Investor Relations in the 21st Century

... Or fencing on a tightrope in the eye of the storm...

After two plus decades on the firing line in Investor Relations I have as many questions now as I did when I started – just different questions. Traders outnumber investors; markets are increasingly fragmented and opaque; technology outpaces regulation, All these trends are transforming the IR landscape today and into the future. RiskRewardNews is where I intend to search for insight and answers. Join me in conversation with market participants, CEOs, CFOs, IROs, academics, regulators, and informed observers as the financial market of the 21st Century takes shape.

Monday, March 26, 2012

STOCK Act passes, ‘political intelligence’ analysts exempt

 As originally posted on Inside Investor Relations.

Congressional staffers, hedge funds and traders will have to be more cautious under new rules

The ban on insider trading by politically connected Capitol Hill players passed the Senate late last week and is now headed to President Obama for certain signature, despite complaints from some early supporters that the current version gives a pass to Wall Street analysts trafficking in market-moving inside information.

The Stop Trading on Congressional Knowledge (STOCK) Act bars members of Congress and their staff from profiting on non-public information obtained through their legislative role.

But a provision put forth by Senator Chuck Grassley requiring ‘political intelligence consultants’ to register as lobbyists was dropped in the final version, which the Senate approved by 96 votes to three.

Grassley, one of the three ‘no’ votes, was quoted in media reports saying: ‘Today’s actions only serve the desires of obscure and powerful Wall Street interests, and undercut the will of the overwhelming majority of Congress.’

Previously, some observers claimed legislators and staffers were immune from insider trading prohibitions, based on a constitutionally protected speech privilege held by members of Congress.

Recently, SEC chairman Mary Schapiro told Inside Investor Relations that the STOCK Act provides ‘a useful clarification’ by eliminating any ambiguity that ‘members of Congress owe a duty to Congress, to the government and to the American people’ to protect material non-public information.

'Chilling effect' on Capitol Hill

Michael Mayhew, founder of Integrity Research, a research advisory firm, says passage of the STOCK Act may actually have a chilling effect on the trafficking in material non-public information on Capitol Hill, depending on how ‘nervous’ legislators, staff and Wall Street traders become.

Echoing Schapiro, Mayhew says the STOCK Act makes it ‘absolutely clear there is a duty of trust and confidentiality’ held by Congress concerning material information.

Regulators in the future can go after both the party providing the tip and the trader with confidence that a judge will not throw out the case, he adds.

He says he sees growing nervousness in conversations he has had with congressional staffers who are asking: ‘If I talk about pending legislation and somebody trades on it, do I end up getting dragged into potential tipping violations?’

He also notes that hedge funds and traders will have to be more guarded. ‘If the regulators want to bring an insider trading case against an investor using Washington insider information, now there’s a lot more clarity. That’s what’s going to make people nervous,’ he concludes.


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