Why is insider betting even a thing?

Financial Times

Dan Davies is a managing director at Frontline Analysts and an author. His most recent book is The Unaccountability Machine, which you can buy here and read about here, here, here and here.

The last two weeks have given UK voters reason to wonder whether British elections are regulated by the Electoral Commission or by the Gambling Commission. Several constituencies have effectively lost candidates as a result of investigations into whether they placed bets on the timing of the election based on inside knowledge, or whether they made “hedge” bets on an opponent to win.

Things have already been escalated to the Metropolitan Police. Anyone familiar with financial market regulation might be inclined to ask — why is the betting industry protected by such aggressive and proactive regulation? 

For one thing, the amounts of money involved seem to be pretty trivial. Try calling up the FCA and saying you’ve got evidence of £100 worth of insider trading but it needs to be investigated this week and can’t wait; see how you get on.

There’s also a reasonable question to be asked as to why “insider betting” should be an offence at all. The ability to have someone sent to prison for being better informed than you is a very great privilege indeed, and it’s not obvious what the bookmakers have done to deserve it.

It’s hard to believe today, but in many countries “insider trading” was not a crime until quite recently. It has been prohibited in the US for most of the 20th century but was only banned in the UK in 1980, and wasn’t a criminal offence in New Zealand until 2008.

In Lying for Money, my book about fraud, I argued that this was because insider trading is a “market crime”. Rather than being something that’s obviously against natural justice, it’s a convention or internal rule of a particular industry that’s found its way on to the statute book because that industry is so big and important.

Insider trading is not like stealing or counterfeiting; there is no Commandment which reads, “Thou shalt not use thy private information”. In most industries, finding out things that the customer doesn’t know and using this to gain an advantage is the epitome of good business. I don’t complain that my greengrocer knows more than me about the wholesale price of oranges. When I’m buying a house or a second-hand car, I accept that the vendor is

The full article is available here. This article was published at FT Markets.