If I build a better mousetrap, I am free to sell it to whoever I want at whatever price I want (setting aside invidious discrimination). Right? I mean, this is a free society, right?
On Friday morning, Thomson Reuters released the latest University of Michigan Consumer Sentiment Index, as it does twice a month. But this time was different. As a result of a settlement Thomson Reuters reached this week with New York’s attorney general, Eric T. Schneiderman, a select group of its customers didn’t get the two-second advance release they’d been buying. ...
While Thomson Reuters agreed to suspend the two-second advantage while his investigation continues, its regular clients get a five-minute jump on the general public, which gets the data at 10 a.m. Thomson Reuters pays the University of Michigan close to $1 million a year for the right to distribute the data.
The five-minute edge may well be the next target, since either everyone gets the information at the same time, or they don’t, whether the gap is seconds, minutes or hours. ...
For some market experts, the attorney general’s move is long overdue. Mr. Schneiderman is “a mile ahead of the Securities and Exchange Commission, which has to be dragged slowly and grudgingly toward raising the standard of behavior,” said John Coffee, a professor and expert on securities law at Columbia Law School.
Apparently, expending effort to develop valuable information and then selling it to the highest bidder is a standard of behavior to which Professor Coffee does not stoop. But this is the same guy who thinks I belong to the tea party caucus of the corporate law academy.
Astonishingly, the author of the Times article eventually manages (it's buried at the end of the article) to point out that reasonable people might have a different view:
Legal standards aside, many market experts worry that the attorney general’s crackdown may go too far and discourage the kind of enterprising research that has long made markets more efficient, whether undertaken by short-sellers hoping to profit directly on it, Wall Street investment banks that sell research to their clients, or investigative journalists.
“The notion of a level playing field is important, and it’s important to aim for it,” said Harvey Pitt, a former S.E.C. chairman and now the chief executive of the consulting firm Kalorama Partners. “But a level playing field can’t mean everyone has the same information. People need financial incentives to dig up information, and the marketplace benefits.”
It's a simple idea: "People need financial incentives to dig up information, and the marketplace benefits.” But apparently great NY minds just can't seem to grasp it.
Regular readers of this space, however, may recall that I made much the same point back in June in a post that explained why it's perfectly legal to do what Thomson is doing (as a matter of federal securities law, which may be why the SEC isn't rushing to turn Coffee's preferences into law) and which concluded that:
If this so-called "blind spot" were to be patched with legislation banning such transactions, the effect will not be to ensure that all investors have equal access to this sort of information. Instead, the effect will be that nobody will have access to it because such information simply won't be produced:
Richard Curtin, an economist who runs the university's survey, said he knows the deal gives an advantage to select investors.
"Hardly anyone would pay for it if they didn't see a profit motive," Mr. Curtin said. Later, he added: "This research is totally funded by private sources for the benefit of scientific analysis, to assess public policy, and to advance business interests. Without a source of revenue, the project would cease to exist and the benefits would disappear."
And that would help nobody.
