Technology Makes Insider Trading Easy

insider trading, stock marketIf you are one of the people who think the stock market ever was, or ever will be, a level playing field, you – how to phrase this politely – must have eaten paint chips as a kid. It's one of the great magical feats of all time that has convinced a fairly large segment of the American public that if they keep pouring their hard-earned money into stocks, bonds, mutual funds and the like, well, their persistence and patriotism will be well-served when it comes to retirement.

Unfortunately, Wall Street has always been a rigged game and technology is making it easier than ever for insiders to game the system and get away with it. We're not going to sit here and say that you're destined to never make a cent in the stock market. The sheer volume of trading implies that some money will be made by the odd individual here and there but the vast majority of small to average sized portfolios do nothing more than provide working capital for the Big Boys to sweep in and make the big bucks, acting on information they knew about long before it ever hit the Street.

In August of 2000, a new regulation was put into effect which came to be known as Regulation FD or Fair Disclosure. This simple little rule requires issuers of a stock to tell all investors at the same time of any new information that might be material to their decision about whether or not the company continues to be worthy of owning.

Trust in a capital market is based on the idea that the market is fair, and fairness relies on equal access to information. What does technology have to do with this? The Internet and its accompanying multitude of ways to connect have allowed for unofficial networks of people in the biz to congregate and, of course, gab, which people everywhere are all to willing to do. While some insider trading is driven by participants willingly seeking to subvert the rules on information privacy, a number are simply unaware of the far-reaching ramifications that lie beneath what seems to be an innocuous online conversation.

With the recent launch of a massive probe into insider trading at mutual funds, those who have taken part in these unofficial networks of information swapping are on the verge of finding out that the very technology that facilitated their actions are about to drop a bomb at their feet, because Big Brother was listening…he always listens.

The American Monetary Association Team

American Monetary Association


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