Last week, the US Supreme Court delivered a new ruling on Insider Trading. A basic summary: the court confirmed that insider trading includes giving “a gift of confidential information to a trading relative or friend.” So I’ve had to cross off ‘juicy tidbits about potential mergers’ from my Christmas list.

Sad about no insider trading gifts

So here’s the thing: traditionally, the crime of ‘insider trading’ doesn’t just mean ‘insider trading’. Because if you trade on inside information and you still manage to lose money, then that makes you a terrible trader – but not a criminal. True insider-trading requires:

  1. Insider information being given by a tipper to a tippee;
  2. The tipper receiving some kind of pecuniary advantage for being the tipper; and
  3. Money being made off the tip.

The new court decision basically dispensed with the tipper needing to receive some kind of pay-out for their tip. At least when it comes to giving the tip out to people that you have a ‘close relationship’ with.

So there we are – the world is dealing with financial criminals, one Supreme Court ruling at a time.

But this does beg a bigger question.

The bigger question: who is the victim of insider trading?

Insider trading is one of those weird financial crimes which everyone just ‘agrees’ is bad, but no one can really explain why. At least, not without getting deeply philosophical about would-haves and should-haves.

Here are all the parties to an insider-trade:

The Tipper: who makes the tip, and presumably gets either a ‘pecuniary advantage’ for it, or that warm, fuzzy feeling of having found the perfect gift for their trader-loved-one.

The Tippee/Trader: who makes the trade and makes a bundle.

The counterparty to the trade: the other side of the trade transaction, who was busy offering the share for sale when the Trader came along and bought it from him (or who was busily searching for a share to buy, when the Trader came along and sold it to him).

Just so we’re clear, no one forced the counterparty to make the trade. They entered into the transaction willingly. If they hadn’t made the trade with the Insider-Trader, then they would have found someone else to trade with.

So who loses the money that the trader made here?

And this is where we have to get philosophical, because the answer is “D – none of the above” – and instead, we’re forced to say something like:

“Well, the loser is the person who would have had the windfall had the trader not made the trade. So it might have been the investor that would have traded with the counterparty if the Insider-Trader hadn’t got in there first. Or it would have been the counterparty if he couldn’t make the trade, and was instead left in his original trading position.”

Or perhaps it’s the kind of anarchy that would ensue if everyone tried to insider-trade?

Either way, it definitely seems that we’re expending a lot of effort to deal with something that seems mostly hypothetical.

But perhaps that’s just me.

Here’s a list of insider trading scandals as a gift alternative:

a list of insider trading scandals
Thank this website

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, or like the Rolling Alpha page on Facebook at