Policy and practice

U.S.: NY AG Schneiderman targeting “insider trading 2.0,” investigating brokerage firms that may provide early market-moving information to preferred client

In July 2013, New York Attorney General Eric Schneiderman launched an initiative to focus on what he has called “Insider Trading 2.0.” Although the traditional definition of insider trading hinges on the impropriety of trading or tipping on the basis of material nonpublic information in a breach of a duty of trust and confidence, Mr. Schneiderman’s strategy suggests that it may also include some trading by those who view or create market-moving information before the rest of the investment world does.

Mr. Schneiderman’s commitment has produced two high-profile settlements thus far. In July 2013, Thomson Reuters agreed to stop releasing a closely-watched consumer confidence index to a select group of high-frequency trading firms two seconds before the company released it to other clients. And on January 8, 2014, BlackRock agreed to stop surveying investment analysts for early market opinions.  BlackRock will pay $400,000 to cover the investigation’s cost, but will not pay any fines or penalties. Both the BlackRock and Thomson Reuters settlements hinged on New York’s Martin Act, an antifraud statute that does not require proof of intentional misconduct.