Today is a good day for Congress passing laws with sunny punny names, so after the JOBS Act on we go to the STOCK Act, for Stop Trading On Congressional Knowledge, which, who wouldn’t want JOBS and STOCKS and also much less Congressional insider trading. Anyway it passed, so now Congressional inside information is like corporate inside information in that if you trade on it you go to jail, maybe, sometimes. There was however some controversy as Reuters explains:
House Republican leaders argued that the political intelligence provision, which targeted former Capitol Hill insiders who use their contacts to gather information on pending legislation and sell it to Wall Street investors, could tread on First Amendment free speech rights. The final version orders a study of what to do about that increasingly widespread practice.
Coincidentally, earlier in this deadly deadly week we talked a little about the First Amendment and securities regulation, but that was in the context of people being able to say true non-confidential things about their investment prowess or prowesslessness. Even there, for non-Congress-related people, the First Amendment doesn’t seem to do much for them, though maybe the Supreme Court will change that but don’t count on it.
The STOCK Act provisions, on the other hand, are in the context of people saying true confidential things about the progress of pending legislation, which sounds a lot more like insider trading. Still, it is kind of important for people to be able to talk about what their legislators are up to, so you can see why you might have some First Amendment unease about cracking down on people talking about Congress. As we’ve also talked about before, though, just like elsewhere in insider trading law, it’s probably okay for non-Congresspeople to trade on information about pending legislation if it wasn’t disclosed in violation of a duty – which probably means something like, if you learned it as part of The Democratic Process and not as part of a scheme where you give a Congressman kickbacks from your profits from trading on his information. So to a first approximation the First Amendment should be okay.
If you wanted to both avoid an uneven playing field for Congressional insiders while also preserving the ability of people to talk about Congress, what you’d want is something like a regime where Congress-related people don’t talk much about inside information unless they disclose it publicly – sort of like how Regulation FD works for public companies, where companies can’t tell favored analysts or investors things that they haven’t previously or simultaneously disclosed publicly.
In completely unrelated news what do you make of this?:
Citigroup Chief Financial Officer John Gerspach and Chief Operating Officer John Havens indicated a willingness to sell more than the scheduled 14 percent stake in Morgan Stanley Smith Barney if Morgan Stanley makes an attractive offer, [Nomura’s Glenn] Schorr wrote in a note to clients today, citing a recent meeting with the executives.
Morgan Stanley has the option to buy a 14 percent stake in the joint venture in May, increasing its ownership to 65 percent, and can purchase the business outright over the next two years. In 2009, Morgan Stanley (MS) bought a controlling stake in the joint venture, which has more than 17,000 advisers and $1.65 trillion in client assets.
The firms would have to renegotiate their existing deal, and Morgan Stanley, which got Federal Reserve approval for acquiring the 14 percent stake, would have to submit a new capital plan to regulators, according to a person briefed on the situation who declined to be named because an agreement hasn’t been reached. … Shannon Bell, a spokeswoman for Citigroup, also declined to comment.
Nice to see Gerspach and Havens exercising their First Amendment free speech rights to tell Schorr what was up with their otherwise private negotiations with MS.*
* Newsworthy though it is, I guess the analysis is that it’s not material – it’s not that much of Citi’s assets or revenues, everyone knows MS has an option to buy anyway so it’s just a timing question, and the deal isn’t done yet. Still it’s kind of a weird way to put this news out into the universe?