It’s an old story, from 6 months ago, which has been pretty well corroborated by many other news channels since then. It’s good to be skeptical, but this one is spot-on.
If the Supermicro story is the only example where Bloomberg has been inaccurate then it still has a far, far better track record than any other press outlet on Earth.
Laws forbade publishing exit pools until 10pm, so hedge funds conducted their own research independently to have better information.
That's kind of how it is supposed to work.
Bad laws/regulations preventing accurate information dissemination lead to financial incentives for those with the most accurate/up-to-date data.
I know HN isn't the most Hedge Fund friendly forum, but surely there's an appreciation here for these funds' efficiency and ability to seize opportunity.
There is no definitive difference between a push poll and a poll that is not a push poll. There are shameless push polls, but objective published polls are about as likely as objective public news; I'd need an existence proof for either. Published polls on how people say they will vote have virtually no utility for the vast majority of individuals. A small minority of individuals may need to plan for contingencies based on the likelihood of a particular result, but that utility drops drastically the shorter the planning window gets (i.e. the closer the vote is), which might be somewhat offset by a possibly greater accuracy. But instead of slowing as the date arrives, the polls get faster and faster.
However, the utility of a "push" poll goes up closer to the vote, because voters will have less opportunity to review and correct misimpressions that the poll gave them. Hence the time between polls goes to zero as time to the vote approaches zero, and why some governments feel that they have to step in to create a prohibited window before a vote.
Also, a traditional definition of a "push" poll is one that is meant to change the minds of the people taking the poll, but more effective in many circumstances, and definitely more common (because it is cheaper) is a poll which uses strange phrasing to get results that can be reported (after being carefully framed in a press release) in a way that implies far greater support or opposition for something that would be indicated by a more direct questioning. The fact that every vote is to some extent a Keynesian beauty contest, even if that's simply because people are convinced by ad populum and question themselves if they see that the crowd disagrees with them, means that even an "objective" poll would push.
There’s a lot to unpack here, but you seem to misunderstand why election polls are reported, and reported more frequently the closer it gets to Election Day.
Tracking polls aren’t for informing some secret cabal, or even to inform. It’s the horse race. It sells papers. But there’s nothing biased about “Is the country on the right track, or the wrong track?”
Political polling is a tiny percentage of their business; they mostly do market research for corporates.
Every few years, polls get verified against reality at the ballot box. If you're running a polling company, would you want to sell your market research as the company whose polls were some way off the votes they'd just seen counted because you were trying to influence the electorate?
> Inside YouGov, concerns about the law limited the company's potential offerings, according to an email that YouGov founder Stephan Shakespeare shared with Bloomberg. YouGov’s chief financial officer spoke to lawyers and decided that a single hedge fund could not be considered “a section of the public” but that multiple hedge funds getting the same exit poll might cross the line. Other polling companies appear to have interpreted the law differently.
It's a grey zone whether releasing the private poll data broke the law.
What seems clear is the law hasn't caught up with the technological realities.
Also the other main point of the article was that it is questionable whether it is appropriate to use polling data to influence the markets, like Farage has potentially done.
They claim he knew which way it way going, contrary to public data. It's also clear that he was one of the figureheads of the Leave campaign, and thus his concession would carry weight.
One could see how this might be interpreted as a form of manipulation. It's not claimed in the article, but he could well have talked up Sterling in order to short it at a better level.
>What seems clear is the law hasn't caught up with the technological realities.
How is this a 'technological progress' problem? Exit polls existed before this law as did phones. Polling agencies have been able to release data before polls close for the better part of a century.
The laws also forbid sharing inside information, yet if you have a company conducts its own “research” to discover inside information from others before its published that doesn’t make it legal.
The point of many trading laws is to prevent trading based on non public information.
Privately conducted polls on political votes is definately non-public information, and in order for them to trade based on them they should publish first, which would likely also deminish the returns since suddenly they aren’t the only ones aware of the public/poll disconnect.
At least in the US, trading based on non-public information is totally fine, unless trading on it would violate a duty of trust to the source of the information [1] (which can be indirect, e.g. an employee tells his wife about some insider information: she had a duty of trust to him, and he to the company/shareholders, so she can be prosecuted for trading on that.)
The savvy prediction of events exogenous to a company’s operations is very much not insider trading.
[1] It’s a little more complicated, but I think this is as good a succinct formulation as one can hope for.
Indeed, there's an article I recall reading (here on HN I think, but I can't find it) that was about, essentially, a person who would short companies (I think specifically pharma companies) and then publish negative articles about them. Think "company A's research about xyz drug is false and misleading". This wasn't fraud because these articles were true.
This is entirely legal. Indeed, there's arguments to be made that this should be encouraged, since it indirectly provides a financial incentive for people to do research into firms and keep the market fully informed. Of course, you have to have a very specific savvy to gain from that kind of scheme, but still.
Well, market manipulation is illegal. If the articles are true (factual), the activity is probably OK, but if the individual is making up rumours with the primary goal of affecting the market to profit from it, that is definitely illegal.
Hence my clarification that it wasn't fraud because the articles were true (or at least based on enough evidence to clearly not be fabrication).
Fraudulent market manipulation is illegal (such as that based on fabricated or material nonpublic information). Market manipulation when based on good-faith information discovered legally is entirely legal.
> This wasn't fraud because these articles were true.
And it wasn’t insider trading because the reports didn’t include new non-public information. If he had information about for instance he outcome of a phase 3 drug trial and bought based on it And then released the results early he would have been breaking the law.
Not a lawyer, but if my understanding is correct, this is only relevant if it is a phase 3 drug trial by that company.
In other words, if pharma company A is doing research on a drug and is publishing stuff, and organization B is also doing similar work (and to simplify, let's say they aren't public, they're a private research lab that isn't related to company A), if org B finds evidence that company A is wrong, they can short A then publish. (and this is pretty much exactly what happened with brexit)
I don't know where exactly this gets to when shorting competitors. In other words, if Pfizer and Merck are both rushing to get the same compound/drug trialed and onto the market, and Pfizer is running ahead of Merck, but finds that their drug fails in phase 3, they obviously can't short themselves, but they might be able to short Merck, because they don't actually have any MNP about Merck's trial.
But again, I'm not really sure how that works in general.
> The savvy prediction of events exogenous to a company’s operations is very much not insider trading.
So asking a representative subset of Tesla’s employees what their numbers are going to be prior to reveal is not insider trading? If that’s the case then I need to start gathering fundes enough to pay them for the info and make a huge bet.
That would be illegal because the employees of firm have a duty not to share confidential info about the company.
But, say, inferring that a retailer will do well by counting cars in the parking lot or doing customer polls would be fine in the US. The customers can talk all they want.
(Not legal advice. I get this from Matt Levine, who is also not a lawyer.)
>But, say, inferring that a retailer will do well by counting cars in the parking lot or doing customer polls would be fine in the US. The customers can talk all they want.
It’s worth noting that if you got that information by virtue of working for a company that did such research, and that company had a policy preventing you from sharing that information, then you could be found guilty of insider trading, under the misappropriation theory.
I think this is a UK/US disconnect. In the UK (and much of Europe) the point of many trading laws is to prevent trading on non-public information. In the US we tend to think this is a dumb goal because much of the point of markets is to incentive price discovery, which is done primarily via trading on research. Thus, we tend to have a hard time believing that that is what the law really means, even if it is what it says.
You completely misunderstand what inside trading means. Inside trading prevents company insiders from trading with the company they work for. Insider trading laws are there to protect shareholders.
It's completely fine to use non public information about world events to trade.
People have been prosecuted for sitting in on a court case and trading the second the ruling was made because it was deemed that the information was not yet public information.
It’s definately not ok to trade based on insider information. Doesn’t matter if you just heard from you cousin who’s the CEO of a company that they are about to tank or reach for the moon. You might not work for the company but you are still guilty of trading on non-public insider information.
Polls are information about the environment where companies operate, not non-public fact regarding the plans or condition of a publicly traded company.
Note however that you completely misunderstand that the US definition of insider trading is not the same as that used in other countries. In particular, there is no requirement in the UK that the non-public information originate from a company insider.
I believe the intent is regarding, e.g. “Huh, this spreadsheet says we’ve made a massive loss this quarter, but the investors don’t know that yet, I should sell all my stock before they find out” and vice versa.
>>It's completely fine to use non public information about world events to trade.
I don't believe it is legal for outsiders to make trades based on non-public information they have acquired from company insiders. For example, if I am the CFO of a publicly traded company, I cannot come to you and whisper in your ear that we just got hit with a massive data breach, because doing so would give you the opportunity to dump your stocks based on that non-public information.
There is a major schism in this between the US and Europe (that I only learned about in a recent HN thread).
In the US insider trading laws are geared around protecting shareholders from insiders. Solving for the agency problem. In that case an outsider who finds non-public data and trades on it is likely (though the complexity of this is one of the downsides of the regine) not insider trading.
In many European regimes the goal is information parity. In that case outsiders can generate material non-public data, and thus illegally trade on it.
As someone who spent a lot of time under the US regime the European model blows my mind, but in objective terms there isn’t anything bizarre about it.
> outsiders can generate material non-public data, and thus illegally trade on it.
It does seem (more than) a little bizarre to me.
If I understand your post correctly, in Europe, I could do traffic counts at malls, conclude (correctly) something about a company's sales from that, trade profitably based on that conclusion, and be prosecuted successfully for it?
If that's the case, how should I create my own opinion about the state of a company in order to decide how much to bid (or ask) for the shares of that company? Am I just supposed to blindly make investments since any amount of private research is bound to be deemed illegal? It seems that the entire purpose of research is to generate an informed opinion which differs from the current public opinion.
We've found hedge funds placing orders with the presumed intention of deriving order volume information from sequential IDs that we inadvertently leaked in the shipping process (since fixed). My view is "good on them for thinking of it!" Is trading based on that illegal as well?
It varies from country to country. But in any case the inside information is information related to the corporation coming from inside the corporation. Poll results are not that kind of information.
The reason publishing poll results is forbidden because they could affect the outcome of the election. If you do polls only for private use that's not the case.
What is ethically objectionable about rich people gambling against other rich people, and some of them winning? It's not like these funds stole money directly from normal people.
In fact the money probably benefited some normal people. Tons of university endowments, sovereign wealth funds, and pension funds invest in hedge funds.
Except the article clearly explains that it was less "hedge funds conduct[ing] their own research independently to have better information" and more hedge funds buying early access to the polls not permitted to be released until 10pm in order to front run people speculating on them, and that doing so was a legal grey area. Sure, the people buying and selling "private" exit polls did so openly with confidence they wouldn't be prosecuted, but that doesn't mean what they were doing ought to have been legal or the original drafters of the law had intended to permit it. The safe profits weren't in trusting the polls were accurate information, but in putting big money on their predictions before most speculators were allowed to see them and taking [most of] it off at a profit when they were revealed on TV. That's really far too basic a strategy to deserve appreciation.
Throw in the article's [much more speculative] suggestions that pollsters' TV statements about the confidence of their results might have been influenced by their paying customers' strategies, and the suggestion Farage "conceded" whilst expecting to win because he wanted to bet against the people who trusted he was making an honest assessment based on good information. Neither would be likely to be illegal - people aren't obliged to be honest on TV and don't have fiduciary duties to holders of sterling - but both would be difficult to call ethical. That said, it's entirely plausible those individuals did honestly believe what they were saying at the time. Everybody expected it to be close, and as the article acknowledges, one of the reliable big pollsters' exit polls gave the wrong result.
> not permitted to be released until 10pm in order to front run people speculating on them
Exit polls are held back not for trading purposes, but so that people go to the polls and vote. If people think they know the result they won't go through the hassle of voting.
It's pretty obvious they don't want to affect the outcome of the election... Exit polling isn't super accurate to begin with, it's better for everyone if the data isn't announced until after the polls close.
FWIW my (admittedly cumbersome) sentence was talking about the "hedge funds buying early access to exit polls...in order to front run people speculating".
If they didn't hold back exit polls (for the reason you've correctly stated) paying for priority access to polls would be a whole lot less useful for trading purposes anyway because instead of the big poll reveal at the close of voting all kinds of [partial] poll results would be accessible during the day. But as you've said all this exit polling data available would affect voter behaviour, especially in elections like the UK's with plenty of "tactical voting" going on
If they broke the law, prosecute them. If they didn’t but what they did should have been illegal, complain to the people who wrote the law. If you had legal access to some information that let you make a good bet that a particular stock would rise tomorrow, would you refrain from buying some today on the basis that it’s unethical?
I reject your implicit argument that every action is acceptable unless there is a law that explicitly makes it illegal.
It is impossible to legislate everything. People do things that are immoral, unethical and just plain wrong even if there is no law against it, and it's perfectly OK to call them out for it.
I didn't take that as their implication at all. To me it was a rhetorical question of "are you really saying that it would be unethical?" with the obvious answer being no. As in not questioning the concept of ethics as a whole, but their relevance to this situation.
Do you really see this as an ethical issue? As far as I'm aware most laws around what information you can trade on aren't about morality, they're a pragmatic move to ensure a fat financial sector. By restricting the ways in which you can obtain information it opens the field for more players and more speculation. Reducing accuracy of prices in favour of robustness and liquidity.
Sure there's exceptions. One could argue that because they've made an agreement, there's a moral obligation for a company executive to look out for their shareholders interests and front-running trades that hurt them would be a dick move. Other situations though? A hedge fund buying polling information? There's no agreement they're breaking there. They're just beating competitors in a zero sum game, with the externality being that markets are more accurate than they otherwise would have been.
That’s not my argument at all. My argument is explicitly that this is not unethical, and therefore if you want people not to do it then you should actually make it illegal and prosecute people.
Your argument was: would you refrain <doing legal thing> on the basis that it’s unethical?
Certainly, you should complain to the lawmakers because without making it a legal rule, choosing not to do the unethical thing isn't going to stop others from doing it. But that doesn't make it right to do it yourself!
By trading on this private information on the public market, one could argue they did indirectly disseminate the information though, which would be explicitly illegal.
Edit: because the direction of the trades would be publicly visible and highly correlated with the poll results.
But surely if it's possible to make £500 million in one day, that's quite a big incentive to artificially 'twang' the markets because hedge funds profit from instability no? If you throw a rock in a pond there are lots of short term fluctuations.
I mean, how expensive was all that Cambridge Analytica stuff in comparison to how much money could be made from this?
Hedge funds don't profit from generic 'instability'. They profit from correctly anticipating market movements, which isn't the same thing. Apply a truly random force to market prices and hedge funds will average out to break even. There were certainly plenty of financial institutions that got it wrong and lost money as a result of betting on Remain too.
Yes true, but if there's no instability then there is no opportunity; there are no losers, but also no winners.
EDIT: Also by analysing FX market movements in relation to polling in the weeks and months leading up, it wouldn't be hard to make a correlation between Leave and lower priced GBP. All the economic institutions were saying Leave would be bad for the UK economy, so a leave vote is bound to shake confidence in GBP.
Aren’t there ways to set up a bet that a particular price will move, where you profit if it goes up or down but lose out if it stays the same? If you can cause instability then that could be used to profit from it even if you don’t know which way it will go. Some quick searching tells me this is called a “long straddle” but I could be way off.
I always find cases like this really interesting, how predicting outcomes can lead to tons of success in markets. Political events like this are big money winners if you can predict the answer. Same with elections themselves for the affects of the person's plans.
Besides polling data, prediction markets always seem like the could be a legitimate way to guess results. I used to work at a place that ran those, but biggest problem is to make sure the members are committed to answering the questions and learning more about the situation. There's been proof that these cases can be successful.
Another event that comes up is company's quarterly reports that lead to giant price changes in their stock instantly. There are "specialist" predictions out there, but having better guesses leads to straight money. Knowledge of those numbers would be huge for traders, and us non-traders alike. Finding some legal and respectable way to predict these big outcomes would be incredibly valuable. Then again, if there was a correct way to make predictions, we wouldn't be having these discussions.
As someone who's stared at market news announcements for years, it's not that easy, even with the data. I've never traded on insider info (and neither should you!) but even when I had it, I didn't think it was that obvious which way things would go.
Often the market moves the opposite way of what you'd think, given the news. Any these can be reasonable:
"Rates went up, and that means firms will have a hard time borrowing, which lowers investment spending"
"Rates went up, but the market (risk assets) also went up because it's a sign the economy is healthy"
"Earnings were up, but people were hoping for a surprise"
The other entertaining one is when a CEO gets fired because of bad performance, and the price shoots up. Oh, the ignominy.
The bookies in the UK were predicting a victory for remain at the time.
What's more interesting, though, is that the majority of bets were for leave, but the bigger bets were for remain. The bigger bets tipped the bookies' odds two to one in favour of remain as far as I remember.
If I remember correctly the odds of brexit where like 48% but the pound was valued for 100% chance of bremain. Don't need to be an hedge fund to see there was a limited risk but big potential gain for this trade.
I guess I'll ask the question: in the US, insider trading is (generally) trading on material non-public information. There are other nuances (various courts have found there needs to be a benefit or not and so on).
Is the law similar in the UK?
Does it even exist for currencies? Presumably not because there is no company to be the insider of?
>insider trading is (generally) trading on material non-public information
No, this isn't how it's defined in the US. It's completely legal to trade on material non-public information that you collect on your own via research (e.g. satellites looking at retail parking lots).
In the US, it's only illegal if you use information to trade that violates a fiduciary duty (e.g. using non-public information from a CEO).
I think you're misunderstanding their theory of why it would be bad?
In the example where a hedge fund buys information from Best Buy about how many Panasonic TVs they sell, Best Buy may have a duty to Panasonic, and thus are an insider in that context, so if the hedge fund buys that data from Best Buy, they could potentially be trading on insider information.
That article appears to talk about whether it is insider trading to trade on information that originated with a public company (insiders) and privately sold - including sales information that hasn't been reported yet in public filings.
There are serious questions about whether that, under US law, would be considered insider trading as it appears to be just that.
Simply owning a single share of stock in a company does not make one an insider. An insider, in the US, is someone who either works for the company, owns more than 10% of a company or has some other kind of fiduciary duty to the company. Insider trading can include anyone trading on any information from insiders even if they themselves aren't.
I don't remember the exact details, but I remember reading about a guy who hired a team of researchers to find problems in some company's product (I think it was pharmaceuticals), shorted the stock, and then published the results causing the stock price to tank. Totally legal since he wasn't affiliated with the company and the information that was published wasn't misleading.
It's probably more accurate to think of insider trading as being about trading on privileged access to information. Being non-public is more about who could, in principle, get that information rather than it being generally available.
In the Brexit case, there couldn't be an insider issue as the polling companies aren't inside anything relevant.
The grey area here is solely due to the law that says that exit polls can't be made public before the polls close. That is separate from insider laws but does relate to a question about what does "public" mean in that law.
In principle you might fall foul of insider trading if you had privileged information from the BofE, say, that they were going to make an unexpected rate move before it was announced. Similarly, if someone on Theresa May's staff bet against the pound on Sunday night, there may be a case as killing the vote on Monday was sure to trash Sterling.
The UK legislation doesn't use the term: privileged. It essentially says insider information is information that, if it were public, would materially move the value of a financial instrument.
But it's only really applied against someone who uses proprietary information that they gained by dint of their position or contact with someone in a privileged position.
As with all laws like this, it's worded pretty vaguely so that the Court can use discretion.
"Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security."
Insider is a term describing a director or senior officer of a company, as well as any person or entity that beneficially owns more than 10% of a company's voting shares. For purposes of insider trading, the definition is expanded to include anyone who trades a company's shares based on material nonpublic knowledge. Insiders have to comply with strict disclosure requirements with regard to the sale or purchase of the shares of their company.
In the UK, insider trading as a crime is understood to be trading on non public information no matter who you are. IMO it’s a law which only penalizes UK domiciled investors. A foreign hedge fund can make an inside trade on the UK market, in the US say, by dealing off-exchange with a bank-counterparty in the UK and abroad. The bank-counterparty can just unload the other side of the trade with a UK client. The bank-counterparty, with no knowledge of the motivation of the trade, has done nothing wrong. The foreign hedge fund has done nothing wrong. The UK investor is the patsy, fooled into a sense of confidence by a law that can’t be enforced. But all this is moot for currencies because I think they are completely unregulated. FX is where the big sharks hunt.
The UK (and currently EU) law is different. In the EU, even if the party dispensing the material non-public information does so with no benefit or even unknowingly and by accident it is still illegal to trade on that information.
For a more thorough examination, see a recent Matt Levine piece about someone being charged for insider trading after overhearing material non-public information in a public place:
So if I had one million shares and thought the stock was going to go up, I could make some extra cash by lending it to people and making them pay me for the right.
Let's say you're a manager at an index tracking pension fund. You're likely to be holding shares in the index at a proportion similar to the index weightings. And you're likely to hold most of them for the long term as you're required to track the index.
The key phrase is long term. It doesn't really matter to you whether or not a particular share price goes up or down in the short term as you aren't interested in selling.
So what you can do is lend the stock to a shorter. You enter into a contract where you give them X shares of a stock and they're obliged to give you X shares back in a few days regardless of any price move. They're also obliged to pay a fee for the service.
The net effect is that, instead of having X shares, you now have X shares and the fee.
The major risk for you is that they don't give you the shares back. That's why these contracts usually have collateral agreements such that, if they renege, you haven't lost out by much.
Equity example, you borrow shares from your broker, sell them, and later buy them back to return the shares you borrowed. You make money if the price is lower when you cover your short (excluding whatever fees)
Think of short as a negative share position. To close it out, buy the shares in the market at the (hopefully lower) price. You've (1) sold at a higher price and (2) bot at a lower price - profit is the difference.
Mechanically, the negative share position is achieved by borrowing shares to sell. This carries an obligation to give 'back' the borrowed shares, which is satisfied when you buy in the market.
Generally it's from brokers who are holding it on account, and they agree to lend it for a fee and some collateral.
There may be problems finding someone to lend thinly traded stock. Or you can take out a short position and not be able to buy it back at sensible prices: this results in a "short squeeze". https://www.reuters.com/article/us-volkswagen/short-sellers-...
It is possible to lose more money than you invest with short selling, so be careful.
In addition to the sibling answers about collecting interest and brokers, lending stock to short sellers is a good thing if you are a long-term investor. Shorts put some downward pressure on the price and give you an opportunity to buy more at a reduced cost. Additionally, if your thesis on the company being good is true, those shorts are eventually going to be buying back the stock after it has appreciated, ultimately creating even more upward price pressure in the long-term.
Fun fact: a lot of ETFs and index funds generate revenue on the backend by lending out the stocks they hold and charging a bit of interest to the borrower.
That is how you short a publicly traded stock. The mechanics of the shorting in the Big Short is actually a lot different. It is done with credit default swaps which you can basically think of as an insurance policy. The difference is that it is on a financial asset instead of on a physical asset and you also don't need to actually own the asset you are insuring. Like buying insurance on a car you don't own (you can't actually do this). Pay the premiums and if the car crashes you get the value of the car in cash.
you borrow the stock, sell it, then buy it back when (hopefully) the price went down and return it to the borrower. You pocket the difference minus a borrowing fee.
Shorting major currencies is easier than shorting stocks. It's done fairly easily on the futures market, where you create a contract (effectively with the exchange) that says you agree to deliver a certain number of pounds at a predetermined point in the future in exchange for a certain number of dollars today. If the pound falls relative to the dollar, you make a profit.
The idea is that you sell stock you don't have, buying them back later, hopefully at a lower price in order to make profit.
The tricky part, at least for me, is how it works in practice. You can't own a negative number of stocks, it means that what you are selling doesn't come from nowhere, and because it is finance, the people who make the short possible have to work for personal gain.
The key here is that there are 3 actors:
A a buyer. Nothing special about him: he buys the stock, and sell it at a later date. He expects the value to go up and make a profit by selling at a higher price.
B is a shorter, he borrows stock (with interest) and sell them to A and buy them back at a later date to repay his debt. If the price went down he will buy back for cheaper than he initially payed, making a profit.
C is a lender, he owns stock and lends them to B. He makes profit on interest rates.
So the stocks go C -> B -> A -> B -> C and it all cancels out in the end. As for cash, C always wins, just like the house in a poker game, while the evolution of the stock determines how money changes hand between A and B.
In reality there are more than 3 actors, and there are mechanisms in place to limit the risk of bankruptcy, but that's the general idea.
With currencies there are no shares so the mechanics are quite different. Currencies come in pairs so you don't just short the pound, instead you bet that the euro will increase in value relative to the pound. So in this case you are long the euro and short the pound.
This might have been a 'secret', but even at the time, as the words were coming out of Farage's mouth, it was transparently obvious what was going on. How is this even a story?
So if private hedge funds had access to private polling data from YouGov which suggested that the £ was going to crash, who was driving the £ towards a cliff - and why would they not choose to have access to the same data?
Conducting polls can be quite misleading.
Remember the last US presidency election polls? They were totally inaccurate*
Hedge funds could have lost a lot of money on this one.
No. The polls were fairly accurate; the problem was how people used the polls. This is also a topic that's been beaten to death over the last two years.
They were pretty indicative though. Trump only outperformed the national poll by 1-2 points and 2-3 points in the swing states. The whole 'polls are garbage' story that came out of 2016 isn't really supported by the data if you look at it.
The error has been pretty consistent forever, it's just hard to do a poll and have it line up exactly with reality because a poll is a sample in time of the thoughts of a subset that may not match who shows up. All of those factors go into why polls miss; some populations are harder to reach than others, news can come out between the poll and election day or bad weather could mess up your turnout model by keeping a lot of people home.
> The whole 'polls are garbage' story that came out of 2016 isn't really supported by the data if you look at it.
There were a lot of garbage poll-based predictions (the Clinton 90+% ones) based on assuming independence of polling errors. Predictions with claims of quantified likelihood based on polls are a fairly recent media phenomenon, and I think some of the legitimate reaction to how bad many of those were spilled over into polls themselves, because people don't understand that the polls weren't the source of the problem. (Which fed into existing political narratives against polling; propaganda definitely played a role but there was a real issue it interacted with.)
Yeah the use of the polls was the real failure in 2016. A narrative and conventional wisdom bias set in to the analysis in a lot of places that discounted close results in important states.
I don't remember seeing any polls asking 'who will win the national election?'. All the ones I saw attempted to answer the question 'who will individual people vote for in this state/nation?'.
Forecasting isn't betting. One forecast doesn't tell you anything. If a weather forecast that says there's a one in five chance of rain and it rains, that's not wrong. They did tell you there's a chance.
To show whether a forecaster is good at what they do, you need to track their results for multiple forecasts and see what their track record is.
Fair point - the Ashcroft polls, funded by the UK's Conservative party, called the 2015 election as a tie, although it turned out to be a major victory by the Conservatives.
Maybe the polls were bad because the people conducting them were pushing to have sufficient difference between private and public polls in order to maximize their profits.
The problem I see with companies selling private polls, is there's an incentive to release less accurate public polls. Why give away the good info for free, when the more accurate info is worth tons of money? A company wouldn't necessarily need to falsify the polling data, just poll less rigorously to produce a misleading result. Could current oversight prove that they were being intentionally misleading? Producing private results which counter the public results would make for very good business.
>The problem I see with companies selling private polls, is there's an incentive to release less accurate public polls
Out of genuine curiosity (I'm American and don't know all the workings of UK government), is the public actually paying for these polls (via some agency in charge of that)? If so then yeah, "the public" is a client and if they were getting shorted in favor of private clients against the contract then that'd be a problem.
On the other hand though if polling companies are just doing it as a public service or form of advertisement (aka "see how accurate our public polls are on general elections, you can also expect that kind of rigor if you pay for us to poll about your product") then I'm not sure what the public interest angle is in terms of "less accurate public polls", nor do I see an enforcement angle given that those could just be the normal cheaper ones the company does and it's private entities commissioning and paying for more extensive, expensive and accurate collection. As far as I know polling companies themselves are private entities and are just offering a service. And in practice my understanding is that a lot of "public polling" is specifically being paid for by private entities in the form of newspapers and the like that then release it, because it sells news and in turn the ads attached to them. So same thing, if the news organizations found out they were being screwed they'd sue, and if results are bad enough they won't go with that polling company again, it's a competitive area.
If the public isn't paying though then I don't see what else can be expected?
I think you overstate the demand for poll accuracy. A hedge fund may want predictive accuracy but I still click on the poll that tells me what I want to hear.
I wonder if they continue to make money on the currency markets by getting advance inside information on what politicians will announce next? Quite a few Conservative party politicians either own hedge funds, have worked for them, or have family and friends with connections that would allow the free flow of advance information. Rees Mog is a partner in a hedge fund, it would be interesting to see his what's app chat history...
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[ 2.8 ms ] story [ 213 ms ] threadLaws forbade publishing exit pools until 10pm, so hedge funds conducted their own research independently to have better information.
That's kind of how it is supposed to work.
Bad laws/regulations preventing accurate information dissemination lead to financial incentives for those with the most accurate/up-to-date data.
I know HN isn't the most Hedge Fund friendly forum, but surely there's an appreciation here for these funds' efficiency and ability to seize opportunity.
They have an incentive to release inaccurate results to the public in order to benefit their private clients even further.
Push polls aren’t even polls. They’re just advertising.
However, the utility of a "push" poll goes up closer to the vote, because voters will have less opportunity to review and correct misimpressions that the poll gave them. Hence the time between polls goes to zero as time to the vote approaches zero, and why some governments feel that they have to step in to create a prohibited window before a vote.
Also, a traditional definition of a "push" poll is one that is meant to change the minds of the people taking the poll, but more effective in many circumstances, and definitely more common (because it is cheaper) is a poll which uses strange phrasing to get results that can be reported (after being carefully framed in a press release) in a way that implies far greater support or opposition for something that would be indicated by a more direct questioning. The fact that every vote is to some extent a Keynesian beauty contest, even if that's simply because people are convinced by ad populum and question themselves if they see that the crowd disagrees with them, means that even an "objective" poll would push.
Tracking polls aren’t for informing some secret cabal, or even to inform. It’s the horse race. It sells papers. But there’s nothing biased about “Is the country on the right track, or the wrong track?”
The classic example is https://www.youtube.com/watch?v=G0ZZJXw4MTA
Every few years, polls get verified against reality at the ballot box. If you're running a polling company, would you want to sell your market research as the company whose polls were some way off the votes they'd just seen counted because you were trying to influence the electorate?
It's a grey zone whether releasing the private poll data broke the law.
What seems clear is the law hasn't caught up with the technological realities.
Also the other main point of the article was that it is questionable whether it is appropriate to use polling data to influence the markets, like Farage has potentially done.
They claim he knew which way it way going, contrary to public data. It's also clear that he was one of the figureheads of the Leave campaign, and thus his concession would carry weight.
One could see how this might be interpreted as a form of manipulation. It's not claimed in the article, but he could well have talked up Sterling in order to short it at a better level.
How is this a 'technological progress' problem? Exit polls existed before this law as did phones. Polling agencies have been able to release data before polls close for the better part of a century.
This is just a vague poorly-worded law.
The point of many trading laws is to prevent trading based on non public information. Privately conducted polls on political votes is definately non-public information, and in order for them to trade based on them they should publish first, which would likely also deminish the returns since suddenly they aren’t the only ones aware of the public/poll disconnect.
The savvy prediction of events exogenous to a company’s operations is very much not insider trading.
[1] It’s a little more complicated, but I think this is as good a succinct formulation as one can hope for.
This is entirely legal. Indeed, there's arguments to be made that this should be encouraged, since it indirectly provides a financial incentive for people to do research into firms and keep the market fully informed. Of course, you have to have a very specific savvy to gain from that kind of scheme, but still.
Fraudulent market manipulation is illegal (such as that based on fabricated or material nonpublic information). Market manipulation when based on good-faith information discovered legally is entirely legal.
And it wasn’t insider trading because the reports didn’t include new non-public information. If he had information about for instance he outcome of a phase 3 drug trial and bought based on it And then released the results early he would have been breaking the law.
In other words, if pharma company A is doing research on a drug and is publishing stuff, and organization B is also doing similar work (and to simplify, let's say they aren't public, they're a private research lab that isn't related to company A), if org B finds evidence that company A is wrong, they can short A then publish. (and this is pretty much exactly what happened with brexit)
I don't know where exactly this gets to when shorting competitors. In other words, if Pfizer and Merck are both rushing to get the same compound/drug trialed and onto the market, and Pfizer is running ahead of Merck, but finds that their drug fails in phase 3, they obviously can't short themselves, but they might be able to short Merck, because they don't actually have any MNP about Merck's trial.
But again, I'm not really sure how that works in general.
So asking a representative subset of Tesla’s employees what their numbers are going to be prior to reveal is not insider trading? If that’s the case then I need to start gathering fundes enough to pay them for the info and make a huge bet.
But, say, inferring that a retailer will do well by counting cars in the parking lot or doing customer polls would be fine in the US. The customers can talk all they want.
(Not legal advice. I get this from Matt Levine, who is also not a lawyer.)
It’s worth noting that if you got that information by virtue of working for a company that did such research, and that company had a policy preventing you from sharing that information, then you could be found guilty of insider trading, under the misappropriation theory.
Matt Levine (highly recommend) spends time discussing this type of thing.
A recent somewhat relevant article https://www.bloomberg.com/opinion/articles/2018-12-03/inside...
>prevent trading based on non public information
You completely misunderstand what inside trading means. Inside trading prevents company insiders from trading with the company they work for. Insider trading laws are there to protect shareholders.
It's completely fine to use non public information about world events to trade.
It’s definately not ok to trade based on insider information. Doesn’t matter if you just heard from you cousin who’s the CEO of a company that they are about to tank or reach for the moon. You might not work for the company but you are still guilty of trading on non-public insider information.
Polls are information about the environment where companies operate, not non-public fact regarding the plans or condition of a publicly traded company.
Are we talking about unauthorised access of information or something else?
How people voted is not insider information.
I don't believe it is legal for outsiders to make trades based on non-public information they have acquired from company insiders. For example, if I am the CFO of a publicly traded company, I cannot come to you and whisper in your ear that we just got hit with a massive data breach, because doing so would give you the opportunity to dump your stocks based on that non-public information.
In the US insider trading laws are geared around protecting shareholders from insiders. Solving for the agency problem. In that case an outsider who finds non-public data and trades on it is likely (though the complexity of this is one of the downsides of the regine) not insider trading.
In many European regimes the goal is information parity. In that case outsiders can generate material non-public data, and thus illegally trade on it.
As someone who spent a lot of time under the US regime the European model blows my mind, but in objective terms there isn’t anything bizarre about it.
It does seem (more than) a little bizarre to me.
If I understand your post correctly, in Europe, I could do traffic counts at malls, conclude (correctly) something about a company's sales from that, trade profitably based on that conclusion, and be prosecuted successfully for it?
If that's the case, how should I create my own opinion about the state of a company in order to decide how much to bid (or ask) for the shares of that company? Am I just supposed to blindly make investments since any amount of private research is bound to be deemed illegal? It seems that the entire purpose of research is to generate an informed opinion which differs from the current public opinion.
We've found hedge funds placing orders with the presumed intention of deriving order volume information from sequential IDs that we inadvertently leaked in the shipping process (since fixed). My view is "good on them for thinking of it!" Is trading based on that illegal as well?
As for where the lines are drawn I’d guess there is a whole industry around determining that just like in the States.
The reason publishing poll results is forbidden because they could affect the outcome of the election. If you do polls only for private use that's not the case.
I love stuff like this. Finance is an art.
Throw in the article's [much more speculative] suggestions that pollsters' TV statements about the confidence of their results might have been influenced by their paying customers' strategies, and the suggestion Farage "conceded" whilst expecting to win because he wanted to bet against the people who trusted he was making an honest assessment based on good information. Neither would be likely to be illegal - people aren't obliged to be honest on TV and don't have fiduciary duties to holders of sterling - but both would be difficult to call ethical. That said, it's entirely plausible those individuals did honestly believe what they were saying at the time. Everybody expected it to be close, and as the article acknowledges, one of the reliable big pollsters' exit polls gave the wrong result.
Exit polls are held back not for trading purposes, but so that people go to the polls and vote. If people think they know the result they won't go through the hassle of voting.
If a specific 800 people had changed their mind the tories wouldn't have been able to form a government even with DUP support
However the exit poll in 2017 was pretty much dead on
If they didn't hold back exit polls (for the reason you've correctly stated) paying for priority access to polls would be a whole lot less useful for trading purposes anyway because instead of the big poll reveal at the close of voting all kinds of [partial] poll results would be accessible during the day. But as you've said all this exit polling data available would affect voter behaviour, especially in elections like the UK's with plenty of "tactical voting" going on
'Not permitted to be released, which they then used to trade'
It is impossible to legislate everything. People do things that are immoral, unethical and just plain wrong even if there is no law against it, and it's perfectly OK to call them out for it.
Do you really see this as an ethical issue? As far as I'm aware most laws around what information you can trade on aren't about morality, they're a pragmatic move to ensure a fat financial sector. By restricting the ways in which you can obtain information it opens the field for more players and more speculation. Reducing accuracy of prices in favour of robustness and liquidity.
Sure there's exceptions. One could argue that because they've made an agreement, there's a moral obligation for a company executive to look out for their shareholders interests and front-running trades that hurt them would be a dick move. Other situations though? A hedge fund buying polling information? There's no agreement they're breaking there. They're just beating competitors in a zero sum game, with the externality being that markets are more accurate than they otherwise would have been.
Did we read the same article?
Farage "twice told the world on election night that Leave had likely lost, when he had information suggesting his side had actually won..."
"feeding specious sentiment into markets..."
"he laughed about helping to push the pound higher ahead of its crash, a role he seemed to relish. "'Yeah, and a good thing—good thing'"
The obvious answer is that intentionally spreading disinformation to move markets is unethical.
Certainly, you should complain to the lawmakers because without making it a legal rule, choosing not to do the unethical thing isn't going to stop others from doing it. But that doesn't make it right to do it yourself!
This is Ethics 101...
Edit: because the direction of the trades would be publicly visible and highly correlated with the poll results.
I mean, how expensive was all that Cambridge Analytica stuff in comparison to how much money could be made from this?
EDIT: Also by analysing FX market movements in relation to polling in the weeks and months leading up, it wouldn't be hard to make a correlation between Leave and lower priced GBP. All the economic institutions were saying Leave would be bad for the UK economy, so a leave vote is bound to shake confidence in GBP.
Besides polling data, prediction markets always seem like the could be a legitimate way to guess results. I used to work at a place that ran those, but biggest problem is to make sure the members are committed to answering the questions and learning more about the situation. There's been proof that these cases can be successful.
Another event that comes up is company's quarterly reports that lead to giant price changes in their stock instantly. There are "specialist" predictions out there, but having better guesses leads to straight money. Knowledge of those numbers would be huge for traders, and us non-traders alike. Finding some legal and respectable way to predict these big outcomes would be incredibly valuable. Then again, if there was a correct way to make predictions, we wouldn't be having these discussions.
Often the market moves the opposite way of what you'd think, given the news. Any these can be reasonable:
"Rates went up, and that means firms will have a hard time borrowing, which lowers investment spending"
"Rates went up, but the market (risk assets) also went up because it's a sign the economy is healthy"
"Earnings were up, but people were hoping for a surprise"
The other entertaining one is when a CEO gets fired because of bad performance, and the price shoots up. Oh, the ignominy.
What's more interesting, though, is that the majority of bets were for leave, but the bigger bets were for remain. The bigger bets tipped the bookies' odds two to one in favour of remain as far as I remember.
The pound had become overvalued in a rally leading up to the vote, so I shorted it on the vote being done with
I was at a company dinner with some now defunct startup and someone said “wow the pound is down 10%”
I yelled YES! And the founders asked me if I just quit
Is the law similar in the UK?
Does it even exist for currencies? Presumably not because there is no company to be the insider of?
No, this isn't how it's defined in the US. It's completely legal to trade on material non-public information that you collect on your own via research (e.g. satellites looking at retail parking lots).
In the US, it's only illegal if you use information to trade that violates a fiduciary duty (e.g. using non-public information from a CEO).
I thought there was one theory that owning the stock makes one an insider because you are an owner.
I find people worried and thinking about this all over the web:
https://www.ibtimes.com/should-hedge-funds-be-concerned-abou...
In the example where a hedge fund buys information from Best Buy about how many Panasonic TVs they sell, Best Buy may have a duty to Panasonic, and thus are an insider in that context, so if the hedge fund buys that data from Best Buy, they could potentially be trading on insider information.
It's not because they own the stock.
There are serious questions about whether that, under US law, would be considered insider trading as it appears to be just that.
Simply owning a single share of stock in a company does not make one an insider. An insider, in the US, is someone who either works for the company, owns more than 10% of a company or has some other kind of fiduciary duty to the company. Insider trading can include anyone trading on any information from insiders even if they themselves aren't.
Mind, this is different in other countries.
In the Brexit case, there couldn't be an insider issue as the polling companies aren't inside anything relevant.
The grey area here is solely due to the law that says that exit polls can't be made public before the polls close. That is separate from insider laws but does relate to a question about what does "public" mean in that law.
In principle you might fall foul of insider trading if you had privileged information from the BofE, say, that they were going to make an unexpected rate move before it was announced. Similarly, if someone on Theresa May's staff bet against the pound on Sunday night, there may be a case as killing the vote on Monday was sure to trash Sterling.
But it's only really applied against someone who uses proprietary information that they gained by dint of their position or contact with someone in a privileged position.
As with all laws like this, it's worded pretty vaguely so that the Court can use discretion.
https://www.sec.gov/fast-answers/answersinsiderhtm.html
https://www.investopedia.com/terms/i/insider.asp
Insider is a term describing a director or senior officer of a company, as well as any person or entity that beneficially owns more than 10% of a company's voting shares. For purposes of insider trading, the definition is expanded to include anyone who trades a company's shares based on material nonpublic knowledge. Insiders have to comply with strict disclosure requirements with regard to the sale or purchase of the shares of their company.
Note the strategic placement of "anyone"
Here's Matt Levine again thinking about what insider trading even is and what constitutes privileged information:
https://www.bloomberg.com/opinion/articles/2018-10-15/inside...
For a more thorough examination, see a recent Matt Levine piece about someone being charged for insider trading after overhearing material non-public information in a public place:
https://www.bloomberg.com/opinion/articles/2018-12-03/inside...
How does a short actually work?
The part I don’t get is, how do you actually get out of the position and make the money?
And if no one wants to sell it, the price has gone up...meaning your bet was wrong and you lose money
So if I had one million shares and thought the stock was going to go up, I could make some extra cash by lending it to people and making them pay me for the right.
The key phrase is long term. It doesn't really matter to you whether or not a particular share price goes up or down in the short term as you aren't interested in selling.
So what you can do is lend the stock to a shorter. You enter into a contract where you give them X shares of a stock and they're obliged to give you X shares back in a few days regardless of any price move. They're also obliged to pay a fee for the service.
The net effect is that, instead of having X shares, you now have X shares and the fee.
The major risk for you is that they don't give you the shares back. That's why these contracts usually have collateral agreements such that, if they renege, you haven't lost out by much.
Mechanically, the negative share position is achieved by borrowing shares to sell. This carries an obligation to give 'back' the borrowed shares, which is satisfied when you buy in the market.
Buy stock back at a later date for $50 (You thought the price was going to go down right?), give it back to the original lender.
You have now made $50.
This is my (basic/primitive) understanding of shorting
One question: Who do you borrow the stock from? Why do they agree to lend it?
Fees to short certain stocks can be quite high, so even if the stock dips it's possible to lose money.
There may be problems finding someone to lend thinly traded stock. Or you can take out a short position and not be able to buy it back at sensible prices: this results in a "short squeeze". https://www.reuters.com/article/us-volkswagen/short-sellers-...
It is possible to lose more money than you invest with short selling, so be careful.
- Alice estimates that the price of Asset is going to drop from $200 to $100 in one week
- Alice borrows some quantity of Asset from Bob
- Alice sells Asset to Charlie at $190
- After one week, Alice buys Asset from Dave at $100 and returns it to Bob
The tricky part, at least for me, is how it works in practice. You can't own a negative number of stocks, it means that what you are selling doesn't come from nowhere, and because it is finance, the people who make the short possible have to work for personal gain.
The key here is that there are 3 actors:
A a buyer. Nothing special about him: he buys the stock, and sell it at a later date. He expects the value to go up and make a profit by selling at a higher price.
B is a shorter, he borrows stock (with interest) and sell them to A and buy them back at a later date to repay his debt. If the price went down he will buy back for cheaper than he initially payed, making a profit.
C is a lender, he owns stock and lends them to B. He makes profit on interest rates.
So the stocks go C -> B -> A -> B -> C and it all cancels out in the end. As for cash, C always wins, just like the house in a poker game, while the evolution of the stock determines how money changes hand between A and B.
In reality there are more than 3 actors, and there are mechanisms in place to limit the risk of bankruptcy, but that's the general idea.
https://en.wikipedia.org/wiki/Currency_pair
https://twitter.com/barronsonline/status/1070391112475557889
*: https://www.nytimes.com/2017/05/31/upshot/a-2016-review-why-...
And if a poll doesn't reflect that reality then it's not a good poll.
The error has been pretty consistent forever, it's just hard to do a poll and have it line up exactly with reality because a poll is a sample in time of the thoughts of a subset that may not match who shows up. All of those factors go into why polls miss; some populations are harder to reach than others, news can come out between the poll and election day or bad weather could mess up your turnout model by keeping a lot of people home.
https://fivethirtyeight.com/features/the-polls-are-all-right...
There were a lot of garbage poll-based predictions (the Clinton 90+% ones) based on assuming independence of polling errors. Predictions with claims of quantified likelihood based on polls are a fairly recent media phenomenon, and I think some of the legitimate reaction to how bad many of those were spilled over into polls themselves, because people don't understand that the polls weren't the source of the problem. (Which fed into existing political narratives against polling; propaganda definitely played a role but there was a real issue it interacted with.)
Are you perhaps thinking of a model?
To show whether a forecaster is good at what they do, you need to track their results for multiple forecasts and see what their track record is.
https://en.wikipedia.org/wiki/2015_United_Kingdom_general_el...
http://graphics.latimes.com/usc-presidential-poll-dashboard/
The average poll missed by 4.8 points. This result wasn't much worse than average, but it definitely was below average.
I can see why someone might be confused by this - one might think these polls are predicting who will become president.
There really is no need either. Early access to poll results and crosstab data excluded from public results is still extremely valuable.
Out of genuine curiosity (I'm American and don't know all the workings of UK government), is the public actually paying for these polls (via some agency in charge of that)? If so then yeah, "the public" is a client and if they were getting shorted in favor of private clients against the contract then that'd be a problem.
On the other hand though if polling companies are just doing it as a public service or form of advertisement (aka "see how accurate our public polls are on general elections, you can also expect that kind of rigor if you pay for us to poll about your product") then I'm not sure what the public interest angle is in terms of "less accurate public polls", nor do I see an enforcement angle given that those could just be the normal cheaper ones the company does and it's private entities commissioning and paying for more extensive, expensive and accurate collection. As far as I know polling companies themselves are private entities and are just offering a service. And in practice my understanding is that a lot of "public polling" is specifically being paid for by private entities in the form of newspapers and the like that then release it, because it sells news and in turn the ads attached to them. So same thing, if the news organizations found out they were being screwed they'd sue, and if results are bad enough they won't go with that polling company again, it's a competitive area.
If the public isn't paying though then I don't see what else can be expected?