Monday, June 03, 2013

Can Insider Trading Be Curbed?

The New Yorker's James Surowiecki looks at the boom in insider trading, fueled by fierce competition among thousands of hedge funds. Roughly 8,000 hedge funds exist. Eight thousand! On average they underperform the market.

Surowiecki suggests the value of insider information would decline if companies announced every material happening as soon as it happens. Would companies agree to make that information available to competitors? In any case, faster disclosure might not help.

Some companies, Surowiecki notes, no longer even report quarterly earnings. Considering the Wall Street farce that beating quarterly estimates had become, that seems like a plus.

Acme CyberGlobal today reported first quarter earnings of $2.15 a share, exceeding analyst estimates of $2.14 per share. This marks the nineteenth consecutive quarter in which Acme's earnings have exceeded estimates by exactly one cent. 
Hedgers caught trading on insider information receive tough sentences these days. As legal threats to notable hedge funds have mounted, nervous investors may head for the exits. Even Steven Cohen's SAC Capital Advisers, Bloomberg reports, could be reduced to a multi-billion-dollar family office.

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