From a recent email (estimize.com) comes this very interesting idea:
“Imagine a stock market where every trade has to be conducted on a public ledger for all to see. The SEC wouldn’t even have to lift a finger to find out who is doing insider trading. Because when one person commits insider trading it hurts other investors, the investment community would write algorithms to catch each other conducting illegal trading activity. Then they would report the public address codes of traders involved in highly suspicious activity to the authorities. From there the regulators would have some way to investigate and identify the perpetrator if the evidence was sufficient . Everyone would still be pseudonymous until the SEC is handed a complaint, then it could act as the enforcer that it’s supposed to be and crack down on the illegal activity discovered by other traders.
Crime and law enforcement have always been and will always be in a technological arms race. Utilizing the transparency of the blockchain protocol and shifting the burden of detection away from the SEC and into the hands of the crowd could be a much better way to do it. Other traders obviously have a much stronger incentive than the SEC to be vigilant and proactive in eradicating insider trading because they’re the ones who stand to lose money when it goes undetected.”