NOW that we’ve shown that PR wire services can’t guarantee simultaneous access to disclosure information for all investors, let’s look at why it matters and what you can do to treat all shareholders fairly.
Of course, some might argue that an 80-second difference between when Wall Street gets material news and when the rest of the market sees it isn’t a big deal. They might say that retail investors typically don’t and shouldn’t be trading on breaking news anyway.
But these arguments ignore the negative impacts that information asymmetry has on financial markets. Inequitable treatment of investors breeds cynicism and distrust. It undermines confidence, which everyone knows is what the market needs to function effectively.
It’s an issue that is front and center for many market participants and observers. Yesterday, The Financial Times’ Stacy-Marie Ishmael pointed to the fact that paying subscribers get the Chicago PMI report before it’s made available to the general investing public.
For IR, unfair PR wire distribution could call attention to other inequities that investors have hitherto tolerated, such as company executives holding private meetings with select institutional investors — now a $2.1 billion industry in its own right.
Try convincing a public deeply skeptical of Wall Street that a billion big ones won’t buy you anything more than you can get for free from EDGAR or the public web. They’ll never believe it.
In this kind of environment, investors either decide to quit playing against a stacked deck, or they complain loudly to regulators who are supposed to be on their side. Last time they did that it was 2000, when public outrage from online investors prompted the SEC to bring in Reg FD.
Yes, yes, all big picture stuff that your average IRO at the coalface doesn’t have time to think about. But it matters, and there’s no way to excuse it or pretend that it doesn’t.
So, if you want to ensure that everyone has equal access to your company’s next earnings release, here are a couple of options for you:
Option 1: Release information outside of extended trading hours
The fact is, unfair PR wire distribution wouldn’t be an issue if extended hours trading wasn’t such a big part of the markets today. But for many companies there is almost no distinction between regular trading sessions and the pre- or after-hours sessions. Their stock trades almost continuously from 7:00am ET to the end of the after-hours session at 8:00pm ET for NASDAQ stocks.
Yet these same companies haven’t adjusted their disclosure practices. Almost no one has. They are releasing earnings at 4:01pm ET and calling it “after the close.” What close? The market is very much open!
And because of uneven PR wire dissemination, a select few traders are joyriding while the news slowly trickles out to the cheap seats. In the old days, the exchanges would have halted stocks of most companies reporting earnings during trading hours. Yet they seldom do so for companies issuing news during the “new” market hours. To do so would cause chaos.
The simplest way to avoid an unfair market is to release the information at times when the lucky few who get it first can’t trade on it. Some companies already do this. I’m thinking of Suncor Energy’s (NYSE:SU) and NYSE Euronext’s (NYSE:NYX) 2:30am earnings releases.
Of course, releasing news and holding conference calls after 8:00pm or before 7:00am might cause some inconvenience, but it’s a small price to pay if it ensures everyone gets a fair chance to trade on the news.
Option 2: Release information fairly
There’s an alternative to releasing news late at night or early morning — make sure everyone has access to the news at the same time. Here are a few suggestions on how to do that without much difficulty and no added cost:
Tell investors in advance the specific time (not “after the close” but “4:15pm ET”) and URL (http://investors.myfirm.com/earnings) where you will release earnings or other scheduled information. At the designated time, post the release on your website simultaneously to distributing it through any other channel, including your PR wire service.Most companies don’t do this, even though many think that they do. This is because rather than post news directly to their sites, they send it outside to a PR wire, then bring it back again via a vendor’s feed. This results in minor to severe delays, depending on which feeds companies use to populate their sites.Either way, there is now a better option available from the big investor relations website providers. Their new web disclosure products enable companies to schedule the posting of news releases and other information directly to their websites. You can also simultaneously direct the information to hundreds of external sources, including the major financial news services.By informing investors in advance where and when they can access your earnings or other scheduled disclosures, you will be giving them access to the information at the same time as Wall Street professionals who use professional subscription services that have direct feeds with the PR wire services.
As close as possible to the public release time, submit your release to the SEC on a Form 8-K. Unfortunately, EDGAR doesn’t give you the ability to schedule when your filings go public, so you have to time this as best you can. Typically, though, count on 2 minutes from submission to acceptance. Submitting the 8-K has many benefits, but I’ll mention just two.First, it gives you 100% certainty that the information is public for the purposes of Reg FD. No other disclosure channel, not even PR wire distribution, offers that certainty. That means that any subsequent selective disclosure of the information to financial professionals will not implicate Reg FD.The second benefit of EDGAR is that information filed on EDGAR doesn’t stay on EDGAR. Bloomberg, Reuters, Dow Jones and others have arranged to receive direct feeds of all filings. At the same time that the public has access to filings on the public EDGAR site, the filings are transmitted to institutional subscribers around the world via the EDGAR Public Dissemination Service.Of course, EDGAR is not popular with retail investors. It needs a few improvements, but it is watched closely by the media and by many analysts and investors.Nasdaq OMX is developing a tool that will submit your information to the SEC on a Form 8-K at the same time that you click to publish the news on your website and distribute it to any channels you choose.
Use every channel at your disposal to alert investors to the availability of the information on the company’s website and on EDGAR. Email alerts are still the most popular way for investors to get information, but they are not good enough for people who are accustomed to the real-time nature of web communications today.For these people you have to start using new technologies like real-time web feeds, social network status updates to sites like Twitter and StockTwits, and even text messaging to investors’ mobile phones.These things aren’t one or two years in the future, they’re are already being used by hundreds of millions of people around the world and by hundreds of company PR departments. It’s time for IR departments to catch up.
What about speeding up the PR wires?
Any initiative by the PR wires and their partners to speed up their systems should be welcomed. Unfortunately for them, there are bigger trends taking place that all point to the PR wire model being replaced by other channels, the most important being the SEC’s EDGAR database.
Regulatory changes by the SEC and the exchanges have diminished the primacy of PR wire distribution. Both the NYSE and Nasdaq now permit companies to use any Reg FD compliant method of disclosure. Over time, a growing number of companies will no longer use PR wires. Instead, they will rely on their SEC filings to achieve 100% compliance with the public dissemination requirements of the rule. Some already do.
Consequently, investors and the media are increasingly looking to EDGAR filings for company news. This trend will feed on itself as more companies start using EDGAR as their primary disclosure channel. EDGAR simply has no equal in terms of investors’ confidence in the authenticity and completeness of the information.
The fact that companies can meet their regulatory obligations, while also reaching the major financial news services and many public websites through a single low-cost submission to EDGAR, is a compelling proposition that the PR wires cannot offer.
Of course, EDGAR is primarily used by professionals. Most retail investors don’t use it, although they would if it was easier to use. Retail investors have traditionally used company websites and investment portals, to which the PR wires deliver news.
However, even here the advent of the social web and sites like Facebook and Twitter are changing how retail investors access information. Social websites use real-time technologies that enable companies or anyone else to distribute information quickly, efficiently and in a more personal and authentic manner.
IR Web Report will continue to provide coverage of this issue. Stay tuned by subscribing to our email alerts or web feed.
Disclosure: I have consulted to StockTwits on the IR market.