TRUNCATED TRANSPARENCY: The JOB Act’s Compressed IPO Cycle and its Hidden Implications for Market Fairness

April 27, 2012
by Neil Hershberg, Senior Vice President, Global Media/Business Wire
Neil Hershberg

Neil Hershberg, SVP - Global Media

Welcome to the new era of clandestine compliance.

The newly passed JOBS Act (Jumpstart Our Business Startups Act) has come under withering attack by an influential chorus of critics. They are sounding the alarm that the Act dangerously dials back the disclosure obligations of “emerging companies” seeking to go public.

To be clear, we are not talking about mom-and-pop operations here. In Washington’s grandiose way of thinking, “startups” are defined as having revenues of up to $1 billion annually.  In other words, the majority of companies opting to go public will now get up to a five-year exemption from many of today’s more stringent disclosure requirements.

The controversial legislation has drawn fire from leading journalists, including Andrew Ross Sorkin of The New York Times; securities regulators, including SEC Chairman Mary Schapiro; and shareholder advocates, including Barbara Roper of The Consumer Federation of America. The consensus view is that the JOBS Act is a regressive measure that threatens to erode many longstanding investor safeguards. Clever acronyms aside, the JOBS Act is broadly portrayed as weakening the safety net for investors.

The JOBS Act does create new channels for pre-IPOs to communicate with the investment community. However, the Act effectively closes the blinds on the closely monitored IPO pipeline, precluding the ability of investors to delve deeply into the dealings of companies under consideration. Under the new ground rules, prospective IPOs are now protected by a cloak of sanctioned secrecy during the protracted filing period leading up to their public offering.

The result is that clarity has given way to opaqueness. IPOs are now able to engage in confidential discussions with the SEC about their plans to tap the capital markets, until 21 days before the IR Road Show cavalcade begins.

Critical corporate information that was previously made available to investors months in advance — including financials and insights into the company’s organizational structure — can now be legitimately withheld from public scrutiny until three weeks before the investor marketing process gets underway.

What this means in practice is that investors essentially have about a month or so to evaluate the financial viability of a company preening to go public; previously, interested investors had a minimum of several months to do their due diligence.

There also is a more subtle side effect to today’s cloistered IPO process, one that further distorts the dynamics of a fair and competitive marketplace.

The SEC approved a rule change last December that allows NASDAQ to offer “free” corporate IR services, e.g. press release distribution and IR Web hosting, to IPOs and companies that transfer their listings from the NYSE.

Coincidentally, all these corporate services are provided by NASDAQ’s wholly owned subsidiaries, thwarting competition. The ability of NASDAQ to bundle IR services with its listing fees effectively elbows other service providers — many with superior, more advanced product offerings — out of the equation.

The agency’s approval came despite what we believe was a preponderance of evidence that the practice was anti-competitive. Ironically, SEC Chairman Schapiro was recently called to testify before a Congressional committee looking into the agency’s lack of economic analysis in its rule-making process. Clearly, the SEC should have done a lot more home work before rendering a decision in favor of NASDAQ’s rule change.

For all its political promise and good intentions, the JOBS Act has made a bad situation worse. Any pretense of market fairness during the IPO birthing process has now lost all credibility.

Today’s closed environment allowing IPOs to silently snake their way through the filing process has reinforced NASDAQ’s unfair competitive advantage, eliminating any premise of meaningful competition. Not only does NASDAQ have the inside track, but the track itself is now largely hidden from public view.

In perhaps the cruelest irony, the JOBS Act may result in the ultimate unintended consequence: potentially destroying jobs in a robust industry that has long thrived based on a model of fair and open competition.

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Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

The European Commission’s Stealth Decision on Transparency:

November 9, 2011
For publicly listed companies, transparency is not an option — it is an obligation.
by Neil Hershberg, Senior Vice President, Global Media

Neil HershbergThe European Commission said as much when it implemented its harmonized pan-European disclosure standards for the 27-member European Union in January 2007. The compliance guidelines were aptly titled:  the Transparency Obligations Directive ["TOD"].

Therefore, the European Commission’s puzzling proposal to make interim management statements and quarterly reports voluntary for all EU issuers is beyond baffling. And given the global market machinations attributable to the roiling European debt crisis, the timing of the Commission’s diffused disclosure requirements couldn’t be worse.

Perhaps most upsetting of all, the Commission’s decision to truncate its transparency criteria for all EU issuers was apparently arrived at in a stealth manner.

In the way of background, the European Commission held public consultations on its plans to “modernize” the four-year-old TOD in the spring of 2010.

A key focal point of the discussions was the desire by SMEs (small and medium-sized enterprises) for relief from ”the administrative burden” associated with trading on regulated markets.

Large-cap companies quickly capitalized on the opportunity,  arguing that they too were overwhelmed by the statutory requirements and lobbied to be similarly exempt from quarterly financial filings.

Most market observers dismissed the outcry by large-cap companies as simply an attempt to latch on to a market reform movement that was gaining momentum. Few, however, believed that large-cap companies would be included in any revamped reporting requirements.

Some 16 months after the original consultation period, and without any further debate or notice of its intentions, the European Commission announced its surprise retrenchment proposal, abolishing the requirement that public companies publish quarterly financial information.

The Commission did the unthinkable, effectively waiving the need for all listed companies, regardless of size, to issue quarterly reports. Under the revised landscape, companies are only obligated to file half-year and annual results.

In retrospect, the Commission took the easy way out. Faced with the challenge of identifying qualifying SMEs, particularly with fluctuating market valuations, was too daunting a task. The Commission decided to take the path of least resistance: throw out the transparency thresholds for all issuers in the name of cost-efficiency.

The reality of the situation is that cost of regulatory compliance is extremely reasonable, especially when weighed against its capital market benefits. These include greater visibility and liquidity, less volatility, and higher trading volumes, all of which are likely to contribute to a lower cost of capital.

Services such as Business Wire offer flat rate annual packages that are very competitively priced, enabling issuers to effectively control costs, while ensuring broad, simultaneous distribution to the full range of market participants.

Under the Commission’s proposal, companies can still file quarterly reports and interim management statements at their own discretion. There is no longer a mandate for companies to do so. The investment community, and the financial markets, will be ill-served by the Commission’s short-sighted decision.

Ironically, many observers think that the majority of companies will continue to update the marketplace on a regular basis. Most companies recognize that to limit market communication to semi-annual updates simply doesn’t make sense. The value of an effective investor relations program that, by definition, includes regular updates on corporate developments, has been well documented by independent academic studies.

So while many market professionals anticipate minimal consequences from the Commission’s decision, it clearly sends the wrong message to the marketplace.

The global markets remain as fragile as ever, with investor confidence teetering as the world holds its breath waiting to see how the European debt crisis plays itself out.

A major lesson learned from the 2008 financial markets meltdown has unfortunately been quickly forgotten by some market regulators.

Information is the lifeblood of our financial markets. Stanching its flow, in the name of relieving the “administrative burden” on listed companies, is a tremendous disservice to the investment community, and needlessly substitutes risk for reassurance.

With the European Union seemingly on the brink, the European Commission’s proposal to dial back on disclosure sets a dangerous precedent that desperately needs to be reversed.

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Posted by Monika Maeckle

NASDAQ as SRO: An Oxymoron

October 10, 2011
by Neil Hershberg, Senior Vice President Global Media
 
Neil Hershberg
Neil Hershberg, SVP – Global Media

As a “Self-Regulatory Organization,” NASDAQ is proving to be a poor role model in terms of policing its own policies.

NASDAQ has twice promised the SEC that it would refrain from the unfair and controversial practice of “bundling” its IR Services, e.g. wire distribution and IR web sites, with its listing fees. Yet despite these repeated assurances — concessions made to extract approval of several hefty listing fee hikes — NASDAQ has continued to engage in its anti-competitive practices, blatantly ignoring its compliance commitments.
 
Hence, today’s problematic paradox: in its pedestal role, NASDAQ seeks to portray itself as a bastion of free enterprise, and patron of fair and open competition. When it comes to its own commercial dealings, however, NASDAQ clearly doesn’t practice what it preaches. NASDAQ’s self-serving actions confirm that it is anything but the paragon of capitalism that it purports to be.
 
And, in an act of unquestionable hubris, NASDAQ is now asking the SEC to approve its predatory practices:
 
http://www.sec.gov/rules/sro/nasdaq/2011/34-65324.pdf
 
NASDAQ is apparently seeking to parley the SEC’s recent approval of a change in the NYSE’s Listed Company Manual to rationalize its own proposed rule change. In reality, NASDAQ’s filing is its latest gambit to distort the dynamics of the marketplace, and to leverage its subsidiary holdings to gain an unfair competitive advantage.
 
The key difference between the SEC’s newly approved Section 907.00 in the Big Board rule book and NASDAQ’s rule change request is that the NYSE is recommending independent vendors to its listed companies. Conversely, NASDAQ’s proposal is entirely predicated on its sibling subsidiary’s wholly-owned service offerings, which collectively operate under the “Corporate Solutions” banner. Once the complimentary period expires, all future profits will go straight to NASDAQ’s parent company’s bottom line.
 
This systemic vertical integration provides NASDAQ with the pricing flexibility to artificially manipulate the pricing structure of its offering to the detriment of the entire IR services industry. It makes a mockery of the principle of fair competition, which is especially troubling given NASDAQ’s perceived Olympian stature in the free enterprise system. 
 
Does the SEC really want to be seen as sanctioning NASDAQ’s “stacked deck?”  We certainly hope not, as Americans’ confidence in the nation’s financial system is already seriously challenged.
 
NASDAQ’s opportunistic overture strains credibility on several levels.
 
NASDAQ trumpets that issuers are not obligated to take advantage of its complimentary services; the clear implication is that competition won’t be compromised.
 
Yet, NASDAQ itself says it is compelled to offer NYSE-listed companies complimentary services because the Big Board offers comparable services.
 
This is a tacit acknowledgment that companies are reluctant to forfeit these free services; instead, these “no-cost” services are a powerful incentive for issuers to remain with their current providers.
 
In other words, NASDAQ’s claim of open competition exists in name only.  Budget-conscious issuers are extremely unlikely to pay for services that are freely available. And that means that rival IR service providers are unfairly elbowed out of the process. NASDAQ’s strategy seeks to divert the IPO pipeline to its sister service providers, effectively stanching the future lifeblood — and growth potential — of the IR service industry at large.
 
Furthermore, NASDAQ attempts to rationalize its rule change request by saying that a comparatively small number of issuers will be eligible to participate in the program. This is a vacuous argument that is indicative of NASDAQ’s cynicism in raising the bundling issue in yet another guise.
 
NASDAQ’S rule change request is its latest ploy to “tie” its corporate services to listings.  The SEC has repeatedly rebuffed NASDAQ’s past efforts at bundling its services. NASDAQ’s recycled proposal seeks to provide a cloak of legitimacy to an anti-competitive practice that has failed to survive previous SEC scrutiny.
 
The SEC’s decision should not be influenced by NASDAQ’s understanding of the number of affected companies; rather, its decision should be solely based on the merits of NASDAQ’s proposal. And if market fairness is the one of the ultimate criteria, then the evidence clearly dictates that NASDAQ’s rule change should be rejected.
 
Following is the text of Business Wire’s comment letter to the SEC on NASDAQ’s rule-change proposal:
 
http://www.sec.gov/comments/sr-nasdaq-2011-122/nasdaq2011122-1.pdf
 

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Posted by Monika Maeckle

Friday Fast Links: March Madness, Wire Service SEO and More

March 18, 2011

What do you know about your wire service’s SEO practices?

How big are the opportunities for brands and social media during March Madness? (A Google search for “March Madness” + “social media” returns nearly 2 million results.)

On the off chance you missed Rebecca Black blowing up the internet this week, you missed a great lesson on how to turn bad PR into good PR.

Eight tips for writing press releases that journalists will read. I think they’re just about in the right order, too.

The Canadian Investor Relations Institute reinforces the widely disseminated press release as the anchor of successful IR. Are they ahead of the US in setting standards?

If you need help building your online newsroom, register for our free webinar.

Do you or your company have a blog? A recent Minnesota court case has some interesting free speech implications for bloggers.

There are a lot of ways to sell jeans. Is this one of them? Takes edgy ads to a whole new level.

Have a great weekend!

Leave a Comment » | Consumer Marketing, Disclosure, new media, Press Release Optimization, Press Release Tips, Public Relations, Publicity, seo, social media | Permalink
Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

Canada Gets it Right on Fair Disclosure — Again

March 18, 2011
by Neil Hershberg, Senior Vice President, Global Media

Neil HershbergThe United States is often thought of as the global disclosure leader, but the truth is that there is a lot we can learn from our next-door neighbor: Canada.

In Canada’s typically unassuming way, the Canadian regulatory model has been adopted as the de facto prototype for the disclosure regime that has taken root in the United Kingdom and the European Union.

I’ll elaborate on the background as to how this all came about shortly. What’s important, however, is to spotlight the reasons why global regulators have come to recognize Canada’s disclosure framework as a world-class model worth emulating.

The Canadian Investor Relations Institute [CIRI], a widely respected association of industry professionals, has just updated its “Standards and Guidance for Disclosure and Model Disclosure Policy,” to reflect the regulatory and accounting changes, social media, and other factors that have transformed the investor relations landscape since its guidelines were last modified in 2006.

CIRI’s authoritative “Best Practices” resource for reporting issuers and industry professionals reinforces the central role of a simultaneous, broadly disseminated news release in achieving full and fair disclosure.

Unlike the United States, where the term “disclosure standards” is rapidly becoming an oxymoron, Canadians are crystal clear in what constitutes fair disclosure.

According to the timely disclosure policies of the TSX Exchanges and the CNSX, a full-text news release disseminated via a sanctioned news service is the only acceptable way to disclose material information. No ambiguity here. While the U.S. trumpets full and fair disclosure in principle, Canada practices it daily as a matter of regulatory policy. The result is that the entire investment community benefits from a level playing field. (Note: Business Wire is one of several approved news dissemination services in the Canadian marketplace.)

CIRI’s guidelines take a pragmatic approach to the arsenal of available investor relations tools that greatly facilitate investor outreach.

The CIRI report specifically notes that standalone web postings, conference calls, and other complementary communications channels do NOT meet Canadian disclosure requirements. Issuers, however, are encouraged to use additional delivery platforms to supplement a simultaneous, widely disseminated news release.

“As material information should be released in a manner designed to reach the widest public audience possible, including individual investors, companies are encouraged to use various technologies to supplement the news release. Some of the most obvious technologies include conference calls, webcasts, email, fax, video conferences, company websites, and more recently, corporate blogs, RSS feeds, podcasts, and social networking sites. While new technologies are important and useful ways to disseminate information, they are not substitutes for a broadly disseminated news release.” [CIRI Standards and Guidance for Disclosure, Page 18]

Talking about disclosure, Business Wire is the sponsor of  CIRI’s ‘Standards and Guidance for Disclosure and Model Disclosure Policy.”  To be clear, however, our involvement in the project came after CIRI completed its revisions; we in no way influenced CIRI’s research or conclusions. Business Wire is proud to support the activities of CIRI, NIRI, and other investor relations organizations worldwide that promote professional development of IR practitioners, and the ideal of effective disclosure.

Now, back to our story.

The London Stock Exchange went public in 2001, a decision that forced the LSE to relinquish its monopoly on regulatory news dissemination via its subsidiary, The Regulatory News Service [RNS].

The Financial Services Authority, the UK equivalent of the SEC, used the opportunity to rethink its approach to regulatory disclosure.

The FSA formed the Information Dissemination Advisory Group (“IDAG”), a committee of industry participants and outside experts to study various models and scenarios. IDAG was charged with making its recommendation to the FSA as to the UK’s future regulatory structure.

FSA officials also crossed the pond to North America, where they conducted extensive interviews with a wide range of market participants in the United States and Canada, as well as to conduct their own  observations, research and analysis.

After completing its due diligence, the FSA ultimately embraced a competitive disclosure regime whose nucleus closely mirrors the key tenets of the Canadian regulatory system.

Soon after the UK model went live in 2002, the European Union began a similar exercise — and not surprisingly, concluded with virtually identical results.

The Committee of European Securities Regulators (CESR) exhaustively evaluated a range of disclosure options over several years. CESR’s final assessment, memorialized in the Transparency Obligations Directive that took effect in January 2007, once again ratified the core Canadian/UK disclosure model as the best of all possible worlds.

With its characteristic low-key style, Canada deserves to finally be recognized as a  regulatory role model whose commitment to full and fair disclosure sets the standard for leading global financial markets.

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Posted by Monika Maeckle

Why the Deck is Stacked Against Retail Investors

February 3, 2011
by Neil Hershberg, Senior Vice President, Global Media
Neil Hershberg

Neil Hershberg, SVP - Global Media

The classic Cole Porter musical, “Anything Goes,” is returning to Broadway this spring.

Retail investors won’t have to wait that long. In practice, “Anything Goes” has become the unofficial mantra of Wall Street, the Digital Age’s equivalent of ‘The Wild West” when it comes to disclosure.

Unfortunately for individual investors, who invariably get the short end of the stick, the folks in a position to end today’s information free-for-all have yet to take action.

At the risk of sounding like the Cassandra of capitalism, here’s why retail investors are swimming upstream:

1. Reg FD’s “level playing field” has become the regulatory equivalent of an ecological disaster area; it is eroding faster than many storm-swept East Coast beaches.

Mega-cap companies with huge investor followings have, for reasons best known to themselves, opted for micro-disclosure, dispensing with broadly disseminated news releases in favor of standalone web postings or similar truncated practices.

Rather than providing simultaneous, real-time information access to all interested investors, these best-practice contrarians have essentially decided to ladle access on a sequential basis to anxious  investors clamoring for corporate updates.

Over the past few decades, we’ve regressed from “trickle down economics” to “trickle down disclosure.”  Unfortunately, retail investors are the ones getting hosed.

Ironically, technology trend-setters are among the most flagrant abusers of acknowledged best-practice disclosure practices. These industry leaders should know better than anyone the inherent technical limitations of the Internet, and why the web’s architecture makes it impossible to meet the complex challenge of simultaneity.

2. Retail investors also are unknowingly getting eaten alive by spiders; these automated creepy crawlers have become a hidden epidemic.

While Bloomberg recently generated headlines when it published Disney and NetApps earnings results in advance of their official release, the real concern for retail investors should be the stealth spidering tactics of traders deliberately seeking to stay under the radar.

The spiders unleashed by Bloomberg and Selerity likely have plenty of company. In all probability, armies of incognito spiders are clandestinely retrieving troves of actionable, non-public data for their trading masters.

Even if these spiders fail to uncover non-public material information, their very use provides an unfair edge if publicly traded companies do not broadly disseminate their news via a service such as Business Wire.

The reason is that spiders are faster than the RSS readers that retail investors rely on for news alerts when disclosure is limited to a standalone web posting. Whereas Business Wire distributes market-moving news simultaneously and in real-time to financial information systems, portals, and media platforms worldwide, standalone web postings create a feeding frenzy for these rapacious spiders.

Retail investors have a legitimate reason to be suffering from arachnophobia; they are at a distinct disadvantage to market players that control these powerful technology termites.

3. There is a well-known saying that in life, “timing is everything.” That is certainly the case on Wall Street, where latency and milliseconds rule the day.

Winning on Wall Street is largely contingent on the ability to access and act on information faster than anyone else.

Institutional investors clearly have the necessary resources and technology at their disposal to triumph in today’s trading environment.

Notice-and-access and web disclosure disproportionately favor the professional investor, who can read – and react (perhaps even robotically) – far more quickly than the average retail investor.

The trading activity following Netflix’s recent web posting of its earnings (January 26 at 4:05 pm/ET) illustrates the high stakes involved.

More than one-third of Netflix’s total share volume for the day, or just over three million shares, traded after Netflix posted its earnings.

In after hours trading, Netflix’s shares were up $19.16 (10.47 percent).

Although individual investors now have the opportunity to trade in the after-hours market, they are being steamrolled by institutional traders, who clearly have the capability to react with more immediacy.

Retail investors are forced to play a bad hand. A recent blog post by Jack Campbell at 24/7 Wall Street, “Ten Ways Wall Street Crushes Retail Investors,” elaborates on many of these same themes: http://247wallst.com/2011/01/26/ten-ways-wall-street-crushes-retail-investors/

The common denominator linking all these examples is access to material information.

Regulation Fair Disclosure, in its original iteration, is clear on this point: all investors should have equal access to information at the same time.

The answer to the disclosure dilemma is obvious: the integrity of Regulation Fair Disclosure must be restored if retail investors are to be equal market participants.

Simultaneous, real-time access to disclosure news is the only solution that will put an end to the emerging two-tier access system that is slowly taking root.

It’s time for retail investors to get the fair shake they deserve.

3 Comments | Disclosure, Investor Relations, Reg FD | Tagged: , , , , , , , , , | Permalink
Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

Disclosure for Dummies: Notice-and-Access Press Releases Compared to U.S. Mail Service

January 19, 2011
by Steve Messick, Chief Information Officer, Business Wire

I always respond to a staff newbie when he or she comes into my office asking a question with, “Did you read the manual first?”  I actually prefer to use a more famous acronym but, in the interest of political correctness, will not elaborate.

But that is an important starting point of understanding any technology.  You have to read and research it.  If you still need clarification, then seek out the true experts and ask questions. If you don’t do your due diligence, then you won’t be well-informed, and will not understand the value proposition that technology brings to the table.  So, let’s get educated and talk about the real technology at work here, and examine the competing value propositions of Business Wire versus the “Notice-and-Access” model when it comes to fair disclosure.

Warren Buffett defines value as not what you pay, but what you get for your money. This is so true with applied technology.  We can all relate to the earbud example.  You pay more for a Bose earbud than a lesser brand. But have you ever sat on a noisy subway, jet, or busy freeway and tried to listen to music or talk to someone on your phone with cheap earbuds?  Forget it.  The value proposition of Bose technology is that you pay more, but you get something that actually works, meets your needs, and delivers real value. That is priceless.  When you use Business Wire, you benefit from the value of 50 years of experience and technology.

So let’s get specific here about web technology and its role in fair disclosure.  The operative word is “fair,” which is the key deliverable. Fair disclosure involves three main components: simultaneity, synchronization, and security.   Technology plays a major role in all three.

Simultaneity means that everyone has access to public company information at the same time.  No one gets a head start in acting on the news; it is simultaneous whether you are in Sydney or San Francisco.  Some folks consider posting a news release on a corporate website as simultaneous, and “fair” disclosure.  Yes, I agree that posting a document on a web site means it is available for access by everyone (at least everyone with access to the internet).   But is it “fair” access?  Absolutely not, if you understand the underlying technology.

A simple example: your local post office.   Does everyone in your town go to the same post office at the same time to get their mail?  If they did,  you would have long lines, extended waits, traffic jams,  and the person who shows up late may get their mail a day later. A single web-site has the same problem: extreme competition for access.  If thousands — or perhaps even millions — of investors go to a corporate website at the same time (at the moment of access cited in an advisory alert) to view an earnings release or other material news announcement, it is impossible to get the information in a fair and simultaneous manner.   The site is going to slow down; some investors will get the news later than others.   If the company has not invested heavily in its website infrastructure, the site may crash, or become so slow that your browser will give up.  Not fair, not simultaneous, and ultimately a low technology value proposition.

Synchronization involves the seamless linking of technical systems worldwide to deliver market-moving news to the global investment community. The moment your news release is simultaneously distributed worldwide, billions of dollars in technology at companies and institutions around the globe are synchronized to provide the information to the investor universe — instantly. That is the behind-the-scenes disclosure synchronization that powers the global financial markets. That is the value of Business Wire technology working in synchronization with the investment industry, financial information systems, and major consumer portals for the collective benefit of institutional and individual investors.  The integrated, multi-tiered pipeline that regulatory information flows through generates opinion, analysis and recommendations, all of which build value for the investor.  Independent analysis and expertise is essential for retail investors working at home, as well as the trading desks at large institutional firms.  And it all happens as a result of Business Wire feeding the pipeline.  Simultaneity drives synchronization, which drives value.  Priceless.

Conversely, Notice-and-Access (single web-site posting)  advisories impede the information pipeline and disrupt the synchronization process.    Why does UPS bring your inventory to your door? The answer is so that your business can function flawlessly, as you designed it.   If you had to jump in your truck every day and drive to UPS, then head over to Fed Ex,  and then to the Post Office  for your business inventory, is that value to you?  Your business is synchronized by the predictable flow of inventory into your manufacturing plant.  So is the global information pipeline.

The seamless synchronization of financial information is crucial for fair disclosure. If every investor has to go to UPS (your corporate website, via notice-and-access ) to get the latest news, and then go to the individual web sites of companies releasing information at the same time, it will derail the work flow process. leading to delays and confusion. Fair and efficient markets will cease to exist.

Completing the value proposition of fair disclosure is security.   Value is in knowing that your information is secure and safe until the appropriate time to share with others. Reg FD is all about keeping information secure and private, and then simultaneously providing everyone with equal access.  Any breach in this process can lead to market volatility, investor uncertainty, and potential lawsuits. Is that value?

Keeping your information safe until public disclosure is a complex technology puzzle.   Business Wire’s 50-year track record in secured technology systems means that your information is safe and protected. Posting on a corporate website can be very risky unless the company has invested significant resources in security safeguards. Business Wire’s systems and networks are subject to rigorous annual audits to ensure that your information is secure. Security is at the heart of what we do, and a major element of Business Wire’s core value proposition.

There is a de facto manual for full and fair disclosure, based on real-world applications. Business Wire is proud to be a major contributor to the pragmatic, best-practices model that serves as the backbone of full and fair disclosure in financial centers throughout North America and the European Union. Not only did we read the manual, we helped write it.

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Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

Web Spiders: Enough to Make Investors’ Skin Crawl

November 23, 2010

by Neil Hershberg, Senior Vice President, Global Media

Neil Hershberg

Neil Hershberg, SVP - Global Media

Forget about bedbugs. The real threat to anyone involved in the financial markets these days is spiders – and I’m not talking about the eight-legged variety.

Spiders — sophisticated web-crawling software – are seemingly rampant on Wall Street, wreaking havoc in the financial markets, and yielding big profits for select investors in the know.

There were several incidents recently in which earnings results were leaked to the market in advance of their scheduled release. The predictable result: widespread investor confusion.

Shares of NetApp Inc., one of the affected companies, sank sharply in the subsequent market volatility, leading to a nearly one-hour trading halt.

The use of these advanced search bots is certainly nothing new; what has become apparent is their disruptive impact on fair and orderly capital markets. More ominously, the growing use of these bots threaten to make a mockery of the principle of fair disclosure.

The problem is not uncommon. Ironically, Jeff Morgan, president and CEO of the National Investor Relations Institute, issued a warning to NIRI members about a week ago:

“I recently spoke with a member who told me about a situation where a news organization ran a story on their earnings 45 minutes before the earnings announcement was scheduled for release. The company released their earnings immediately and began an investigation. The company found that the news entity breached an unpublished area of the company’s online newsroom and accessed the confidential draft earnings release by using sophisticated, proprietary web crawlers. The company routinely used this private website area to post and format draft earnings releases prior to publication. Their plan was to do as they had done for many prior quarters and open access to the release once it became public. Unfortunately, the unpublished release was discovered overnight by the media outlet’s proprietary web crawlers. For IR professionals the lesson learned is to be sure your documents are secure on the web wherever they reside. And a word to the wise – the member noted that the news organization pointed out that this type of discovery has happened before.”  [IR Weekly, November 9, 2010 issue]

The major market-moving news services have long relied on spidering technology to ferret out news that hasn’t been disclosed via conventional channels. What has largely remained under the radar is how the wizards of Wall Street are similarly taking advantage of state-of-the-art software to identify hidden trading opportunities. It is a safe bet to assume that the financial news wires aren’t the only ones routinely trolling the Internet in search of actionable information.

While spiders are a major concern, issuers must also deal with another silent but potent threat: Their own lack of imagination in naming their important  news and data files. Due to habit or inertia, many issuers sequentially name their financial files, or use other intuitive names for identification purposes. This scenario potentially allows a skillful web spy to decipher the URL of material information waiting to be released to the market place.

As if all this depressing disclosure news isn’t disturbing enough, there was also the recent revelation that Google might be stacking the deck in favor of  its own properties. According to Harvard Business School assistant professor Ben Edelman, Google’s search results aren’t as objective and unbiased as the search giant has led us to believe. Edelman’s study concludes that “Google has made inaccurate representations to the public including to users, publishers, advertisers, investors and regulators.”  Based on his findings, Google may not be the unbiased arbiter of information exchange that it has successfully portrayed itself to be.

Clearly, “self-publishing” is more complex – and has more associated risks with dire market consequences – than may seem obvious. The costs and complexities of the required security upgrades are likely to far outweigh any perceived cost-savings. And the potential loss in market valuation and credibility in the event things go awry is by far the largest financial liability of all.

So what is the simplest, most effective way to navigate this obstacle course?  More importantly, what is the best way to maximize the reach of your message so that the market is fully informed? Hopefully, it should be obvious that posting the news on your web site won’t get the job done, and also is fraught with hidden dangers and unintended consequences.

A broadly-disseminated news release issued via Business Wire remains the surest way to ensure full and fair disclosure. All market participants have simultaneous, real-time access to price-sensitive information.

We have invested tens of millions of dollars in building the industry’s most advanced and secure systems for processing and distributing news. We are vigilant about security to the point of paranoia: Our databases, workflow systems, and public facing web sites are secured from spiders or anyone trying to gain unauthorized access to clients’ pre-released financial information.

And it isn’t just us saying it – Business Wire is audited annually in multiple jurisdictions where we are sanctioned to operate as a regulatory disclosure service. Additionally, as a proud member of Berkshire Hathaway, we answer to a higher authority and undergo a separate corporate security audit. These rigorous reviews, conducted by the world’s leading independent auditing/management consulting firms, certify that our network systems and operational procedures meet the most demanding global standards.

In a risk/reward analysis, web disclosure simply doesn’t make sense for issuers, and is a major disservice to investors.

1 Comment | Disclosure, Investor Relations, Reg FD | Tagged: , , , , , | Permalink
Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

Disclosure: The Dawning of the Age of Precarious – Let the Sunshine Back In

November 18, 2010

by Cathy Baron Tamraz, Chairman and Chief Executive Officer, Business Wire

Once upon a time, in the Year 2000, a wonderful law was passed that protected the interests of all investors in our great land. You may have heard of it; it was called Regulation Fair Disclosure.  Thanks to the great mind of Arthur Levitt, the “whisper” and good ol’ boy network that had gone on for far too long on Wall Street by those in the know, was finally curtailed.  Good triumphed over evil on October 23, 2000 – and all of our citizens were protected.

Reg FD served to shine a bright light on material information, so that now everyone had equal access to all news that could impact a stock price.  It was a great day for the retail investor, and all was well in our land. The new words of the day were “full and fair for all.”   Transparency and simultaneity were now the gold standards and endorsed and enforced by our nation’s regulators.

To assist in ensuring that all companies now played by these new rules, “neutral” services like Business Wire were touted and recommended as best practice and “valuable” newswires for the purpose of making news ubiquitous and available to all. This made sense because it confirmed the vital role they have played for 50 years in helping to keep “law and order” on the Street. Further, our nation’s regulators relied on Business Wire’s audit trail to help keep our markets honest. Business Wire’s proprietary news delivery platform ensured simultaneous, real-time access to all investors.

Regulation FD flourished, and all was well.

But alas, in August 2008, a seemingly insignificant event led to some unintended consequences – a dark cloud now hovered over full and fair disclosure.

 

Image by Flickr user r8r

 

In an attempt to embrace new technology and encourage more disclosures, not fewer, an interpretation (not a rule change) was added to Reg FD that encouraged the use of company websites as an enhancement.  This certainly made sense because it provided an added venue for material news, thus widening access. Our regulators wanted to appear current and relevant – and that made sense.  All seemed fine in our great land . . . the more, the merrier. Or so it seemed.

But then something strange happened . . . self-anointed experts promoting their own commercial agenda decided that restricting the information flow by limiting it to a company website ONLY, was now good enough.

Let the people figure out when and where the information is available. Let the reporters, analysts and investors troll through thousands of websites to find and report on the information. Let the algo traders, who have the most sophisticated systems, get a jump on the news and perhaps beat out everyone else. In effect, let the retail investor eat cake.

Even worse, questions around system crashes, redundancy, security and simultaneity were not even addressed, because those who were now playing in this arena had no idea of its complexity – and had not even thought it through.  What about those vital security audit trails?  What about protection from insider trading allegations with standalone web disclosure?  What about server crashes? What about redundancy and simultaneity?

Alas, darkness was falling . . . and the proof was in the proverbial pudding. In the few instances where this “standalone methodology” was followed, the truth revealed itself. Confusion now reigned, as investors scrambled to get the news.

THE MORAL OF THE STORY:

Reg FD’s level playing field is in danger of going “POOF”, turning a prince back into a frog.  However, this parable can still have a happy ending.  We can’t let the Holy Grail of full and fair disclosure slip away. The SEC did not intend it to be that way – just read the SEC’s CIFiR report, citizens.

This much we know: Reg FD was meant to protect all investors – and retail investors, in particular, dread a return to the dark days (and Wall Street whisper) of disclosure. Therefore, we ask our nation’s protectors to slay this dragon, to clarify both the spirit and intent of the Interpretive Guidance, and to let the sun continue to shine on our financial markets.

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Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

When is Disclosure not Disclosure?

November 10, 2010

by Gregg A. Castano, President, Business Wire

Gregg Castano, President, Business Wire

 

Forget about level playing fields, Regulation FD, interpretive guidance and recognized disclosure channels. What about good, old-fashioned EFFECTIVENESS?

Have we entered a bizarro world in which simultaneously making material information available to millions of investors via every conceivable communications method known to modern man has somehow become LESS effective than posting that same information to one, lonely site on the Internet and hoping that whomever wants access to it will come a lookin’?

If that’s the case, then the sky isn’t really blue, death and taxes aren’t sure things and 15 minutes can’t save you 15% on your car insurance.

Why would it be considered MORE effective, or even sane for that matter, to force every investor, private or professional, to have to frantically hop from web site to web site to web site ad infinitum on any given earnings reporting day to gain access to news that is already fully aggregated and uniformly available in real-time to them at no charge in any number ways, including the mobile phones in their pockets?

Is this some kind of plot against investors by corporate mad scientists, or maybe a sick prank being played upon the investment public by the angry and vengeful ghost of Kenneth Lay? Did Foolish suddenly become the New Wise?

Why wouldn’t the SEC, an organization that should be leaping at every opportunity to undo the damage to its credibility caused under previous Chairman Rufus T. Firefly . . . I mean Christopher Cox, step in and put an end to this electronic game of “Where’s Waldo?”.

Questions, questions. The answers to which seem simple enough that my seven year old twins can easily grasp them. But I guess the obvious has turned into the obscure and the direct into the circuitous. The only thing left for me to do is go home and tell my twins that Daddy was wrong; two plus two actually equals five.

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Posted by Phil Dennison, Senior Marketing Specialist, Business Wire

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