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After the news broke about Trump Media’s plan to sell access to its data feed, the company offered a line of defense that the feed, though allowing subscribers to trade faster, does not in fact give information to subscribers sooner than it reaches the public:
The White House referred comments to Trump Media. A spokesperson for the company said, “Truth API is designed to deliver posts the instant they are made public to everyone, not before.”
With the caveat that I’m hardly a techie, the theory seems to be subscribers will be able to get their trades in faster because they are plugged directly into the system, even as the post is nominally made available to everyone, and that makes it okay. But let’s take a look at the classic SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968):
The effective protection of the public from insider exploitation of advance notice of material information requires that the time that an insider places an order, rather than the time of its ultimate execution, be determinative for Rule 10b-5 purposes. Otherwise, insiders would be able to “beat the news,” by requesting in advance that their orders be executed immediately after the dissemination of a major news release but before outsiders could act on the release…. Before insiders may act upon material information, such information must have been effectively disclosed in a manner sufficient to insure its availability to the investing public . …
Coates was absolved by the court below because his telephone order was placed shortly before 10:20 A.M. on April 16, which was after the announcement had been made even though the news could not be considered already a matter of public information. The reading of a news release, which prompted Coates into action, is merely the first step in the process of dissemination required for compliance with the regulatory objective of providing all investors with an equal opportunity to make informed investment judgments. Assuming that the contents of the official release could instantaneously be acted upon, at the minimum Coates should have waited until the news could reasonably have been expected to appear over the media of widest circulation , the Dow Jones broad tape, rather than hastening to insure an advantage to himself and his broker son-in-law.
And here’s the SEC, in In the Matter of Certain Trading In the Common Stock of FABERGE, INC., 1973 WL 150154:
In order to effect a meaningful public disclosure of corporate information, it must be disseminated in a manner calculated to reach the securities market place in general through recognized channels of distribution, and public investors must be afforded a reasonable waiting period to react to the information. Obviously, what constitutes a reasonable waiting period must be dictated by such surrounding circumstances as the form of dissemination and the complexity of the information, i.e., whether it is “readily translatable into investment action” [footnote omitted] … Proper and adequate disclosure of significant corporate developments can only be effected by a public release through the appropriate public media, designed to achieve a broad dissemination to the investing public generally and without favoring any special person or group. To hold otherwise would be to sanction competition for tips in which the ordinary individual investor would inevitably be at a serious disadvantage.
Or more simply:
For purposes of insider trading law, insiders must wait a ‘‘reasonable’’ time after disclosure before trading.
What constitutes a “reasonable” time will vary but since TMTG is literally selling the feed as a way for traders to move before anyone else, I’m pretty sure that’s not it. Do with that what you will.
And another thing. Mike Levin and I talk about the whole mishegoss in more depth on the Shareholder Primacy podcast, and we also discuss new disclosure requirements for (some) activists. Here at Apple; here at Spotify; here at Youtube.
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