Case for abolishing insider rules
Jake van der Kamp
Some years ago your correspondent was paging through the Financial Times when he spotted an account of a London trader at a bank for which he once worked defending himself against accusations of nefarious practices.
'Insider dealing? No way,' the man was quoted as saying. 'We were only playing our position on the knowledge curve.'
How interesting. So the British also recognise Hong Kong's favourite curve for the advantages it offers, do they? Surely there cannot be many countries where this is true. What a calumny on the human race that would be.
One of the more interesting features of the debate on whether we should criminalise insider dealing is that the Government says the Hong Kong market is mature enough for participants to be familiar with the concept of it. They are indeed.
Insider dealing is not yet a criminal offence, you know. When insider dealing tribunals were first formed about 20 years ago they were given the powers only to deem transgressors 'culpable' and publish their findings.
Over the years they have also assumed the power to impose fines. The European Court of Human Rights, however, has objected to such penalties outside of a criminal process and apparently Europe has something to say in how we do things here. To give the tribunals their teeth back and imitate other countries the Government now wants criminal legislation.
Perhaps you have never asked yourself that question. Insider dealing is a bad thing and anything we do to stop it is therefore a good thing, Q.E.D. This is the common thinking.
But let us get one thing straight immediately. The stock market is not a social service. People go there intending to do roughly what the lion does when waiting in hiding for the zebra. Short of war it is about as close as we come in human interactions to nature red in tooth and claw.
The difference is that people who dabble in stocks all generally think they are among the lions, that they will feed rather than be fed on. For most of them it turns out that things are just not so. But do they then have natural justice on their side when it turns out they are really zebras and the real lions have just taken a bite?
Walk behind the dealing desk of any stockbroker in town that deals with retail clients and you will find that if the talk is not a lot of nonsense about lines and squiggles on price charts, the salesmen will be telling their clients that 'pssst, this goes no further but I've just been told that . . .'
And the clients lap it up. This is just the sort of talk they want - insider dealing talk. Why talk to a broker unless he has good information and what is good information but the news that has not yet hit the price?
The biggest difficulty with criminalising dealings on inside information is that you wind up criminalising tens of thousands of people who are just doing what they have always done and never really considered it wrong to do it. They may say it is wrong but somehow the wires in their minds between the legal concept and the actual practice just wind up getting crossed every time.
These small investors will certainly not be better served if laws against inside information are truly enforced. They will just wind up getting no information at all. It will be too dangerous for a broker to give them any as he will never know what some lawyer who has never set foot in the market may deem inside information.
It certainly will not stop the big boys from insider dealings. They will just book them offshore, hire more accountants and lawyers to hide their traces and count on their weight in society to get them off the hook if they are caught. When, for instance, was the last time you saw the ICAC catch anyone big?
We would do better to abolish rules against insider dealing than enact new ones.