. And for those who are covered by the now-narrower law, disclosures of large stock trades are required within 45 days."


> The amendment makes it significantly more difficult to detect insider trading (since financial disclosure reports are not available online)

That's only for staff. The reports for Congress members are still required to be available online. They are here [1].

[1] http://clerk.house.gov/public_disc/financial.aspx


Do you have any source data?


That's not insider trading! That's insider cancelling!

totally different


Now insider traders will follow in the footsteps of fighting game nerds and obsess over cancels.


So a "trade canary", then.


I wonder if it would be possible to track the continual sales of stock by large shareholders, use that to buy options based on the canary trades disappearing.

This would then lead to the question: am I an insider trader if I am basing my options off of the lack of sales of insiders?


Their sales are very sporadic so it's not as reliable as you would think. Sometimes they need cash to pay for a new house, hitmen, etc. Other times they let the stock vest for longer because they don't need the money.


Continual sales, I mean -- large owners of big companies often have recurring monthly sales of x number of shares. Deviation from this is notable, and a possible source of information.


Interestingly, if you look at the Martha Stewart chart posted, there's a big spike when she would have sold but didn't... maybe there was some real news at that time, too, I don't know, but maybe there are algorithms already set up to detect this?


No! Matt levine's articles (which I recommend reading) give an excellent description of this.


Is it that easy? So just pre-schedule many possible trades, and in the end, just cancel all except the ones you actually want to do (after getting the inside information).


similar, "relativity" based, approach - the finance dept makes sure that bad news are released before CEO's planned buys or after planned sells, while good news - after planned buys or before planned sells. Just look at history of some corps' quarterly results releases and their CEO's planned trades :)


There are probably hundred ways to do it legally. Would you be surprised to find out that for every company with such a business model that gets caught there are 10 or 100 or maybe 1000 that do the same thing but more smart and therefore with legal protection? Wouldn't shock me.


Are planned trades by insiders public information? Or are they only made public when the actual trade occurs?


The thing that confounds the situation a bit, for a large quantity of people, is that in certain industries and in certain roles, a huge number of people are considered insiders. For example, anyone at a corporation who can access sales or booking data is an insider ... including the poor CRM administrator in IT or the exec admin in the Sales office. Beyond that, though, in financial services firms it's entirely possible they might consider all employees insiders on all equities. Fidelity does this, for example, and they additionally require all employees' equity holdings solely to exist in Fidelity-managed accounts so they can actively audit for insider activity.

This second case seemed more nutso to me than the first, but both are true -- I've lived them.


A large swath of people where I worked a couple of jobs back were considered "covered portfolio persons" who had to pre-clear trades in all but a few classes of securities (basically open-ended mutual funds, and small trades in very large-cap equities) and report almost everything. We had to instruct any brokerage firms to send quarterly reports to our compliance department.

I don't know if everybody was covered, but everybody in my group was.


Working for D. E. Shaw and later Merrill, we had duplicate trade confirms cc'd to compliance for all trades in all accounts. I didn't have to pre-clear trades in general, though there was a process to do so for some employees and for employees with questions about whether a contemplated trade was OK.


at amazon virtually everyone is considered an insider because almost everyone has access to the sales graphs that are used to track the health of the website and you can see detailed graphs of the revenue which only become public during the quarterly announcements. Basically anyone who had a company computer had access to this info so you were only allowed to trade amazon stock for like 15 days after each quarterly announcement. HR would send out emails saying when the allowed trading periods began and ended


Only made public some time after the trade occurs.


It also seems that trading currencies is not prohibited by any "insider trading" rules. See: recent unpegging of the swiss franc from the euro. There was much shenanigans in the market before the franc was unpegged.


I would not get insider trading advice from Martha Stewart…


To be a pedant, Martha Stewart wasn't convicted of insider trading; she was convicted of obstruction of justice and making false statements, etc. Mark Cuban, facing similar circumstances, kept his mouth shut and stayed out of jail.


Yes this is the lesson.

NEVER TALK TO THE POLICE WITHOUT YOUR LAWYER.


How were you able to acquire this source? Is there a public database of some sort?


ELI5...why would you sell shares that you know will increase in value? Or does this have something to do with options.


he is talking about canceling a pending sale of stock. When you are an executive or board member of a company you are not allowed to just buy and sell large amount of stock on a whim you must setup buying and selling plans to spread the trades out over weeks or months.

So in this case you had a sell order planned over the next few months but now you know the shares will increase in value after the date of the scheduled sale so you cancel the sell plan. This is considered legal because you did not use your insider information to actually trade stock only to refuse to trade stock


what about making 1000s of trades and cancelling the risky ones via insider info.

then the good trades weren't insider trades?


how about monitoring regular sales for sudden stops and buying those shares?


That seems a bit of a stretch to call that insider trading.


Why? It's effectively the same action as placing a new order. Cancellations are, for instance, how lots of market makers alter their prices in reaction to events.


If I understand correctly, these are planned orders that are un-planned days if not hours before they go out to the exchange, not orders that are sent to the exchange but cancelled before they can be filled. The latter is what the market makers are doing.

So it is more effectively the same as deciding not to do what you have been doing every month. It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.


> It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.

So? That hardly seems impossible to enforce. You just don't allow cancellations unless they are also planned. If you're allowed to schedule recurring sells, say, 30 days in advance (I don't know what the specific rules are), you should only be able to cancel them with 30 days advance notice.

The whole point of the planned trade exemption is to allow trades to happen independent of insider knowledge. If you allow cancellations, you're allowing insider knowledge to impact the trading.


> It would be impossible to enforce a prohibition against that, as that would effectively be a requirement to sell.

Why would that be impossible to enforce? If you register a planned trade with the SEC you have to follow through with it or pay a fine equal to the amount of money you saved by not going through with it.


that puts SEC employees in the catbird's seat - selling access to those pending trades would pay for a lot of trips to Milan


It's not very straightforward. It's a trade the way an Electron Hole is a particle.

https://en.m.wikipedia.org/wiki/Electron_hole


It's using private information for material gain in breach of a fiduciary duty to shareholders, so yes it is insider trading.


I think I will end up upvoting every share of this Bloomberg View columnist's columns here on Hacker News. The author, Matt Levine, thinks like a hacker in the best sense, by pushing ideas to their extremes and seeing what the consequences might be. He adopts a humorous tone, but his columns are full of food for thought.

http://www.bloombergview.com/contributors/matt-levine


You should also take a look at his writing at Dealbreaker, where he used to write before joining Bloomberg View. http://dealbreaker.com/author/mlevine/


Yeah seriously he's incredibly smart and funny.


Perhaps someone will change my mind, but I see the block on insider trading and spoofing as harmful to the financial industry overall.

Someone starts shorting a ton of Apple stock? That probably means something big is happen at Apple, and it's not good. It's information.

Spoofing as a technique can be used to combat and inhibit other types of trading, and is in some sense an algorithm to 'keep the opponent honest'.

As best as I can tell, the biggest reason that we as a culture are against insider trading is because 'it's not fair'. (happy to read a response that adds more depth to my understanding). It isn't fair, and the people with insider information are going to make a lot of money. But in the process of making that money they bring the information to everyone else. And insider trading incentivizes knowing as much as possible so that you can have an edge on the competition.


The main reason we don't like insider trading is that we like participation in the market by relative amateurs. A system that allows insider trading discourages participation by amateurs, because they do not have insider information. Insiders would earn money at the expense of these amateurs, so it's better for them to stick to other sorts of investments to avoid this "tax".

This isn't necessarily a problem. As a society, we've decided that we like having amateur capital in the markets more than we want the improved efficiency of allowing use of inside information. It's a tradeoff, and while both options have their merits, society has chosen one way.


>This isn't necessarily a problem. As a society, we've decided that we like having amateur capital in the markets more than we want the improved efficiency of allowing use of inside information. It's a tradeoff, and while both options have their merits, society has chosen one way.

I would imagine that information imbalance increases make a market less efficient, not more efficient.


> A system that allows insider trading discourages participation by amateurs, because they do not have insider information. Insiders would earn money at the expense of these amateurs

How so? Can you flesh out the scenario a bit since I'm having trouble seeing how this is the case. To me, it seems like if there were no trade prohibitions on insider trading the share price would immediately reflect inside knowledge, thereby protecting amateurs from making investments based on facts that they don't know that others do.


The share price likely wouldn't reflect insider knowledge. To see this, take an extreme example. The CEO owns less than 1% of most publicly traded companies. Even if he was allowed to sell his whole position without public disclosure, it wouldn't affect the stock price that much. Say he wakes up and finds out through insider knowledge that his company will go bankrupt tomorrow. He sells all his shares today. The stock drops a bit. It doesn't go to 0 just because he knows it should.

A stock price reflects a weighted average of individual investor's knowledge and their capital.

(Efficient market gets around this by assuming people are cool with not just selling the stock but shorting it all the way until it is as low as they think it should be. People don't tend to bet the farm (or have the ability to borrow funds to bet the farm) like that.)


But assuming that public disclosure was required for insiders, the CEO selling all their stock could drive the price down pretty quickly. People will be watching that particular 1% closely.


This assumes really fast turn arounds on this information.

There's time taken to submit data to a central clearing house and time taken for them to publish it.

Many people may not want you to have a real time feed letting people know what shares they have just sold.

There also exist accounting cycles and hence corresponding disclosure cycles. CEOs can make non related entity trades, mask trades, etc. Seasoned financiers are far smarter than the new entrant. They will find ways to reduce their "downside", and increase their upside.

You always want to ensure that new entrants are not left to the mercy and warm fuzzy feeling of finance experts. The rule is that they can't afford them.


> The main reason we don't like insider trading is that we like participation in the market by relative amateurs. A system that allows insider trading discourages participation by amateurs, because they do not have insider information.

While I agree with that in theory, in practise we see that the rest of the market is so hopelessly skewed in favour of insiders in one form or another it's like a sticky plaster on the stump of a severed leg; just look at the Facebook IPO, or high frequency trading.


HFT: I've never understood why stock is traded on a continuous time. In NYC there's a famous crossroad where banks have IT offices, because they want to be as close as possible to the stock exchange's servers, because 50ms latency difference can make them earn a few millions per year. If stock were traded discretely, like every 3 minutes or so, we would allow bids to pile up, and HFT and closer banks wouldn't have an advantage over more remote clients.


If stock were traded discretely, like every 3 minutes or so, it would probably reduce the effect. But a faster turn around would still be an advantage - right before the trade happens you can make up your mind based on more information than others have.

One thought might be to partly counteract that with a transaction cost that rises over the course of the 3 minutes.


> A system that allows insider trading discourages participation by amateurs

Not really, amateurs mostly make long term investments, they are not buying and selling based on quarterly reports. The only ones who would be affected by legal insider trading are the gamblers.


Would you say that barring insider trading is a way to encourage broader, shallower groups of investors so that the noise (as in signal-to-noise) caused by individual traders is smoothed out better?

If there were 1K inside traders who were the only profit-makers, would the price of a security be more volatile than if there were 100K "outside" traders who all had a virtually equal chance of profit?


The thing that I think neither you nor this article get is that insider trading bans are criminal penalties that merely supplement a person's civil employment contract. That is, nearly everyone who is given insider information as part of their condition of employment is implicitly or explicitly given it on the condition that they don't exploit it.

I'm pretty radically against copyrights and such but I don't think anyone who wants a stock market can say that a corporation doesn't have the right to put limits on what employees do with information. And the first limit most anyone will put on information their employees are given is "no trading on it" - because the stockholders actually, oh, own the stocks and don't want random people profiting.

So insider trading is just broadly taking stuff you weren't given from work. If you make the situation purely civil, a few companies might even allow this but I don't see as a big selling point for their shares.

For the majority of companies, that wouldn't allow it, if there were no explicit laws against insider trading, profits from it could still be lumped under theft in civil lawsuits.


And apart from barring employees benefiting relative to other stockholders from additional information related to factors they don't directly influence, corporations also have to consider that executives wishing to actively influence stock movements to create insider trading opportunities will usually find it much easier to engineer an unanticipated dip in the share price than an unanticipated rise...

Insiders can create information as well as trade based on it, so there are very strong reasons for corporations to ensure they and their associates' potential gains from trade are very closely aligned with those of other market participants.


Yeah, usually there's defined windows in which employees can trade in the companies shares.


Allowing insider trading could also lead to much more "herding" behaviour: if the market starts moving before the official news event, it probably means someone (a big player) knows something, so everyone else is going to get on board the move. Now add a second order effect to this: people (big players) will try gaming the system by starting a herd effect before the big news. Especially if you make the herd go in the wrong direction you are going to win big time.

All of this leads to exactly the opposite of what you are hoping for: price discovery. It's just chaos and instability, and probably harmful to the market in general.


You are absolutely right. "Insider trading" is like the war on drugs.


Indeed, a slap on the wrist applied very rarely to those white collar criminals unfortunately politically unconnected to face punitive actions and another government initiative that also rarely applies any sort of punishment to the rich and connected.

Meanwhile, on the other side of the tracks - snatched some swisher sweets? That's a shootin. Sass me while black? That's another shootin. You got a likky stik of collie and minoritous in nature? You going down: hard!!!


> Indeed, a slap on the wrist applied very rarely to those white collar criminals unfortunately politically unconnected to face punitive actions and another government initiative that also rarely applies any sort of punishment to the rich and connected.

I don't believe this is even remotely accurate.

> Meanwhile, on the other side of the tracks - snatched some swisher sweets? That's a shootin. Sass me while black? That's another shootin. You got a likky stik of collie and minoritous in nature? You going down: hard!!!

I don't deal with sarcasm and vulgarity. If you want to make a point, make it politely and directly.


He's right though. Nearly a quarter of african americans in Florida are not allowed to vote - thanks in large part to the war on drugs, (well, and probably racism).

Meanwhile, relatively very few people go to jail for insider trading. The number of cases in the past 10 years is probably in the hundreds, possibly thousands. Compared to hundreds of thousands of drug cases (maybe millions?).


But they are similar in that they are both totally based on fiction. They are made up laws that serve no purpose.

(Except to employ enforcers---but that isn't why they exist. They exist because people believe the fiction.)

I should have been more specific about the intended nature of the comparison I was making.


OK, good idea. Let's make insider trading legal... now NSA employees win and everyone else loses. Seems like a sensible economic system.


You joke, but trading on insider information means revealing that information. It gives people 2 incentives:

1. Trade on your insider information quickly, or someone will beat you to it 2. Keep your secrets safer.

It also makes the NSA vulnerable to false planted information. Trading on stolen information means trusting that information.


> trading on insider information means revealing that information

Did I miss the blank space on the form that requires you to fill in the reason for your trade before it gets executed?

Joking aside, you do not reveal your intentions by executing a trade. Let's look at a hypothetical. Say all of the sudden someone dumps 5% of Apple stocks. Information has been imparted, but this is imperfect information. If you own Apple stock and you are weighing your options, you can't know the real reason behind these trades. If you did know the real reason behind the trades (e.g. announcement of a 1% dip in growth in Q4 2015) you could evaluate what you think that does to the value of the stock instead of trying to reverse engineer someone else's logic.

Another Example: How about knowing that someone will happen in ~2 months time, so you slowly sell stock off over 2 months. How does this impart significant information to the market?


>You joke, but trading on insider information means revealing that information.

Are you joking here? Let's say, hypothetically, Apple CEO buys a lot of stock today. When you learned that fact, did you learn the facts that motivated him to buy the stock? NO. Absolutely, purely, unarguably NO. Not unless you spoke to him directly and he told you.... truthfully.

This is not a joke. The NSA, or any spy, having access to "all" digital information, can easily differentiate between false and true information, or at least have the opportunity. But you, as an individual, can only act on what is shared directly with you. Making trades does not share any information beyond the fact that the trade was made.


"When you learned that fact, did you learn the facts that motivated him to buy the stock? NO. Absolutely, purely, unarguably NO."

A more charitable (and, as it happens, accurate) reading of the parent's comment is that trading on insider information means revealing some of that information. It's obvious and unarguable that this is not all of that information, but as I've said in other contexts, you're always leaking more information than you think. It's often surprising what can be inferred when a few pieces of information are combined.


It's harmful to the industry overall, since it prevents people from executing trades to help correctly price companies.

We should still discourage and ban it. Outside of what the market as a whole does, there's still the question of who benefits from it. Insider trading incentivizes some shitty behavior and some pretty major principle-agent problems.


I am wondering if this centralized infrastructure for financial news is actually a good idea. This could always happen again and again. All the employees in these news companies could get a mass of insider information which they could sell.

Isn't maybe an alternative decentralized news publishing service a better idea? Couldn't the CEO of a company publish their financial news only on their own website at the given publication date? Why is it necessary for these news to be stored in some central news database days before their publishing date? And I mean these as honest questions because I have really no idea what the advantage would be?

And another related question: wouldn't it make sense with today's Internet infrastructure to reduce the interval between earnings reports. Maybe it could even be something like a continous automatic publishing of these company finances. Always when some financials change it could directly be published. That way all investors would at all times have the same information as the insiders, so everyone would be on the same level. Of course some extraordinary news like mergers or acquisitions might still give some people insider information who prepare the deal, but at least the quarterly earnings could not be insider information.


> Why is it necessary for these news to be stored in some central news database

Amusingly it's because of the hedge funds. They want to have a limited list of places to check for news to make sure no one gets there ahead of them.

This is why they were so upset when the Netflix CEO made something public on Facebook -- because they weren't watching his Facebook page for news (but they sure are now!).

The SEC actually has a very limited set of places that you can release financial news because of this.


I mean, hedge funds have the resources to monitor thousands of websites. Joe Retail Investor doesn't. Reg FD was introduced to level the playing field.


I was under the impression that it was because financial news is an extremely sensitive business. Twitter has the power to move the market now, and we already know the damage simple, fake websites can do[0]. There's a lot of power in publishing public financial information (as the article demonstrates) and that is why we have regulation. People need confidence in their information if they are to have confidence in their market.

[0] http://www.theverge.com/2015/7/14/8962433/fake-bloomberg-new...


The tone of this article was really, like, interrupted by a prolific use of "likes."

I wish it were so simple to hand-wave all security risks. Mr. Levine's ability to find a MySQL tutorial was quite impressive, but his dismissal of very real security concerns is childish. It's like saying cars are known to crash, so quit crashing cars. It's so, like, simple!


I love reading Matt Levine's writing; I enjoy the humorous tone. A bit of Louis CK for the financial world. But I didn't get that he was dismissing the security concerns. I read it as he was dismissing the idea that some aspects of the hacking could have been more easily thwarted. For example, two factor authentication is a relatively straightforward protection. Now he may have been underselling how complex it is to implement, but I would have to agree that items like two factor authentication are relatively straight forward tools at this point.


2 factor authentication has nothing to do with this, though, and would do absolutely nothing to protect against this occurrence or similar ones. 2 factor authentication is great in certain situations... but only when your code is operating correctly. If someone has achieved arbitrary code execution (even if only at the SQL layer) it's game over. 2FA won't save you.


they also brute forced employee accounts (likely the sql injection was in the employee facing section of the site)


Did you read the article? Not only was sql injection found, logins were brute forced. 2fa absolutely would have helped with that.


I think you got distracted from the point by all the likes. Granted, they make it easy to get distracted.

The thrust of the article seems to be that it was the people in charge of these myriad wire systems who were disregarding the security risks, demonstrably to their detriment. As he states:

"But I feel like part of it has to be that the people in charge of those databases, like me until today, had a disenchanted view of the financial world. These systems didn't hold the nuclear launch codes. They held press releases -- documents that, by definition, would be released publicly within a few days at most. Speed, convenience and reliability were what mattered, not top-notch security."

... which is essentially the refrain for every major, embarassing security breach: speed, convenience, and reliability trump security concerns.

We have year after year of examples of innocuous systems being compromised to form elaborate weapons (at a seemingly increasing rate year-over-year), but security is still not a maximum priority. And the reasons are as Levine notes: speed, convenience, and reliability over security.


The gist is that he, knowing absolutely nothing about security, could figure out the exploit.

His finance audience doesn't want to know the details of the security problems, nor do they need to. However, it's valuable for them to realize how this information is just sitting around on a company DB for anyone who can Google "SQL injection" to steal.


I appreciated the tone of the article. I found it very easy to read. Though I agree the "likes" were a bit over the top. There were several times he used "like" and I mentally paused as if it were a comma only to realize he was using the word to compare two things.


I couldn't take the entire article seriously when he started it off with "So".

What is with "So" these days. I get that it's helps conversational flow but I regularly now see it as a way to start an article.

Sorry, rant over.


Replace hackers with the NSA. Imagine the trades one could make with access to the world's email inboxes.


Given the number of NSA employees who have confessed to abusing their access to LOVEINT, it must have been tried already.


Would it be so bad if insider trading laws just went away? Information is spreading faster than ever. So a few Mak outsized gains on some inside info. Is it that big a deal?


Corporations are supposed to operate on the behalf of their shareholders - insider trading is in direct conflict with that


Shareholders have non-criminal recourse to deal with corporations not operating on their behalf.


How is that? Set up a private mailing list for shareholders, then.


Not all the upcoming announcements can be shared with all shareholders. Too much risk in leaking.


Insider trading is taking advantage of the rest of the market. If there was nothing done to prevent it, it could cause prevent many investors from entering the market.


Trading is taking advantage of the rest of the market. You need to have a difference in either beliefs or preferences relative to the rest of the market, otherwise the winning move is always "Do not transact." [+]

Insider trading is illegal because it takes advantage of one's employer.

You are allowed to use material non-public information to beat the living daylights out of everyone else on Wall Street as long as you don't have a fiduciary duty to the source of the information. This includes doing things like e.g. performing image recognition on photos taken by spy satellites to count the number of cars in WalMart parking lots and thereby arrive at their quarterly sales numbers before they're released publicly. (That was an actual thing that was done.)

[ + ] Edit: Actually, on re-reading this, it is glib but false, in consequential ways. Long story and I've already pulled an all-nighter. Some other day.


Why is that? They'd be disappointed the stock rose but they werent able to make some extra quick cash? Most investor should be long term holders anyway.


I enjoyed the tone and the piece. His assessments of brute-forcing and SQL injections were quite accurate.


I've been noticing a lot of spikes across assets lately. Always timed a minute or two before the official release print. That used to constitute a somewhat unusual occurrence. One expects relative calm before the storm. Now it seems to happen with every bit of data. It could be chalked up to algos pre-positioning in anticipation. But many times if you are tracking fellow traders on your twitter feed as well as the price action, you'll notice a cry of "Leaked!" coupled with the price swings. I always assumed something far more nefarious and insidery was taking place. Powerful forces manipulating markets for various geo-political ends and so forth. So am somewhat relieved to see ordinary everyday greed to be the culprit. Am waiting for a Nanex style expose on this phenomenon.


Then there is the story of the really sophisticated guys who didn't get caught. Unfortunately that's a story you won't be reading online, but will just have to imagine.

It really makes me question the sanity of doing this illegal trading. For as much effort you could do something legal and make money. Maybe not as much but surely without the risk of going to prison.


That's simply not true. Having certain knowledge can put you in a vastly asymmetrical position as far as white or black hat goes.

I'm in that position myself. I've enough attacks and some 0days that I could retire off a rather small bit of work (I discovered one guy making $30k/mo recurring off of an amateur attack). Instead, I'm trying to start a security company. It's loads more work and probably not as much reward, at least easily.

In fact, it would not be hard to find people where you might say the opposite: they're insane for not being a criminal.


Sadly, insider trading is pervasive on wall street. You don't read about the guys that don't get caught, and there are a lot of them. Remember, if you can't spot the sucker at the table, you're the sucker. That's why I keep my money far away from the stock market except for index funds.


> That's why I keep my money far away from the stock market except for index funds.

I think the sucker at the table is the amateur day trader who thinks they can out-smart the market, but really they are gambling.

On the other hand spotting an undervalued stock and buying it and holding for the long term, especially with a portfolio to protect you isn't too suckerish and should be quite immune from whatever the insider traders and high frequency algo guys are doing.


If you believe that the entirety of the market is rigged, what possible reason is there to make an exception for index funds?


Because individual stocks can be rigged in either direction (for or against your position), but at the level of sector or index funds all of that activity balances out.


What blows my mind is that these people don't encrypt their emails with some form of plausible deniability envelope. I mean, if you're smart enough to set up servers for customers of your illegal activities, you should be smart enough to know what to avoid.


Not really, especially in East European countries where the legal system is weak. When everybody hacks everybody every day and nobody gets sued then you stop to worry about hiding.


I believe if you become a member of the US Congress you are explicitly excluded from insider trading laws. So you could always stand for office.

Sigh.




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