Academic researchers from the University of Colorado and University of Chicago published a paper titled “Run EDGAR Run: SEC Dissemination in a High-Frequency World,” which finds that the delay between an SEC filing’s acceptance by the Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”) and its initial public availability on the SEC website, may provide an advantage to certain traders that pay a subscription fee for direct access.
According to the paper, while the delay is “relatively short,” with a median posting time of 36 seconds, prices, volumes, and spreads respond to the filing news beginning around 30 seconds before public posting. Therefore, the paper finds, some computer-driven market participants may be taking advantage of this posting delay.
The paper states that the findings “show that the SEC’s process for the dissemination of insider filings (and likely other types of filings as well) is not a level playing field.” The paper’s research is related to the recent literature on high-frequency trading, providing evidence that there are opportunities for certain traders to profit by trading on delays in the public dissemination of information.
In response to the findings, an SEC spokeswoman stated that the SEC is “conducting a thorough assessment of the dissemination process, including timing increments, and will make any system modifications that may be necessary to optimize the dissemination of information to investors and the markets.”
Although the paper demonstrates a supposed “flaw” in the means by which the SEC disseminates information, this ought not be embarrassing to the SEC. Rather, the paper should be taken as evidence of just how difficult it is to perfectly control and transmit public information to all investors, given the increasing complexity of technology and the continuing rapidity of technological progress. Query: how would the SEC have dealt with a similar “flaw” had it occurred with a private market participant: by bringing an enforcement action or, as we have advocated, by using it as an industry-teaching experience?
If the SEC, or other U.S. regulators, treat each technological problem that occurs with a market participant as cause for an enforcement action, the result is that market participants have no incentive to share information as to problems that they discover. On the other hand, a regulatory culture that incentivizes the sharing of information as a response to technological problems may result in shared incentives to solve those problems.