The US Securities and Exchange Commission (SEC) announced on Sunday that it and other regulators would immediately begin examining rumor spreading intended to manipulate securities prices.
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 yesterday.
The SEC, the Financial Industry Regulatory Authority (FINRA) and New York Stock Exchange Regulation Inc (NYSE Regulation), will examine the controls put in place by the brokerage firms and financial advisers to prevent such manipulations.
The SEC 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 the government-chartered enterprises Fannie Mae and Freddie Mac, sped the decision to begin the examination and make it public.
“The examinations we are undertaking with FINRA and NYSE Regulation are aimed at ensuring that investors continue to get reliable, accurate information about public companies in the marketplace,” SEC Chairman Christopher Cox said.
“They will also provide an opportunity to double-check that broker-dealers and investment advisers have appropriate training for their employees and sturdy controls in place to prevent intentionally false information from harming investors,” Cox said in a statement.
“Traders know there is false information in the market. They need to think twice if they are going to pass it on,” said Lori Richards, director of the SEC’s Office of Compliance Inspections and Examinations.
“It’s important that firms be aware of their supervisory and compliance obligations to prevent violations of the securities law,” Richards said.
“It’s like robbery is always illegal and the police are now going to be doing extra patrols up and down the streets of our neighborhood,” said David Beim, a Columbia Business School professor.
The examinations were expected to begin yesterday and will focus on what policies firms have in place to prevent the passing of false information. The intent is to stop malicious rumors without hampering the natural exchange of information in the marketplace.
Since the almost-overnight collapse of Bear Stearns earlier this year, top Wall Street executives have been pleading with regulators to investigate what they see as efforts by short sellers to plant false information and profit from it.
Lehman Bros, for example, faced rumors last week that two major clients had stopped doing business with the firm. Lehman’s stock dived almost 20 percent before recovering somewhat as both clients denied the rumors.
The issue is a notoriously challenging one for the SEC. Rumors have long been a part of Wall Street’s fabric, and proving rumor-mongering is a difficult task, especially with 24-hour news and communications technology like instant messaging and text messaging.
But Wall Street executives insist that false information is permeating the marketplace as never before. Because Wall Street firms are highly leveraged businesses that need outside financing, confidence is crucial, and rumors can overshadow the strength of their businesses, executives say.
Short sellers deny that they plant false information and argue that Wall Street is as vulnerable as it is because it invested in risky businesses that backfired.
The examinations will focus on compliance and supervisory policies. In addition, continuing investigations will look at potential wrongdoing.
In April, the SEC settled securities fraud charges against Paul Berliner, a trader formerly with the Schottenfeld Group. The SEC said he had spread a false rumor about the price of the Blackstone Group’s potential acquisition of Alliance Data Systems, and profited from short-selling Alliance’s stock.
MORE VISITORS: The Tourism Administration said that it is seeing positive prospects in its efforts to expand the tourism market in North America and Europe Taiwan has been ranked as the cheapest place in the world to travel to this year, based on a list recommended by NerdWallet. The San Francisco-based personal finance company said that Taiwan topped the list of 16 nations it chose for budget travelers because US tourists do not need visas and travelers can easily have a good meal for less than US$10. A bus ride in Taipei costs just under US$0.50, while subway rides start at US$0.60, the firm said, adding that public transportation in Taiwan is easy to navigate. The firm also called Taiwan a “food lover’s paradise,” citing inexpensive breakfast stalls
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
CROSS-STRAIT: The vast majority of Taiwanese support maintaining the ‘status quo,’ while concern is rising about Beijing’s influence operations More than eight out of 10 Taiwanese reject Beijing’s “one country, two systems” framework for cross-strait relations, according to a survey released by the Mainland Affairs Council (MAC) on Thursday. The MAC’s latest quarterly survey found that 84.4 percent of respondents opposed Beijing’s “one country, two systems” formula for handling cross-strait relations — a figure consistent with past polling. Over the past three years, opposition to the framework has remained high, ranging from a low of 83.6 percent in April 2023 to a peak of 89.6 percent in April last year. In the most recent poll, 82.5 percent also rejected China’s
PLUGGING HOLES: The amendments would bring the legislation in line with systems found in other countries such as Japan and the US, Legislator Chen Kuan-ting said Democratic Progressive Party (DPP) Legislator Chen Kuan-ting (陳冠廷) has proposed amending national security legislation amid a spate of espionage cases. Potential gaps in security vetting procedures for personnel with access to sensitive information prompted him to propose the amendments, which would introduce changes to Article 14 of the Classified National Security Information Protection Act (國家機密保護法), Chen said yesterday. The proposal, which aims to enhance interagency vetting procedures and reduce the risk of classified information leaks, would establish a comprehensive security clearance system in Taiwan, he said. The amendment would require character and loyalty checks for civil servants and intelligence personnel prior to
RSS