This is a common defense of HFT favoritism, but I don't see it happening in the real market. What you see in the market is exactly what you'd expect to see in any market - highly traded assets trade on narrow spreads, illiquid assets trade on very wide spreads. VOO has a 1 cent spread because a billion dollars of VOO are traded every day. On the other hand, despite all the sweetheart deals that HFTs benefit from, VOO260417C00720000 has a 100% spread - the kindly HFTs who can easily automatically quote both sides are nowhere to be found. The argument is that these people get discounts on their trading costs and mechanical advantages in how they do their trading because they also have a duty to provide narrow spreads, but those narrow spreads are nowhere to be found (except in places where you obviously don't need HFT for narrow spreads, like goddamn S&P).

> HFT's save money [..] ensuring the pricing is more fair

HFT is about being on the other side of everyone's trades and collecting money on the spread. Since you want to trade everything, this limits how much you can know about the things you trade. Arbitrage and price correction do not require colocated servers and trading fee exemptions and they should not be conflated with HFT. If you do HFT it is synergistic to also have a robust model for what the prices should be, but in many ways HFT is the polar opposite strategy of the trading involved in price discovery.

Are those other people in the room with you right now?

By the way, today I got Hunterbrook Media's yearly recap, which begins like this:

```
In 2025, Hunterbrook Media published dozens of investigations, driving impact across healthcare, housing, and the environment. (See below!)

No ads or clickbait. No exclusive paywalls.
[..]

But really, our business model is simpler than that.

We get paid to be right, to be rigorous. Because if the reporting is wrong, the investment or the lawsuit fails. And the reverse is also true. Markets and courts, while severely flawed, are still fairly good at getting to the truth — eventually.
```

The "skin in the game" principle is widely applicable.

> Let's assume for now that they've predicted things correctly because they were smarter, that their smartness, if it exists, benefits society, aside from any other of their qualities, let's set all these question aside. In that case, how does insider trading fit into this system? People who got inside information did so because they lucked into being in the right place at the right time, not because of ability to make correct predictions. They won't be able to make correct predictions next time, so the darwinian system ends up rewarding people with lower fitness.

The goal is not to build a ruling class of enlightened capitalist oracles. Rather, you have a democratic system where everyone with conviction can put some skin in the game and get a vote. People like to criticize this - "X is a bubble, look at all the suckers investing in it, this proves that the market is irrational". Could be true! You can make a bad wager and in doing so you will push the price the wrong way and inflate the bubble even more. It's just that it is a self-correcting system, because most people who bet incorrectly will lose their shirt and their vote on the market. The natural consequence of this is "the rich get richer" - if you have a pattern of successful investing, that pattern is likely to continue, just as having a pattern of successfully repairing computers or any other enterprise. The ruling class of rich investors is formed as a result of the self-correcting market, but it's not the goal; it's an unfortunate consequence.

The person with insider knowledge, regardless of his virtue or of what he deserves, has information. By trading on his insider info he pushes the prices in the correct direction. Yes, maybe next time he uses his extra votes to make a dumb bet. Or maybe next time he comes back with more insider info, or does not trade at all. Regardless, the system is self-correcting; if he misuses the votes he will lose them.

> What I'm seeing now is a bunch of people mindlessly pouring a ton of money into the AI bubble, so doesn't seem to be the case to me.

A lot of people share this sentiment. They may even be right. Few have bet their life savings against the trend. In many ways I even sympathize, because shorting is unnecessarily difficult in the current regime; it is not actually possible to short a bubble while also eliminating the risk of premature liquidation. I will leave the "naked shorting should be legal" hot take for another day though.

I do not know if the expected cashflows from AI will materialize. I do know that if every influencer with an opinion had shorted bitcoin at $1 or whenever they decided that it's bullshit, we'd have a lot of humbled, homeless influencers. There are a lot of people willing to yap about how $CURRENT_TOPIC is a bubble, but if they aren't millionaires from their proven track record of recognizing bubbles, with corresponding market positions against the bubble, it's just yapping.

> Wouldn't that tip them off ahead of time that this operation will take place, possibly resulting in this operation failing completely?

Right, there is a tradeoff. You want an efficient market and you also want to keep military secrets. But you do not need insider trading law to keep military secrets - leaking those is illegal with or without insider trading law. The insider trading we want is like, "Pepsi CFO notices that the books are stinky and makes a big bet against the company" (contrast with "Pepsi CFO sabotages the books so he can short" which is illegal at the "sabotage" part for fiduciary reasons). Or "line accountant "

Theft is already a crime.

> But what is the societal upside of allowing a company to exploit "real losers" in this case?

Every regulation has costs. Every single one. Even if we ignore all the ink already spilled on efficiency and price discovery, the onus is on the regulator to justify the burden that he imposes on society. Even our current nanny states are not paternalistic enough to ban sports betting and other gamified gambling, so how can that be the basis for banning insider trading of all things?

This has already happened with rationalists betting on each other's weddings, iirc there was even a CEO who rattled off a bunch of keywords on an earnings call because there was a market on whether the topics will be raised in the earnings call. Contrary to expectations, prediction markets did not immediately implode.

BTW you can short META and try to kill Zuck right now, yet somehow stock markets have not caused the apocalypse. It's truly a mystery!

You probably know that it goes beyond that. We all know of the SEC Rule 10b5-1 trading plan abuses from recent years - file a trade that will happen in 6 months, when your current insider information will be obsolete. In 6 months, you have more info, and you can cancel the trade shortly before it happens using that info. It is my honestly held belief that the entire insider trading framework is a kludge made to satisfy the fairness instinct of laymen, consequences be damned. You can see it in how different the actual legal justification (theft) is from what people actually think it is. You can see it from how inconsistently the rules are enforced, from how nobody knows where the line is drawn, from the mental acrobatics lawyers have to do to explain what's allowed (e.g. why you can leak to journos but not to acquaintances).

> lets see if its not already covered by some other law (e.g. fiduciary duty) and then we can talk

> Anyone can make stupid postulations - many people's initial objection to prediction markets back in the day was that they'd be used for assassinations.

> Capture of Maduro is far less clear, given that the same party is still in power in Venezuela, or that it's not clear if it's even possible to convict him of anything at all.

There is a lot of dough in translating events to prices. If you knew two weeks ago that Maduro will be captured, you could've bet on Exxon (oil good). You could've bet against Exxon (Chevron works in Venezuela and will now trounce Exxon). Many ways to read the tea leaves, only some correct. But that's the point of "the rich get richer" - if you make the wrong inference, today you will push the price the wrong way, and tomorrow you won't get a say anymore because you've been separated from your money by savvier speculators.

Prediction markets allow some separation of responsibility. You can just get paid for knowing that Maduro will fall (iirc someone bet $30k on a small market shortly before the operation, evidence of insider knowledge), and then the guys who run more complex trading engines can ingest "Maduro likely to be replaced" and make downstream predictions.

> As I understand, while Venezuela has huge oil reserves, it isn't that big an oil producer currently

Some take this as a basis to bet on lower oil prices. "Venezuela is not producing now, because it is a mismanaged communist hellhole, but it will become wealthier and more productive as the communists are driven out." That is one story that you can bet on, if you have the capital and the conviction (and some are doing so).

> Much more importantly though, you may perhaps get 'price discovery' when you learn of actual events that definitely happened.

The earlier you know the better. For example some people want us to make changes to forestall global warming now, not when the droughts and other predicted effects have "definitely happened". There is a concrete benefit in wealth and collective well-being if usage and production adjust before an actual shortage has materialized (one man's toilet paper hoarding is another man's demand smoothing).

> In other words, you discover absolutely nothing.

Your objection is more relevant to central planning, the idea that a small committee shall understand the economy (and then wisely steer it and whatever). With markets, there is no need for the inference to be explainable to any one person, much less a layman. We just let a bunch of overconfident monkeys make their assertions, and after some time we cull the ones who got it wrong. The ones who are correct get more votes over time. Why were they correct, are they using insider info? Who cares.

Small self-correction. The commodity markets are largely designed for insiders - they are made to allow large oil producers and consumers to hedge their risks with regard to their own future production or consumption. So while in the equity market you wont see TSLA run a trading desk to make profits by frontrunning traders/shareholders before it reports earnings, in commodities this is widespread (e.g. Exxon has surely used its knowledge of energy prices to trade against a shareholder). This behavior is not necessarily illegal, but would be in very bad taste in the equity market. Prediction markets are regulated by the CFTC (commodity market rules).

Insider trading bans are bullshit. The reason we want markets is price discovery. We want to know that the world needs more oil and less coffee than it needed yesterday. We get there by having people bet on the price of oil, rewarding the informed and ruthlessly culling the uninformed by separating them from their money. The price then motivates producers and consumers to change their behavior, avoiding overproduction or overconsumption.

Insider trading has never been tried and is banned in real markets based on a mix of feel-good reasons about fairness (on the relationship between fairness, efficiency and quality of life, see communism) and post-fact legal justifications about misappropriation aka theft of information. You can make a lot of adhoc justifications for how insider trading might be harmful. People who have never heard of sports betting claim that unfair markets will drive away the suckers, making it unprofitable to trade and reducing price discovery long-term. It's all bullshit.

Prediction markets were postulated with one focus only - price discovery, with no regard for fairness. Crypto has no effective insider trading regulation either. Both have proven (as if gambling didn't make it obvious already) that fairness is not necessary for liquidity.

May the most informed participant win. For the economy. You have a highly hypothetical scenario where insider trading has bad consequences? Lets see it happen, lets see if its not already covered by some other law (e.g. fiduciary duty) and then we can talk. Anyone can make stupid postulations - many people's initial objection to prediction markets back in the day was that they'd be used for assassinations.

The majority of the Swiss population lives within 50km of a nuke. It's good enough for world leaders to routinely visit and also to leave their progeny on the premises long-term. Ask yourself why they do that. If you'll excuse my rudeness, I think you fell for some propaganda aimed at psychotic soccer moms.

I think that the tablet thing is a good example for one of those feedback loops:

A: The likelihood of major contamination is vanishingly small, but we have a ton of money to spend on safety so lets give tablets out.
B: They are giving out iodine tablets! This confirms that we could get irradiated at any time. We have to increase the safety measures!

A: Living near the reactor impacts your radiation exposure less than living in a concrete building or eating a banana daily.
B: Doesn't matter! You still have money, spend all of it getting emissions even lower, as low as possible.
C: Wow, these reactors are bottomless money pits of maintenance problems! They must be really unsafe! We have to shut them down.

A: The reactor emits a couple kilograms of waste per year. People are concerned about this, so instead of a normal toxic chemical dump, lets go completely overkill, entomb it in solid concrete, hire linguists so a primitive tribe 3000 years into the future will not get the idea to open it etc.
B: Wow, these guys are already planning for the post-nuclear apocalypse! SHUT IT DOWN!

To some people, spending $1MM to deal with 5kg of nuclear waste only proves that they were right all along and you should've spent $10MM instead (recursively)

Nuclear is the most expensive if you don't account for the storage costs of renewable, and if you treat disruption by protestors, ALARA and political whimsy as inevitable costs. I guess it will forever remain a mystery why data centers want nuclear (until the thugs with the guns start shutting down construction). Must be cultural!

I live close enough to a reactor to be issued iodine tablets. I even pay a lot of money in rent for the privilege. Now what?

You are also free to donate to the German government. They fought nuclear well and hard, and could use your support dealing with the astronomical electricity prices.

Only 45%? Journlolists are obsolete then