Run EDGAR Run: SEC Dissemination in a High-Frequency World

Abstract

We describe the process through which the Securities and Exchange Commission (SEC) makes filings "publicly available." For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC's public dissemination system (PDS) feed before they are posted to the EDGAR website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that 1 Fama [1991, p. 1607] writes that "[t]he cleanest evidence on market-efficiency comes from event studies, especially event studies on daily returns. When an information event can be dated precisely . . . event studies can give a clear picture of the speed of adjustment of prices to information." SEC DISSEMINATION IN A HIGH-FREQUENCY WORLD 461 measured in milliseconds (or even microseconds) are economically valuable (Goldstein, Kumar, and Graves [2014], Budish, Crampton, andShim [2015], Jones [2013], O'Hara [2015]). 3 The HFT traders we spoke to indicate that, conditional on obtaining the information first, the length of private advantage is not important because positions can be established within microseconds. While the casual observer may assume that the SEC dissemination process through EDGAR is effectively instantaneous, we show that, during the period we examine (March 1, 2012 to December 31, 2013), the process from upload to posting typically takes around 36 seconds (median). We further show that the news is available to certain intermediaries and investors before it is posted to the public EDGAR website: for 57% of insider purchases, filings are available to at least one PDS (public dissemination service) subscriber before they are posted to the EDGAR website. 4 This proportion is a lower bound on the relative frequency of private advantage because we have data from only one of approximately 40 PDS subscribers. 5 We show that, when the PDS feed is first, prices, volumes, and spreads move 15-30 seconds before the news is posted to the EDGAR site. We also show that, when the PDS feed is first and results in both private and public trading, a return of 28 basis points (during a window that averages 81 seconds in length) is available to the informed traders, which is economically significant for HFT firms. 6 This implies that, during the period we examine, the process through which filings are disseminated via EDGAR provides certain intermediaries and their clients with a timing advantage and that some market participants trade and profit on this advantage. In response to our study, Mary Jo White, the SEC Chair, announced plans on December 19, 2014, to enhance the system to "ensure that EDGAR filings are available to the public on the SEC [EDGAR] website before such filings are made available to PDS subscribers." 7 We focus on Form ...

What FinTech Can Learn from High-Frequency Trading: Economic Consequences, Open Issues and Future of Corporate Disclosure

“…Scriptability represents the relative ease with "which a computer program or a computer programmer can transform the large amounts of unstructured data contained in various firm disclosures into usable information (Bloomfield 2002)". The general assumption here is that "more scriptable" filings allow HFT (and other sophisticated investors) gain a short-term information advantage to react and trade quickly and increase the information asymmetry immediately following disclosures; bid-ask spreads increase by 20-25% in the 30-60 seconds following Form 4 filings (Rogers et al 2017). Similar results have been found by Frino et al (2017) that demonstrate that spreads increase at the time of the event and decrease in the following minutes.…”

Is Financial Analysis Doomed? The Birth of “Reactive Valuation” Analysis

“…For example, as noted by Rogers, Skinner, and Zechman (2017), the SEC recently agreed to eliminate the few-second timing delay between subscribers who receive an early Edgar posting (via the Public Dissemination Service) and those who rely on a posting to the Edgar website. The speed of light and blockchain technology are also imposing physical limits on HFT traders' ability to execute trades at the global level.…”

Tiered Information Disclosure: An Empirical Analysis of the Advance Peek into the Michigan Index of Consumer Sentiment

“…Third and finally, this paper contributes to the literature on what advantages are enjoyed by HFTs before public information releases. A growing literature on this subject studies how informed HFTs affect price discovery of stock prices before public news releases (Lucca and Moench, ; Bernile, Hu and Tang, ; Rogers, Skinner and Zechman, ; Kadan, Michaely and Moulton, ). Kadan, Michaely and Moulton () document the occurrence of information leakage before analyst recommendations are publicly announced.…”

“…Kadan, Michaely and Moulton () document the occurrence of information leakage before analyst recommendations are publicly announced. Rogers, Skinner and Zechman () discover that equity prices respond to the SEC's filing news around 30 seconds before public posting. Lucca and Moench () show there are large average excess returns on U.S. equities before scheduled meetings of the Federal Open Market Committee.…”