Who owns the lawmakers and the courts? Symmetry of information, also known as a ‘level playing field,’ is the cornerstone and underlying principle of US Securities laws since 1933.
“Information symmetry is a condition in which all relevant information is known to all parties involved. For example, in the stock market, stock information has a full public disclosure, and all investors are in the same position to share information.” “In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Examples of this problem are adverse selection, moral hazard, and information monopoly.”
The letter of the law can be twisted hard enough to find a reason for excusing some particularly blatant insider trading. As long as the exchanging of favors is sufficiently soft and undocumented, and not the explicit exchange of cash, videotaped and posted to Youtube, it’s all good. The purpose of information symmetry is to prevent certain market actors from engaging in control frauds. This principle taken to a perfect and natural ideal was a cornerstore of one of the great economic canards that justified deregulating the markets.
“In finance, the efficient-market hypothesis asserts that financial markets are ‘informationally efficient’. In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.”
Information symmetry means that some analyst or CEO cannot tell his friends that they are going to give downward guidance in a week, so that they can all sell their stock and even short it ahead of the public.
It means that the most powerful players in the market cannot traffic in private knowledge, presenting two sorts of datastreams, one for the public and one for themselves
This decision will probably be reversed, because otherwise there can be no confidence in US markets any longer. No one who is not an insider can believe in their impartiality and honesty. They are worse than any casino, because the dealer can signal some of the players when he has an ace in the hole.
The most rational response from the rest of the world will be to shun US markets, and take steps to prevent the contagion of this abuse of privilege.
This is the kind of situation where the locker room talk at the Country Club gets leaked out in public, and the Very Important People who do it are suddenly exposed for exactly who and what they really are, and what they really believe. It is a brave new world if this decision stands.
