THE US Securities and Exchange Commission (SEC) is taking extra time to scrutinize the New York Stock Exchange’s (NYSE) controversial proposal to promote an optional suite of investor relations services in its compliance rulebook for listed companies.
Proposed Section 907.00 to the Listed Company Manual has sparked anti-competitive concerns among a variety of investor relations services providers, who also fear the exchange’s endorsement of select third-party service providers will hamper innovation in the IR services industry. I have twice written to the SEC to oppose the rule on the grounds that it will further stifle competition in the industry, discourage innovation, create conflicts between the NYSE’s regulatory and commercial roles, and all of this will ultimately harm investors and their confidence in the exchange and the capital markets.
The NYSE filed the proposed rule with the SEC on May 5 and the commission was scheduled to approve or reject the proposal today (July 7) after a comment period. However, the SEC has now delayed its decision until August 21 (PDF 23KB) saying it needs more time to consider the rule proposal and the objections to it. By that date, the commission can either approve or disapprove the proposed rule, or it can start proceedings to determine whether to disapprove the rule.
The NYSE’s proposed rule codifies the exchange’s practice of providing a suite of “complementary” market and shareholder intelligence, investor relations website and PR wire services to its listed companies. Several of the services, valued at up to $100,000 per year depending on certain factors, are provided by third-parties, most notably Thomson Reuters and Ipreo.
Executives from competing service providers such as PrecisionIR, MZillios, SNL Financial and Q4 Web Systems have opposed the rule on the grounds that it is anti-competitive and will give issuers the false impression that the optional services are an exchange requirement.
Some called on the NYSE to offer a credit to its issuers so that they can purchase services from any IR vendor of their choosing (see IR vendors ask SEC to block NYSE rule), while one consultant claiming to speak for several issuers said that in a post-Reg NMS world exchanges should be paying companies for their listings rather than the other way around.
However, on June 26 the NYSE countered the objections in a letter to the SEC (PDF 95KB) in which it said it is willing to contract with other third-party vendors. However, offering a credit to listed companies “would not be consistent with the Exchange’s objective of assuring that it provides high quality products and services to its listed companies.”
NYSE said it “does not endorse any particular vendor or vendors or any product or service” it provides and it doesn’t require the use of any particular vendor’s services for compliance with its listing requirements so there is no conflict of interest.
In a follow-up letter to the SEC, I pointed out that at least two IR service provider executives have publicly cast doubt on the NYSE’s contention that it is open to contracting with other service providers. I also said that although the NYSE does not require issuers to use Thomson Reuters for compliance, the fact is that Thomson Reuters’ services do address the exchange’s compliance requirements and they are the only such services explicitly approved by the exchange.
Finally, my follow up letter called into question the NYSE’s claim that it aims to provide only “high quality products and services” by pointing out that the NYSE endorses Thomson Reuters’ PR wire service even though its distribution pales in comparison to other similar services that the exchange does not provide.
Regardless of how the SEC decides, it is good to see this issue being openly debated and discussed through the SEC’s rulemaking process. The SEC is still accepting comments on the rule proposal here: http://1.usa.gov/ocplXn