Corporate information that moves stock-market prices has long sat at the center of modern securities regulation in the United States. The Great Depression-era securities laws at the foundation of the field require much mandatory disclosure of this type of information. They also include a strict anti-fraud regime to ensure the credibility of those disclosures of that information. And for a half century now, that regime has been interpreted to prohibit insiders from trading on the same information. All of these laws have been motivated by both concerns for fairness and economic efficiency.
Today, a new body of securities law is forming on top of this regulatory structure. We refer to this area of law as “information-dissemination law.” And in our recent article, Information-Dissemination Law: The Regulation of How Market-Moving Information Is Revealed (available here), we explain why there is reason to believe that the current defining feature of this body of law fails to meet its primary stated ends (increasing fairness) or live up to its larger potential (enhancing economic efficiency).
The current manifestations of the nascent area of law we review almost exclusively focus on ensuring that market-moving information is made available to all market participants at the same exact time when first disseminated beyond a small group of corporate insiders or the like. For example, over the past few years, the New York State Attorney General—Wall Street’s top state-level cop—repeatedly decreed that he would end what was quickly becoming a routine practice: the release of market-moving information to high-speed traders just seconds before it was being made available to the entire public. Labeling these practices “insider trading 2.0,” he eventually helped ensure that information from a wide array of information producers—including universities and trade associations—was revealed to all interested market participants simultaneous when first released. Although promulgated over a decade earlier, the Securities and Exchange Commission’s Regulation Fair Disclosure ensures the same type of simultaneity, albeit with respect to the information that public companies produce and share beyond the firm.
Although Regulation Fair Disclosure was also animated by a desire to clean up the integrity and competitiveness of the process in which information was analysed and impounding into market prices, these simultaneous-dissemination requirements have primarily been pursued in the name of fairness. But, using insights from market-microstructure economics, our Article demonstrates that the ordinary-investor benefits of equal-timing efforts are far from clear. Indeed, the government-compelled equal timing for information revelation appears to be perversely harming the most vulnerable ordinary investors. Accordingly, we offer concrete ways in which information-dissemination law can be amended to ensure that it actually carries out its primary stated ends.
But our analysis does not stop there. Rather, it looks at whether this area of law can also be shaped to improve the other main aim of the field without eroding fairness. More specifically, it examines the fascinating question of whether the way in which the dissemination of market-moving information is regulated can be crafted to increase the production of the valuable information at the heart of so much securities law. If so, then thoughtfully molded regulation in this emerging area of securities law may lead to both increases in fairness and economic efficiency.
Kevin S. Haeberle is Assistant Professor of Law, University of South Carolina School of Law, and M. Todd Henderson is the Michael J. Marks Professor of Law and Mark Claster Mamolen Research Scholar at the University of Chicago Law School.