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Ways to Avoid Insider Trading
from the alter-the-stock-market dept
While I highly doubt this will ever be implemented, some professors have come up with an interesting system to prevent the effects of insider trading. Basically it involves bundling all trades at 15 minute intervals, and allowing everyone to see all the trade requests that build up over that time period, so you have 15 minutes of "free time" to react. Reading over the system I can name a lot of problems that I think would come out of it, and there are always ways to get around the system. However, as reported elsewhere, it does seem that insider trading is a problem. As a director of a company isn't that one of things you're supposed to know? I don't think folks take being a director as seriously as they should.
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This study is absurd -- it doesn't apply to either the open outcry system nor the nasdaq trading system; in both systems, traders DO see block trades (through the traders executing them). They don't see a disaggregation of those block trades (e.g., Mike is buying 100,000 shares and that is 4x25 vs 10x10). Can't see how the difference, given anonymity, would be relevant. Furthermore, these hacks (hey, if you're not from UofC or Wharton, and you're dabbling in empirical finance, I'm biased...) don't consider the changes in volatility for the overall market that this system would create. Doubtful that the benefits of this "solution" for this small, trackable and usually rectifiable problem would outweigh the costs to the masses who'd suffer higher volatility.
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