U.S. regulators are finally warning Wall Street to stop rumor-spreading with intention of manipulating security prices. While this is a positive development in terms of market-functionality and good news for non-insiders ; the question begged to be asked is : What took you guys so long?!!!. Rumor-spreading has become the norm in the Street and it’s considered almost part of the trading activity on the exchange floors. But, I guess better late than ever.
Finally, today SEC Chairman Christopher Cox said it is immediately opening a probe to prevent the spread of false information and will start an investigation aimed at “ensuring that investors continue to get reliable, accurate information about public companies in the marketplace.”
The timing of the announcement, made before the markets opened in Asia, was meant to warn broker-dealers, hedge funds and investment advisers to quell any spreading of rumors before trading started Monday.
The S.E.C. has been engaged in an internal debate over what kind of investigation to mount with respect to rumors. The turbulence in the markets last week, with rumors adding to concerns about fundamentals affecting commercial banks, investment banks and GSEs, sped the decision to begin the examination and make it public. [Via NYT]
Cox said the probe will provide an opportunity to make sure brokers and investment advisers have “appropriate training for their employees and sturdy controls in place to prevent intentionally false information from harming investors.”
Since the run on Bear Stearns earlier this year, top-level Wall Street executives have persisted with regulators to start an investigation claiming that planted false information by short sellers pushed the investment bank to the brink of bankruptcy.