The Markets, Small Investors and Market Professionals

The current volatility of the world’s markets, spawned by the COVID – 19 crisis, has been something of a call to arms for the Commission and its counterparts around the world. The Commission, for example, stepped-up early with targeted relief designed to aid those who may experience regulatory difficulties because of the crisis. In the wake of those steps the New York Stock Exchange transformed if only for now into an electronic medium from its traditional trading floor walked by specialists with a book. Investment advisers and transfer agents obtained exemptions from certain obligations where the crisis may hinder full compliance (here).

A reminder and warning was also published by the Co-directors of the Enforcement Division cautioning issuers about their obligations arising from having material non-public information: “We wish to emphasize the importance of maintaining market integrity and following corporate controls and procedures . . . in these dynamic circumstances, corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances . . . Trading in a company’s securities on the basis of inside information may violate the antifraud provisions of the federal securities laws.” Statement from Stephanie Avakian and Steven Pelkin Regarding Market Integrity (March 23, 2020)(here). The statement, a reminder not just to issuers but to all market professionals, come in the wake of multiple reports of trading by those holding significant government positions.

Other regulators around the globe have taken steps keyed to their particular markets, in view of the COVID-19 crisis. The U.K. Financial Conduct Authority, for example, issued a statement on March 23, 2020 noting that while volatility persists as a result of COVID – 19, the markets continue to operate in an orderly fashion. Nevertheless, the U.K has instituted certain short selling bans in line with its standard practice under which it applies, when requested, those of other European National Competent Authorities with respect to certain securities (here). The regulator also urged issuers who intended to publish preliminary financial statements in the next few days to assess if the current unprecedented events warrant delay (here). Other regulators across Europe and the world have also taken steps consistent with the requirements of their markets to deal with the crisis (here).

While issuers and market professionals have been repeatedly confronted with the fall-out from the virus generated crisis, the public and the small investors are no doubt experiencing extreme difficulty with damage imposed daily by gyrating stock prices as savings and retirement funds drop in value and often disappear. Enter the charlatan seeking to take advantage of the pain suffered by others for personal profit with “get-it-back quick,” sure thing, schemes — and it all gets much worse for the small investor. While this is clearly a place for the Commission and other regulators, it is also when all market professionals must step-up and act as guardians and gatekeepers consistent with their professional obligations. We are all in this together.

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