Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Selective Price Sensitive Disclosure by Government Functionaries

I was mulling over the interesting paper on “Selective disclosure by federal officials and the case for an FGD (Fairer Government Disclosure) regime” by Donna M. Nagy and Richard W. Painter when I came across this bombshell from the Chair of the UK Statistics Authority to the Prime Minister of the UK (h/t FT Alphaville):

I was made aware during the course of yesterday afternoon of your remarks at Prime Minister’s Questions in respect of the economy, in particular your statement that “the good news will keep coming”. This was ahead of this morning’s Office for National Statistics release of the preliminary estimate of Gross Domestic Product for the third quarter of 2012, to which you receive pre-release access up to 24 hours ahead of publication.

… The Pre-Release Access to Official Statistics Order 2008 states that recipients of pre-release access must not disclose ‘any suggestion of the size or direction of any trend’ indicated by the statistic to which the recipient has been given such access. It is clear from media reports that, although this may not have been your intent, your remarks were indeed widely interpreted as providing an indication about the GDP figures.

This episode is yet another reminder that the selective release of price sensitive information by government functionaries is a serious problem. Nagy and Painter propose that government functionaries must be subject to a regime of fair disclosure similar to that imposed on corporate insiders by Regulation FD in the US. (They explain that the recently enacted STOCK Act that deals with insider trading by members of the US Congress does not deal with selective disclosure.) Nagy and Painter also point out that there are a number of legal problems in creating such a regime because of the enhanced constitutional protection to communications between federal officials and members of the public because “speech on public issues occupies the highest rung of the hierarchy of First Amendment values, and is entitled to special protection.” But they believe that a Fair Government Disclosure regime can be created that addresses these concerns.

In India also we have seen selective (and even misleading) disclosure of information by government functionaries. There is a need to develop mechanisms to reduce the chance of such events.

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