Greenwich Associates estimates that investors give $1.4 billion annually to their brokers to arrange for corporate access. Investors place a premium on the chance to talk to company officers, particularly officers in high-growth companies or industries. Access to corporate officers may mean the inside track on investing information. However, access tends to favor large investors and to stretch the boundaries of Regulation Fair Disclosure.
Corporate access sessions typically take place at investment conferences. Large investors get private meetings or small group meetings with corporate officers thanks to the brokerage firms who organize the conferences. In a survey, 47 percent of investors claimed to receive “material” information during these meetings. A study by professors from the University of Pennsylvania, the University of New York, and the University of Michigan showed that trade sizes increased significantly after these sessions, particularly when the company’s CEO was present. The study also found that over three to 30-day spans, these brokerage firms experienced significantly greater potential trading gains.
Investors tend to think that access provides more value. However, investors aren’t getting access for free. Brokers have traditionally bundled corporate access into execution and proprietary research expenses. Integrity Research Associates chairman Michael Mayhew notes that investors tend to perceive access as part of the research product. Investors pay between $5,000 and $20,000 per meeting in the form of broker commissions. Therefore, access means that investors keep less of their profits.
Concerns arise over the level of influence that access to corporate officers has on investment analysts. Investment analysts, for instance, may be influenced by the level of access that companies provide to their executives. Analysts may also be influenced by whether or not these executives are willing to attend their brokerage’s conference. Also, because a small number of traders realize large benefits from these meetings, smaller investors may lose confidence in market fairness. If investors believe that markets are unfairly biased toward large traders, then they may stop participating altogether.
Corporate officers may also stand to lose from offering access. For companies that are experiencing extreme stock volatility, access meetings may only increase the instability of the shareholder base. However, corporate officers can choose which brokerage company conferences they want to attend. This means that corporate officers are deciding which investors get access to their valuable insights. Many conclude that this directly violates the spirit of fair disclosure.