Wallace, it's about time somebody in the financial media started questioning the so-called "homework exemption" in the Dirks decision that effectively legalized violations of Sec.10(b) and Rule 10b-5.
Quoting from Cox, Hillman and Langevort (p.839):
The SEC expressly recognizes that "the value to the entire market of [analysts'] efforts cannot be gainsaid; market efficiencies in pricing is significantly enhanced by [their] initiatives to ferret out and analyze information, and thus the analyst's work redounds to the benefit of all investors...The SEC asserts that analysts remain free to obtain from management corporate information for purposes of "filling in the 'interstices in analysis'"...
IMHO, what occurred yesterday in Nortel and a few weeks ago in TLAB reveals the paucity of the above.
"The value to the entire market of analysts efforts..." - so, basically when an analyst relays a tip in the middle of a conference call to his clients or large institutional shareholders are allowed to sit in on market-hours conference calls to the exclusion of small investor, the entire market benefits?
"...enhanced by their initiatives..." - a company setting up a call ahead of time at which there is the chance that material information will be disseminated to a select group of analysts (who are for all intents and purposes information-gathering proxies for traders) those would be characterized as "initiatives" on the part of analysts?
"...ferret out and analyze..." - a member of upper management tells analysts point blank that revenues or earnings will fall below expectations and this is somehow what is meant by to "ferret out and analyze"?
"...and thus the analyst's work redounds to the benefit of all investors..." - allowing analysts and large institutions a first shot at material information during market-hours to the exclusion of the majority of shareholders and then having that information dribble out in haphazard, second-hand, piecemeal fashion is in fact beneficial to all investors?
"...The SEC asserts that analysts remain free to obtain from management corporate information for purposes of "filling in the 'interstices in analysis'"..." - so that's what occurred in yesterday's mass freak-out or the TLAB freak-out - there was this sudden, miraculous "filling in" of "interstices" in "analysis"?
If that's the case, I suggest the SEC look very closely at how fast the interstices in "analysis" were filled during the TLAB call. Look at the intraday chart. I'd be very curious to see the "analysis" produced during that decline, since after all, the entire purpose of allowing this type of selective dissemination during market-hours is aimed at producing "analysis" that will "enhance" market efficiency.
Is the SEC prepared to assert that that these sudden declines as the result of selective dissemination during market-hours are the byproducts of the "work" of analysts? Picking up a phone and saying "heads up, they're warning about XYZ"? The SEC is prepared to argue that an analyst being told point blank material information and then relaying that information in an almost verbatim fashion to persons likely to immediately trade on such information - that is "homework"? That enhances market efficiency? That is beneficial to all investors?
No.
One more case of this type of crap and I'm sitting for the LSAT's <g>
Good trading,
Tom |
