Indeed, research reports, before their release, have sometimes been considered inside information because of their ability to move markets. The S.E.C. has filed dozens of suits against people who have tried to trade ahead of the release of research reports. (In fairness, a Wall Street research report is a very different animal from a company’s earnings report, but it can have the same impact on the markets.)
Judge Cote, however, seemed to regard this case as simply one of copyright and intellectual property. Banks spend a lot of time and money on research. Why should everyone be able to get it? Theflyonthewall.com cited the “fair use” doctrine, allowing it to provide summaries of other entities’ news. The judge cited the “hot news” doctrine, which is meant to protect organizations from theft by competitors.
Judge Cote seemed to acknowledge that the whole objective of Wall Street research is to give select investors an edge. If you’re not in the club, of course, you may think otherwise.
“Timely access to recommendations is a valuable benefit to each firm’s clients, because the recommendations can provide them an early informational advantage,” Judge Cote wrote. “Some sophisticated clients, such as hedge funds, seek to act on the recommendations before other investors do so.”
That is not to suggest that research should be free or required for public distribution, but restricting reporting on research in a timely way seems contrary to good public policy.
Glenn Ostrager, a lawyer for theflyonthewall.com, argued in court that the company was singled out because it was a small, easy target. Theflyonthewall.com, which is based in Summit, N.J., isn’t exactly a titan of business news. It has a few thousand clients and charges $50 a month for access to its site. The banks’ goal, Mr. Ostrager said, was to swat theflyonthewall.com, get the courts on their side — and then take a swing at the giants.
“The plaintiff’s plan or stratagem to deal with what they see as troublesome to them is to select probably one of, if not the smallest, player on the Street, with the most limited resources,” he told the court.
Of course, it’s hard to keep a lid on news of any stripe in this Internet age. “The genie is not going back into the box. The Internet is here,” Mr. Ostrager said.
On that point, few disagree. When information appears in one place, it moves quickly to another and then another, via Web sites or Twitter or the old-fashioned telephone. The problem is that on Wall Street, the information usually doesn’t trickle down to the retail investor until the pros have had a chance to trade ahead of the unsuspecting masses.
Near the end of her decision, Judge Cote wrote, “Research plays a vital role in modern capital markets by helping to disclose information material to the market, to price stocks more fairly and, as a result, to produce a more efficient allocation of capital.”
She may be right — particularly if most investors don’t have to wait hours to hear the news.