A key concern of market-center economies like that in existence in the United States today is that public companies will under-disclose information about their prospects. Since the 1930s, the main regulatory response to this concern has come in the form of the massive mandatory-disclosure regime that sits at the foundation of modern securities law. But this regime—especially when viewed along with its speech-chilling anti-fraud overlay—no doubt leaves society without all the corporate information from which it would benefit. The typical fix offered to the problem has been more of the same: add to the 100-plus-page list of what firms must disclose, often based on the latest Washington fad.
In our recent Article, Making a Market for Corporate Disclosure, we explain why the underproduction of corporate information could be better addressed through constructing an information market. In particular, we theorize that an SEC rule regarding selective disclosure (Regulation Fair Disclosure) and a more general regulatory attitude relating to the same prevent this market from forming today, and that changes to them would allow firm supply and information-consumer demand to interact in a way that would motivate more corporate disclosure, presented in enhanced formats, delivered more frequently. And, we explain why the market is consistent with the floors of the mandatory-disclosure regime as well as the restrictions of the insider-trading one.
The market we contemplate is one in which firms could transparently sell access to information that they soon would release to the public. For example, when they have new information that they are willing to share with the public, firms could offer a well-advertised early peek—say, starting at 11:00 a.m.—to anyone willing to pay the market price for it. So long as firms had to share any selectively released disclosure products with material information with the public by, say, 1:00 p.m., market supply of and demand for those products could generate improved public disclosure.
Of course, this market would likely result in acute information asymmetries between those who pay for early access and those who wait for full public disclosure. But this should not pose any concern for ordinary investors. Those investing for a long-term, market-wide risk premium are not trading based on information—and thus don’t need access to it. For them, the key thing to do with respect to the release of new information is stay clear of it. In this way, our market leaves these investors better off than they are today by mandating notice of information release that is not now required. Moreover, those ordinary investors who want to compete with the pros are free to purchase early-access rights—including indirectly by investing through an investment fund.
Accordingly, the Article proposes an innovative broad fix to the disclosure woes that are thought to plague economies like ours. And, as emphasized here, that fix addresses a core concern of modern securities law (disclosure underproduction) without detracting from another main such concern (that for ordinary-investor wellbeing).
Kevin Haeberle is an Associate Professor of Law, William & Mary Law School. Todd Henderson is a Professor of Law and Mark Claster Mamolen Research Scholar, University of Chicago Law School.