Why aren’t more people into insider dealing?

The fact that only one in every four deals involves trading on price-sensitive information is bizarre. The New York Times has reported that there have been suspicious trades in advance of 41 per cent of deals. In Canada, 33 out of 52 big takeovers were preceded by insider trading.

Indeed, it is a wonder anyone would ever think of robbing a bank these days. There is more lucrative criminal work to be had going to work for one.

For there have never been more insider-trading opportunities: there are more deals, more sophisticated financial instruments and more insiders involved in every transaction. John Tiner, the departing chief executive of the Financial Services Authority, said he had seen the list of insiders on one recent deal and it numbered more than 1,500 people.

There are more and more opportunities for market abuse. Front-running, which involves being tipped off on an imminent bulk buy or sell of shares and taking a position on the stock accordingly, is a booming business. So too is the industry in planting a false rumour of an impending merger or acquisition and trading off the market frenzy.

And there is another reason for thinking that financial crime has never been easier: the fact that financial institutions and regulators have so little to gain from chasing, let alone apprehending, the perpetrators.

Banks have little interest in running in-house witch-hunts for obvious reasons. They are expensive, time-consuming, demoralising and, if successful, highly damaging to the bank’s reputation.

Callum McCarthy and his colleagues at the FSA also have little to gain from restyling themselves as The Untouchables. The SEC may do a better job of landing insider-dealing convictions, but all the signs are that the US authorities only apprehend the cack-handed operators while the sophisticated ones continue to make fortunes. The regulators know that expensive investigations, which will be followed, more often than not, by a failure to convict, will undermine the reputation of the FSA, damaging its own reputation for being light of touch and cost efficient.

The FSA is introducing new computer systems to identify unusual trading patterns. This will make things a little more difficult, but it will not deter insider dealers. For insider dealing is like so much else in the City, namely stacked in favour of those with privileged access. It is only the overeager amateurs who are at risk.

Just a few years ago, Napster, the online music sharing service, could boast that it had attracted more followers in less time than any movement in human history. Founded in 1999, it had more than 26 million users by 2001. These days, it has more or less disappeared from view. Napster was an extreme example of a difficult fact of life online: web promiscuity. Brand loyalty, as it has existed for more than a generation, does not exist on the internet. Online, it’s much easier to say: it’s not you, it’s me . . . and move on.

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