The U.S. Securities and Exchange Commission is planning to fix a defect in its Edgar public dissemination system that allows some investors to get an early look at potentially market-moving news, the Wall Street Journal reports.
Regulators have been concerned about whether professional traders enjoy an edge over mom-and-pop investors since researchers in October published a study finding that in 57% of insider stock purchases, Form 4 SEC filings were available to at least one paying subscriber of private vendor NTT Data’s distribution service before they appeared on Edgar.
The SEC’s process for disseminating insider filings was not a “level playing field,” the study concluded, citing evidence that investors with early access to data are trading on their timing advantage, sometimes within 15 to 30 seconds of news being posted on Edgar.
According to the WSJ, SEC Chair Mary Jo White told Senate Banking Chairman Tim Johnson, South Dakota Democrat, earlier this month that the agency has reviewed its distribution system and is “implementing an enhancement to our system.” The enhancement is “designed to ensure that Edgar filings are available to the public on the SEC website before such filings are made available to [public dissemination system] subscribers.”
The SEC expects to complete the review in the first quarter, White wrote in a Dec. 19 letter, and once the fixes are made, “we will continue to monitor our systems to ensure optimal dissemination of Edgar filings to the public.”
Concerns over the distribution of information in the U.S. equity market have been magnified by high-frequency trading, which now accounts for as much as half of all stock trades. New York Attorney General Eric Schneiderman began an investigation this year into whether the fastest traders were afforded advantages that are unavailable to others.
Form 4 SEC filings are supposed to be transmitted to the EDGAR website at the same time they are distributed by NTT Data. But researchers from the University of Chicago and the University of Colorado found it typically takes about 40 seconds from a filing’s acceptance by EDGAR to its initial public availability on the website, opening a window of opportunity for rapid-fire investors.
Source: Wall Street Journal