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

69 Pages Posted: 10 Jul 2019 Last revised: 17 Jan 2023

See all articles by Sehwa Kim

Sehwa Kim

Columbia University - Columbia Business School

Seil Kim

Baruch College, City University of New York

Date Written: November 29, 2022

Abstract

Using a unique setting where stand-alone banks submit filings to bank regulators instead of the 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 EDGAR, 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.

Keywords: Banks; regulation; FDICconnect; SEC EDGAR; insider trading; information processing costs

JEL Classification: G14, G21, G28, M41, M48

Suggested Citation

Kim, Sehwa and Kim, Seil, Fragmented Securities Regulation, Information-Processing Costs, and Insider Trading (November 29, 2022). Baruch College Zicklin School of Business Research Paper No. 2019-07-01, Available at SSRN: https://ssrn.com/abstract=3416204 or http://dx.doi.org/10.2139/ssrn.3416204

Sehwa Kim (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Seil Kim

Baruch College, City University of New York ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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