Opinion ID: 201963
Heading Depth: 3
Heading Rank: 2

Heading: Lower Courts' Interpretation of Market

Text: Efficiency PolyMedica correctly notes that in the wake of Basic, many lower courts have accepted a definition of market efficiency which requires that stock price fully reflect all publicly available information. The district court conceded as much: I also note that the definition I have derived from Basic differs from much of the existing case law. Most cases define an 'efficient' market as a market in which prices incorporate rapidly or promptly all publicly available information. In re PolyMedica Corp. Sec. Litig., 224 F.R.D. at 42. The district court's observation was apt. The precedents from other circuits overwhelmingly favor the definition advanced by PolyMedica. See Gariety, 368 F.3d at 368 (stating that in an efficient market, 'the market price has integrity[;] . . . it -26- adjusts rapidly to reflect all new information') (quoting Macey & Miller, supra, at 1060); Greenberg v. Crossroads Sys., Inc., 364 F.3d 657, 662 n.6 (5th Cir. 2004) (stating that where securities are traded in an efficient market, it is assumed that all public information concerning a company is known to the market and reflected in the market price of the company's stock); No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. West Holding Corp., 320 F.3d 920, 947 (9th Cir. 2003) (stating that in a modern and efficient securities market, the market price of a stock incorporates all available public information); GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189, 208 (3d. Cir. 2001) (defining efficient marketplace as one in which stock prices reflect all available relevant information about the stock's economic value); Joseph v. Wiles, 223 F.3d 1155, 1164 n.2 (10th Cir. 2000) (stating that in an efficient market the investor must rely on the market to perform a valuation process which incorporates all publicly available information, including misinformation); Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 n.1 (D.C. Cir. 1994) (stating that in an efficient securities market all publicly available information regarding a company's prospects has been reflected in its shares' price); Raab v. Gen. Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993) (reasoning that fraud-on-the-market presumption of reliance assumes the market price has internalized all publicly available information); -27- Freeman, 915 F.2d at 198 (stating that [t]he fraud on the market theory rests on the assumption that the price of an actively traded security in an open, well-developed, and efficient market reflects all the available information about the value of a company). The prevailing definition of an efficient market is also consistent with language in our pre-Basic decision in Roeder v. Alpha Industries, Inc., 814 F.2d 22 (1st Cir. 1987). There, we stated that under the fraud-on-the-market theory, [t]he market price of stock is taken to be the basis for investment decisions; because the price reflected all available information, investors are presumed to have been misled by the nondisclosure. Id. at 27.17