Dear Chairman Levitt:

I am writing with reference to recent press reports, "Late Show: How Little Guy Was Left Out on Motorola," Wall Street Journal, Thursday, July 11, 1996 at C1; "How To Keep The Little Guy In The Loop," Business Week, July 29, 1996 at 32, with respect to the detrimental impact on individual investors of the timing of earnings announcements and other market-moving information coupled with after-hours trading by institutional investors.

According to the Wall Street Journal article, at 5:30 p.m. on Tuesday, July 9, Motorola Inc. stunned Wall Street with a weaker-than-expected second-quarter earnings report, an announcement that knocked 13 percent off the company's stock price when the New York Stock Exchange reopened Wednesday morning. But between the last trades at Tuesday's 4:00 p.m. closing price of $66.50 a share and Wednesday's 9:30 a.m. opening price of $57.625, more than a million shares of Motorola's stock changed hands in the so-called aftermarket where big investors (brokers and institutions) were able to dump their Motorola shares before the Big Board had reopened. Critics claim that this is unfair to individual investors. Experts quoted in the Wall Street Journal article say it would take a "small miracle" for retail investors to participate in aftermarket trading because of the prohibitively-high minimum-order thresholds and the closing times for most retail broker-dealer offices and main trading desks. The Business Week article reports the results of a National Investor Relations survey, finding that about one-third of public companies disclose share-sensitive information in ways that may shortchange individual investors. But neither the SEC nor the stock exchanges have clear rules on how companies must disclose sensitive information.

Given what I believe to be your commitment to carrying out your agency's mandate to protect investors and to maintain fair and orderly markets, including, as the preamble to the Securities Exchange Act notes, "to prevent inequitable and unfair practices on...exchanges and markets," I respectfully request that you look into this matter at your earliest convenience and that you submit a report with your findings and any recommendations you deem appropriate by the close of business on Friday, August 30, 1996. That report should include: a list and description of any and all instances similar to Motorola's in the last three months including impact on share price and number of shares changing hands overnight; a list and description of any and all domestic after-hours trading markets and any relevant barriers to entry thereon for individual investors; a description of SEC and exchange rules governing the public disclosure of market-moving information; and your evaluation of the recommendations in the Business Week article for addressing this problem.

Thank you for your cooperation and attention to this request.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosures [not online]

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