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Now, I realize the fact that the stock market is rigged to the advantage of large investors may not be a shock to many of you. There is, however, breaking news in today's NYT, provided by the truly stalwart financial reporter and author Gretchen Morgenson (whose book on the recent financial crash I highly recommend).

They are supposed to be among Wall Street’s most closely guarded secrets: changes in research analysts’ views, up or down, of a company’s prospects. But some of the nation’s biggest brokerage firms appear to be giving a handful of top hedge funds an early peek at these sentiments — allowing them to trade on the information before other investors get the word.

(snip) What analysts tell investors about the companies they follow — and when — is central to the concept of a level playing field on Wall Street. When disseminated, analyst downgrades and upgrades can make a stock sink or soar. Getting that information early can be very profitable for traders. As a result, regulatory rules require brokerage firms to restrict the information flow from research departments to prevent the potential for trading ahead of research reports. [emphasis mine]

I strongly urge anyone with an interest in this topic to read the entire article I'm quoting from. Again, no one is better than this right now in journalism than Ms. Morgenson.

To summarize briefly, hedge funds are using surveys to "trawl" for information that analysts have developed but not yet made public. Her examination of documents led Ms. Morgenson to characterize this practice of getting information to big investors early as "systematic and growing" on Wall Street.

We've seen serious questions of this nature arise surrounding the public offering for Facebook, where Ms. Morgenson reminds us that the firms who were bringing Facebook stock public told big fish investors that analysts had serious concerns about the stock being overvalued. Of course, regular investors didn't get that information and lost a boatload of money when Facebook shares tanked following it's initial opening.

Ms. Morgenson also found specific mentions in hedge fund documents that the funds are actively trying to acquire information before it is released to the general public, in violation of SEC regulations. One confidential document, from BlackRock, stated that the surveys expect to "capture information not released to the market." Another internal document states "we are trying to front-run recs." "Recs" refers to analysts' recommendations.

And having this information early definitely means more money for those big investors. Ms. Morgenson cited a study from 2004, "The Value of Client Access to Analyst Recommendations" authored by T. Clifton Green which showed that buying and/or selling stocks immediately based on changes in analysts' recommendations led to big money--over 30% in gains annually. If those are the gains for investors who act quickly based on publicly available information, imagine what the gains are for those who can get the information first. And we know it's not small investors getting it first.

This information, in black and white, from confidential company documents, makes clear what many Americans already suspected. The game is rigged. Average investors, slow-moving pension funds, you and me, will never benefit from this kind of inside information.

Personally, I think it's crazy for a regular person to try and invest in individual stocks. This article proves further that you won't get the same information as big time investors, and without that information, you're at a significant disadvantage. But that's all part of the system that they've designed. They need your money to follow theirs.

This kind of journalism helps remind the 99% just what the 1% is really up to. It is invaluable. But it's up to us, and here's where Occupy Wall Street has been so crucial, to take that information and apply pressure on our elected officials to clean up this mess.

We do need a functioning stock market in order to have a successful capitalist economy. No question about it. We need a stock market, however, that is transparent, clean, and which gives all investors a fair shot, and we most emphatically do not have that right now.

Right now, we have a game that is rigged. We the people need to demand that those in charge are given the tools and the resources to clean it up. Now.

Originally posted to Ian Reifowitz on Mon Jul 16, 2012 at 06:00 AM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, Invisible People, Income Inequality Kos, Jews For President Obama, and EconKos.

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