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Fragmented Securities Regulation, Information-Processing Costs, and Insider Trading

Author

Listed:
  • Sehwa Kim

    (Columbia Business School, Columbia University, New York, New York 10027)

  • Seil Kim

    (Zicklin School of Business, Baruch College, City University of New York, New York, New York 10010)

Abstract

Using a unique setting where stand-alone banks submit filings to bank regulators instead of the U.S. Securities and Exchange Commission (SEC), we examine the consequences of fragmented securities regulation for information-processing costs and opportunistic insider trading. We find the market reaction to insider-trading filings on FDICconnect is less timely than to those on SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, suggesting FDICconnect generates higher information-processing costs. We also find only large investors trade more on insider-trading filings on FDICconnect than on insider-trading filings on SEC EDGAR, thus extracting benefits from the delayed market reaction to insider-trading filings on FDICconnect. Finally, we find increased insider selling in stand-alone banks prior to negative earnings news, suggesting insiders’ opportunistic use of private information. These findings collectively suggest regulatory fragmentation undermines market efficiency and distorts the level playing field.

Suggested Citation

  • Sehwa Kim & Seil Kim, 2024. "Fragmented Securities Regulation, Information-Processing Costs, and Insider Trading," Management Science, INFORMS, vol. 70(7), pages 4407-4428, July.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4407-4428
    DOI: 10.1287/mnsc.2023.4903
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