THE US Securities and Exchange Commission (SEC) has approved a New York Stock Exchange (NYSE) rule opposed by investor relations service providers who fear the measure will harm their ability to compete.
The SEC’s Division of Trading and Markets approved (PDF 95KB) new Section 907.00 of the Listed Company Manual, which will result in the NYSE including information about a suite of “complementary” investor relations services available to listed issuers, including investor relations website and news distribution services from giant Thomson Reuters and shareholder identification services from Ipreo.
The rule was opposed in public comments by a variety of investor relations service providers. They branded it anti-competitive and said it would lead to a lack of innovation in the IR services industry.
Opponents, including myself, also raised concerns that adding the services in the exchange’s rulebook would give the impression that issuers were required to use the services and that the SEC had approved the service providers’ products.
More of the same
In its decision, the SEC conceded that by subsidizing the services of some vendors and not others, the NYSE would cause some companies to shift their business to its preferred service providers, but it said that competition between exchanges would lead the NYSE to provide better quality services.
The SEC also said it recognized that “some small service vendors may be placed at a disadvantage” by its approval of the rule given that the NYSE contracts only with large vendors capable of providing services to all of its listed companies.
“Nonetheless, the Commission does not believe that the proposal harms the market for the complimentary products and services in a way that constitutes an inappropriate burden on competition or an inequitable allocation of fees, or fails to promote just and equitable principles of trade, in a manner inconsistent with the Act,” it said.
My view is that the SEC’s decision is disappointing as it will lead to a continuation of the broad stagnation we have seen in the US investor relations services market over the past few years.
Smaller IR service providers will continue to struggle to compete against those vendors subsidized by the NYSE. Meanwhile, the big, subsidized vendors will have little incentive to improve their services when no other vendors are large enough to replace them.
All I can hope for is that the NYSE looks at the comments received from smaller vendors and takes seriously their calls for it to give issuers the freedom to choose which vendors are best placed to meet their IR needs through a voucher system.
Doing so would foster greater competition and innovation in an industry that sorely needs it.