Another interesting read.....
"Stock market can't be a clubhouse for the few"
From the Philadelphia Inquirer, by Jeff Brown
phillynews.com
"Here's a riddle. What do these three news stories from last week have in common:
Two California men were arrested on charges of posting false rumors on the Internet to inflate the price of a worthless stock.
The United States Commission on Civil Rights reported that Wall Street has shown little progress in hiring and promoting women and minorities.
A securities industry trade group objected to a government proposal to discourage companies from giving favored investors and analysts an advance look at vital news.
The common denominator, of course, is market players' habit of behaving like boys in a tree house, hoarding the goodies for themselves and keeping the rest of us out.
That is evidenced in the minuscule numbers of minorities and women in high-level positions in the securities industry. This is wrong as a simple matter of fairness, of course. But it's also a pocketbook issue for investors, because the industry can get the best analysts, stock-pickers and financial advisers only if it draws from the biggest pool of candidates.
Unfortunately, the clubhouse mentality is ingrained in Wall Street. Arthur Levitt, chairman of the Securities and Exchange Commission, is deeply concerned about it.
On Wednesday, the commission proposed a rule, "Regulation FD" (for Fair Disclosure), that would prohibit publicly traded companies from selectively disclosing important information.
The proposal is aimed at events such as corporate "road shows" and conference calls that are restricted to Wall Street analysts and favored investors, usually big players such as money managers and mutual funds. They get a first look at earnings estimates, business strategies and other disclosures that can affect stock prices.
Current rules permit those events and allow companies to bar access to small investors, the public and the media. As a result, ordinary investors are out of luck. If bad news is coming, the big boys who know it first can sell; the little guys who are in the dark are the buyers, picking up shares before the price falls, suffering losses when it does.
Wall Street has long held, with support from the courts, that a disclosure to analysts is the same thing as a disclosure to the public. But analysts don't turn around and share this information with everyone. They channel it to their firms' preferred customers - big traders or subscribers to expensive services. Small investors who use discount brokers or online trading services are left out altogether, since the cut-rate operations don't have analysts.
That practice violates the spirit of the securities regulations, if not the letter. Winning should be based not on having exclusive access to information but on using the information best - being the smartest, not the biggest.
Predictably, the Securities Industry Association, the trade group dominated by the big, full-service brokerages, objected to the SEC proposal. The association argued that the rule would have a "chilling effect" on corporate executives, causing them to withhold important information out of fear of being sued for unfair disclosure.
That's silly. With today's telephone and Internet technology, meetings between corporate executives and Wall Street analysts can easily be opened to the media and public. It already happens - when companies want to get the word out to everyone at once.
What does all this have to do with the California scam? The SEC and the U.S. attorney in Los Angeles said that in November, two men used a variety of names to send more than 500 messages to Internet chat boards describing NEI Webworld Inc. as an imminent takeover candidate. In fact, the company was bankrupt and the scamsters had bought nearly all of its stock for just pennies a share.
The flood of messages purporting to offer inside dope caused the share price to jump to more than $15, and the crooks made $364,000 in profits, authorities said.
A fraud of that type is possible because the victims were small investors who had come to believe that getting inside information is the name of the game. That's how the big boys play, and that's what the little guys want to do, too. Why verify chat-board tips when the point is to move fast - before the rumors can be checked out?
The SEC is right in wanting to change that culture. The stock market must be a level playing field, open to all, not a clubhouse for a lucky few." |
