Study Finds SEC Filing Distribution Favors Some Paid Subscribers

(Bloomberg) — Researchers examining the distribution of corporate filings by the U.S. Securities and Exchange Commission found evidence that some paying subscribers got the information first.

An examination of almost 18,000 filings by researchers at the University of Chicago and University of Colorado found the commissions Edgar system posted documents on its website after a separate electronic feed run by an outside vendor sent them to subscribers. The study of Form 4 filings, which track changes to stock holdings by company directors and officers, showed an average timing advantage of about 10 seconds.

How information is distributed in the U.S. stock market has been a flashpoint in the debate surrounding high-frequency traders, the electronic firms that have supplanted human market makers and accounted for as much as half of all transactions in recent years. New York Attorney General Eric Schneiderman launched an investigation earlier this year into whether the fastest traders were afforded advantages that are unavailable to other investors.

Our findings have a number of implications, wrote the authors, Jonathan L. Rogers, Douglas J. Skinner and Sarah L.C. Zechman. Perhaps most notably, they show that the SECs process for the dissemination of insider filings (and likely other types of filings as well) is not a level playing field, in that certain intermediaries and investors have access to insider filings submitted to Edgar before others, and that prices, volumes, and spreads move in the direction of the news in advance of it being posted (and publicly-available) on Edgar.

Distribution System

The results of the study were reported earlier by the Wall Street Journal, which cited a SEC spokeswoman as saying that the commission is reviewing the document and takes the issues it raises seriously.

SEC spokesman John Nester wasnt immediately available for a comment out of office hours in Washington. Calls to the SECs communications department werent answered outside of normal office hours.

The Edgar system transmits filings to the SEC website and to a private vendor, which then distributes them to paying subscribers, according to the report.

NTT Data Corp. was the contractor during the period of the study, researchers stated. Takanori Iwauchi, who works in the communications department at the Japanese company, said he couldnt immediately comment.

An explanation on the SECs website of how the system works says subscribers are forwarded public filings at the same time as Edgar sends them to the SEC.

Bloomberg LP redistributes SEC filings and Bloomberg News competes with other news organizations in reporting details in the filings.