Fragmented Securities Regulation, Information-Processing Costs, and Insider Trading
69 Pages Posted: 10 Jul 2019 Last revised: 17 Jan 2023
Date Written: November 29, 2022
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: Suggested Citation