Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Sept. 15 — Public company insiders are trading extensively during the four-business-day window in which significant corporate events are required to be reported in Securities and Exchange Commission filings, and earning a hefty profit, a recent academic study suggests.
The study's authors—Harvard Law School professor Alma Cohen, Columbia Law School professor Robert J. Jackson Jr. and Columbia Law School's Joshua R. Mitts—refer to this period as the Form 8-K “trading gap.”
“This paper raises concerns about insider trading in public companies,” said Jackson, co-director of Columbia Law School's Ira M. Millstein Center for Global Markets and Corporate Ownership, in a related release. “It shows that SEC rules leave open a significant opportunity for insiders to trade on corporate information.”
Under SEC requirements, companies are required to disclose significant corporate events within four business days of their occurrence in a filing known as a Form 8-K.
The authors' study, “The 8-K Trading Gap,” identified and examined more than 15,000 Forms 8-K detailing corporate insider trades between 2004 to 2014. They said their research shows that public-company insiders trade during the 8-K gap—“when market-moving information is known by insiders but not by most investors”—and earn economically and statistically meaningful profits when doing so.
“Our findings suggest that Congress and the SEC should consider whether allowing firms to delay the announcement of material nonpublic information for four days creates trading opportunities that strain the already significant public resources dedicated to enforcing the rules that prohibit improper trading by insiders,” the paper states.
The paper cautioned that its findings do not indicate whether any trading in the sample was illegal or improper.
• whether public companies should consider extending “blackout period” policies to prohibit trading on information that will later be disclosed in a Form 8–K; and
• whether the findings provide a framework for lawmakers considering changes to the SEC's mandatory-disclosure rules.
According to Jackson's release, Rep. Carolyn Maloney (D-N.Y.) will prepare legislation to address the trading gap. “The results of this study are very troubling,” Maloney said in the release. “This kind of activity undermines the integrity of our markets, and both Congress and the SEC should work to stop it.”
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
The paper is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2657877.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)