""TheInsider 1 day ago
As one of the "underlings at the SEC", let me put some perspective into this.
First of all, there is nothing the SEC can do about someone with enough money to move a thinly-traded stock, or for that matter, someone with enough money to move an index future (needs to be a lot of money, but obviously there are a few who qualify.) Trading a security in such a way as to move its price is not a violation of the law, as every transaction moves the price. "Market manipulation" activities have specific definitions, which in most cases consists of overt cooperation with other market participants.
The problem with attempting to push a market manipulation case is that it is very difficult to make such a case in a court of law with just the tape alone; intent has to be proven, which virtually requires e-mails or phone call logs, and what do you think the chances are of traders leaving a clear record of market manipulation in their e-mails? But I have doubts as to how much of this activity is overtly coordinated. Anybody who has traded the markets knows how traders get to know the patterns of other traders, even to the point of anticipating their actions; and silent coordination is a very real possibility, but nearly impossible to prove. But if you feel like you're being taken advantage of because there are market participants with far more money than you who can move the market against you at their will, all I have to say is: welcome to the free markets.
That obviously doesn't address the issue of insider trading. But insider trading cases are far easier to claim than to prove. One problem is that not everybody who trades on insider information is breaking the law. When the material non-public information leaves the door of the company (or agency), it's illegal to trade on; but by the time it's made a few jumps, it's a rumor, and there is nothing against trading on rumors. You can line up all the people who bought options ahead of a major news announcement, an anybody who's been a professional trader for more than two days is going to give the same story: it's a rumor, they heard about it through the grapevine, and they traded on it, just like they would trade on any other rumor. And then there are those who will say: they didn't even hear about any rumor, they just saw the price move and decided to jump on board. There's nothing that can be done in either case; the only way insider trading will get caught is if material non-public information can be traced to an insider. Either it's a case of somebody who is an employee of the company in question, or somebody else is good enough to turn over the evidence. Other than those scenarios, it's highly unlikely that anybody will get caught.
I realize that there's a lot of anger over market manipulation, but the SEC can't just dump fines on people because they think they aren't being nice to other market participants. The law is very clear on what constitutes a violation, and cases don't stick unless there is solid evidence. The current participants have very effective policies for staying within the gray areas without stepping into the black, and they have very good lawyers, and they have very experienced personnel who know exactly what they can get away with. If you want to grab a prop desk trader from a major firm who bought options before a news announcement and try and push an insider trading case against him, all I've got to say is: good luck, you're going to need it. Unless you're lucky enough to get an e-mail with his name and the name of a company insider on it, it's not likely the case will even make it to trial.
I know that's not what anybody wants to hear, but the SEC has to operate within the regulations and within the reality of the legal system, and as such there is a threshold below which it is very difficult to bring cases (and, unfortunately, the regular market participants know it.) I am sympathetic to the day traders who frequent this site, but there is a hard reality, and it is that there will always be market participants with more money, time, and information than you, and as such it will always be an uphill battle, no matter what the market regulators do.""
First of all, there is nothing the SEC can do about someone with enough money to move a thinly-traded stock, or for that matter, someone with enough money to move an index future (needs to be a lot of money, but obviously there are a few who qualify.) Trading a security in such a way as to move its price is not a violation of the law, as every transaction moves the price. "Market manipulation" activities have specific definitions, which in most cases consists of overt cooperation with other market participants.
The problem with attempting to push a market manipulation case is that it is very difficult to make such a case in a court of law with just the tape alone; intent has to be proven, which virtually requires e-mails or phone call logs, and what do you think the chances are of traders leaving a clear record of market manipulation in their e-mails? But I have doubts as to how much of this activity is overtly coordinated. Anybody who has traded the markets knows how traders get to know the patterns of other traders, even to the point of anticipating their actions; and silent coordination is a very real possibility, but nearly impossible to prove. But if you feel like you're being taken advantage of because there are market participants with far more money than you who can move the market against you at their will, all I have to say is: welcome to the free markets.
That obviously doesn't address the issue of insider trading. But insider trading cases are far easier to claim than to prove. One problem is that not everybody who trades on insider information is breaking the law. When the material non-public information leaves the door of the company (or agency), it's illegal to trade on; but by the time it's made a few jumps, it's a rumor, and there is nothing against trading on rumors. You can line up all the people who bought options ahead of a major news announcement, an anybody who's been a professional trader for more than two days is going to give the same story: it's a rumor, they heard about it through the grapevine, and they traded on it, just like they would trade on any other rumor. And then there are those who will say: they didn't even hear about any rumor, they just saw the price move and decided to jump on board. There's nothing that can be done in either case; the only way insider trading will get caught is if material non-public information can be traced to an insider. Either it's a case of somebody who is an employee of the company in question, or somebody else is good enough to turn over the evidence. Other than those scenarios, it's highly unlikely that anybody will get caught.
I realize that there's a lot of anger over market manipulation, but the SEC can't just dump fines on people because they think they aren't being nice to other market participants. The law is very clear on what constitutes a violation, and cases don't stick unless there is solid evidence. The current participants have very effective policies for staying within the gray areas without stepping into the black, and they have very good lawyers, and they have very experienced personnel who know exactly what they can get away with. If you want to grab a prop desk trader from a major firm who bought options before a news announcement and try and push an insider trading case against him, all I've got to say is: good luck, you're going to need it. Unless you're lucky enough to get an e-mail with his name and the name of a company insider on it, it's not likely the case will even make it to trial.
I know that's not what anybody wants to hear, but the SEC has to operate within the regulations and within the reality of the legal system, and as such there is a threshold below which it is very difficult to bring cases (and, unfortunately, the regular market participants know it.) I am sympathetic to the day traders who frequent this site, but there is a hard reality, and it is that there will always be market participants with more money, time, and information than you, and as such it will always be an uphill battle, no matter what the market regulators do.""
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