Thomson Reuters And Insider Trading

Let’s assume that you work for a major publicly traded corporation. You have scheduled a press conference to release proprietary information to the general public, information that will undoubtedly trigger significant trading in your stock (and thus a significant change in your stock price) within moments of its release.

An investor offers you a significant amount of money to “peek” at the information shortly before you release it to the public. You are certain that such a “peek” will help the investor anticipate the change in the stock price before it occurs.

Can you sell the investor an advance “peek” at the information? Of course not. Such a transaction would run afoul of our insider trading laws; it would represent a criminal activity in most nations.

And yet, until Thomson Reuters finally bowed to pressure from New York State regulators last week, it was engaged in a similar activity. The firm compiles and issues the University of Michigan’s monthly consumer confidence survey, a report which reliably moves markets immediately upon its release.

Thomson Reuters had been selling such advance “peeks” at the survey data prior to release, claiming that firms do not violate insider trading laws when they “legally distribute non governmental data and exclusive news through services provided to fee paying subscribers.”

New York regulators failed to see any distinction between private corporations that illegally reveal exclusive news to favored investors, and private corporations that obtain such news and then resell it to subscribers. Last week, although it admitted no fault, Thomson Reuters announced that it was temporarily suspending this practice.

Nevertheless, the relevant legal question remains unanswered: can “peeks” at insider information be sold to favored parties in advance of public disclosure, as long as the sales are structured as subscription fees to exclusive news?

Thomson Reuters, of course, merely announced a voluntary temporary suspension of this practice. Any firm, including Thomson Reuters, can thus implement it at any time.

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