IN A move that has set off alarm bells at smaller investor relations services providers, the New York Stock Exchange (NYSE) wants to add a new section to its rules promoting a suite of products to its listed companies.
The services, which are provided to listed companies as part of their annual listing fees, are optional and not part of any rule requirements. Nonetheless the exchange is now seeking the US Securities and Exchange Commission’s (SEC) blessing to plug the services to companies in a new Section 907.00 of its Listed Company Manual, which sets out the rules companies must follow to remain listed.
A mid-cap new issuer can receive a “complementary” bundle of services valued at close to $100,000, while existing companies can receive services valued up to about $60,000 per year depending on certain factors. The covered services include the NYSE’s own market surveillance products, website hosting and PR wire services from Thomson Reuters, and market analytics and shareholder ID services from Ipreo.
While the NYSE says that it does not have exclusive contracts with its third-party providers, it will not reimburse issuers if they want to use competing services they believe are superior to those the NYSE offers.
“Will hurt smaller providers”
The proposed new rule essentially asks the SEC to approve product and service promotions in the NYSE’s rules, which could create the false impression that companies should use them to meet the NYSE’s listing requirements.
It also is raising anti-competitive concerns among service providers who offer competing products. One executive of a mid-sized IR service provider told IR Web Report in an email yesterday that he fears the move will “hurt other smaller companies that provide good products and services.”
That scenario would be unfortunate, particularly because an emerging crop of innovative smaller companies — such as MZIllios, Q4 Web Systems, IR2020 and StockTwits – are poised to bring exciting new products to the IR market.
If new firms are driven out of the industry by anti-competitive practices, investors will be the ultimate losers as companies continue to use outdated and inefficient tools and technologies.
Additionally, entrepreneurs will be unwilling to start new ventures in an IR services industry dominated by a few big players that enjoy sheltered status with the stock exchanges and implied approval of the SEC.
In addition to the NYSE’s product suite, smaller service providers also must compete with NASDAQ OMX, which owns website host Shareholder.com and PR wire service GlobeNewswire.
If the SEC truly wants to foster competition, it should require the NYSE and NASDAQ to reimburse issuers for any competing IR services they purchase, up to the stated value of the exchanges’ favored services.