Firm Inside Info Auctions

In the process of seeing and doing things, firm principals acquire “inside” info on the future value of their firm, and on the wisdom of particular firm decisions. It often makes sense for firms to want such inside info to be reflected in their stock (or token) price. In part so the market can better direct resources to more promising firms.

For firm decisions subject to outside oversight, such as by shareholders, partners, or regulators, it also makes sense to want outsiders to know key firm info. And for firms controlled at least in part by decision markets (firm value conditional on particular decisions), it makes even more sense for firms to want decision market prices to reflect key firm info.

However, while firms can want market prices to reflect the implications of key inside info, they can also want to keep key insights, plans, and strategies private. So firms face a problem: how to get market prices, and oversight bodies, to reflect the implications of firm inside info, without directly revealing that info to the world?

At the moment firms have two main legal options: make a public announcement, or let the info leak via the usual insider trading channels, channels that while formally banned are in fact widespread. (~1/2 of prices changes due to firm announcements happen beforehand, and ~1/2 of that is due to insider trading.) A public announcement guarantees to leak key plans, and insider trading greatly risks such leaks, while also being unpredictable in topic and timing, and giving money to random firm associates.

Here’s another approach to consider. Every month hold an auction, and let the winner hear the firm’s key inside plans, strategies, etc. that month, and trade on that info. To quality for this auction, one must credibly show that one is greatly liable for leaking such plans, etc. info. So now prices reflect the key info that isn’t itself released, and the firm gets the revenue instead of random associates or the general market.

If the firm wants most of the info revenue to go to market traders instead, to promote more trading in markets on that firm, they could just have two or three auction winners every month, who must then compete to reveal the info to markets.

If there are synergies from being the winner many months in a row, that will likely be reflected in the same party winning many months in a row, but this isn’t a problem as such prospective gains will be reflected in earlier auctions.