KATHRYN GANNON, porn star and exotic dancer, is now wanted by authorities for a different kind of trade. But the possibility that she and a friend may have pocketed $170,000 from insider trading is hardly the most troubling example of abuse in today's equity markets. Almost daily, privileged people get early access to information that affects stock prices and use that advantage to make trading profits at the expense of ordinary investors. This hurts public confidence in the financial system and stokes resentment of the wealth that a booming market brings.
The daily abuse differs from the classic insider trading allegedly practiced by Ms. Gannon. She is said to have received advance warning of takeover bids and then to have bought shares in the target companies, knowing that their value would rise once the news became public. This is clearly illegal. But the more common abuse is more subtle. Companies release information to select financial analysts, who pass it on to big clients. Those clients then profit from the disclosure before ordinary investors are in the know--and the scale of those profits often dwarfs Ms. Gannon's gains.
Last week the Securities and Exchange Commission proposed rules to deal with this "selective disclosure" problem. The rules require companies that talk to analysts to share the information fairly. If they meet analysts or hold a conference call with them, they must first put out a press release containing the information they plan to disclose. If the meeting strays in an unanticipated direction and further disclosures are made, a post-meeting press release must be issued too.
Financial firms now have three months in which to comment on the proposed rule change. Some are likely to protest that the rules discourage communication between companies and analysts; that it is unreasonable to expect analysts to make do with quarterly reports in the age of the instant electronic update; and that steady dissemination of information to analysts serves to head off sudden surprises that might send the market zooming up or down.
But the SEC is not discouraging communication with analysts; it is merely insisting that this communication be broader and so fairer. It is hard to imagine fair grounds to resist that.