"Is there any way to make
insider trading less attractive? The government’s willingness to prosecute
high-profile traders is a start. Still, we need a more fundamental approach. In
a world where companies increasingly know about their business in real time, it
makes no sense that public reporting mostly follows the old quarterly schedule.
Companies sit on vital information until reporting day, at which point the
market goes crazy. Because investors are kept in the dark, the value of inside
information is artificially inflated. “Insider trading is, by definition, based
on information that is not known to investors,” Baruch Lev, a professor of
accounting and finance at N.Y.U. and an expert on corporate disclosure, told
me. “If you increase transparency, the gains for insider trading must go down.”
Back in 2002, Harvey Pitt, who was then the head of the S.E.C., told Congress
that companies should be providing investors with regular updates about their
performance, rather than just making quarterly disclosures. More consistent, if
not real-time, data about revenue, new orders, and major investments would help
investors make more informed decisions and, into the bargain, would diminish
the value of insider information. If companies tell us more, insider trading
will be worth less."
