LAST July, the US Securities and Exchange Commission (SEC) approved new guidance for company websites that covered a broad spectrum of issues that have apparently been holding companies back from making better use of their websites as a source of disclosure.
Although the interpretive release provided advice on a range of topics, including links to third-party information and company participation on blogs, the issue that attracted the most attention was the SEC’s recognition that standalone website and blog postings, under specific circumstances, can meet the public disclosure requirements of Regulation FD.
While the Reg. FD guidance was seen as a major move forward by some, including myself, the reaction from the issuer community and most corporate securities lawyers has been much more muted. And PR wire services, which get a large portion of their revenues from distributing corporate disclosures, have gone on the offensive to attack websites as a source of disclosure, claiming that their systems remain the only fair way for material disclosures to be released to the market.
With a few notable exceptions, most law firms have now counseled their clients not to make any quick changes to their current Reg. FD disclosure practices. They have criticized the new guidance as vague and cautioned that whether a website posting is public for the purposes of Reg. FD is a difficult facts and circumstances determination. Better to do nothing, seems to be the consensus view.
But I say the lawyers have failed their clients. Why? Because doing nothing means almost no one is complying with Reg. FD.
PR wire services not simultaneous
What few people realize is that disclosure via PR wire services is not simultaneous. Some investors, mostly professionals with access to expensive subscription services, are trading in extended hours on information they receive from companies up to several minutes ahead of most other investors who rely on public sources of information, such as company websites or popular investment websites like Yahoo! Finance.
The uneven access of the current system might surprise many because the PR wire services routinely talk about the “simultaneous” nature of their services with great gusto and hyperbole. As recently as this month, for example, Business Wire claimed in a letter to the SEC (PDF 55KB):
“In actual practice, as opposed to a coveted ideal, all investors have equal and unrestricted access to market-moving information. There are absolutely no advantages from an access standpoint. In layman’s terms, professional money managers monitoring a Bloomberg terminal, and senior citizens eyeing their portfolios on Yahoo! Finance at home, have totally equivalent access to price-sensitive news that may influence their investment decisions.”
However, that is simply not true. If you read Business Wire’s NX patent very carefully, US patent N. 7069245, you will realize that only organizations that have NX software installed can access the information simultaneously. Business Wire’s system requires the installation of a proprietary viewer on the recipient’s computer system that unlocks pre-delivered news releases, something most investors do not have.
Without this, Business Wire uses the same basic Internet technology as all the other PR wire services, which Business Wire in its patent documents acknowledges “can not insure that information would reach multiple destinations in a fair and simultaneous fashion.”
I have personally observed delays of as much as 3 minutes between when news was released in Business Wire’s feed and when it appeared on a public website. To be clear, all of the PR wire services have these delays when posting material releases to public websites. The typical delay is between 1 and 4 minutes depending on the time of day, length of the release, the website used and other factors. In one recent case, a release took 7 minutes to appear on an online brokerage firm’s client website.
Don’t take my word for it, look at an independently verifiable example concerning Google Inc.’s Q3 earnings announcement at 4:01pm ET on October 16, which was issued via Business Wire. In a transcript of a live blog by the popular Silicon Alley Insider, it is noted at 4:02pm ET by one of the three bloggers covering the event, ex-analyst Henry Blodget, that Google’s stock is experiencing a “huge move up in aftermarket per Yahoo, but I don’t see release yet.”
In fact, it was not until a full minute later, at 4:03pm, that the Silicon Alley bloggers and the general public gained access to Google’s earnings release on Yahoo! By that time, however, average investors had missed the opportunity to participate in informed trading as Google’s stock was already trading up almost 9% in the after-market.
Clearly, some traders received Google’s news release almost two minutes before the release was posted to Yahoo! Finance, the most popular website for US investors. The privileged few had an unfair advantage over other investors to trade on the information. In today’s highly volatile markets where 90% of companies report their earnings during extended hours trading, such uneven access is unacceptable.
Without simultaneous website posting, it’s not fair disclosure
More to the point, Regulation FD requires simultaneous disclosure to the public when management intentionally discloses material non-public information to analysts and investors in a private setting. Those professional investors and analysts who have direct access to wire service feeds are in a private setting and so companies are obligated to ensure that the information in the feed is simultaneously accessible to the general public.
One way to do this, of course, is to ensure that material news is posted on the company website simultaneously to it being released via a PR wire service. This will give anyone the opportunity to access the information at the same time as those who currently have privileged access via expensive subscription services.
However, very few companies post news releases directly to their websites, and I know of only one (Sun Microsystems) that does it at the precise moment that the same information is released on a paid newswire service. About 75% of companies today have arranged for news releases distributed via their wire services to automatically appear on their sites in much the same way they appear on Yahoo! Finance, which involves the same typical delays.
Indeed, sometimes companies’ investor relations websites are the last places to post material news. For example, Cisco’s earnings announcement on November 5 was only available on its investor relations website 7 minutes after it was released via Marketwire. It also was slow in being posted to Yahoo! Finance, appearing 4 minutes after the 4:05pm ET release time.
In effect then, when almost all US companies issue material news today, they are providing it to a select few investors for the first one to four minutes, which clearly is not fair disclosure.
So unless you are posting your news releases on your IR website at the very instant that they are released via a wire service, you are not disclosing information fairly. And you should be in a position to prove what information your company released on its website, when it did so, how that information was displayed, and that investors knew it was there.
We have outlined a process for scheduled disclosures that any company can adopt to ensure that it is meeting Reg. FD requirements while using its website as its primary disclosure channel.
If you want to continue sending full-text earnings releases via the wire services, please continue to do so, but it’s not going to help you comply with Reg. FD and may even be contrary to the regulations if you’re not taking steps to ensure the same information is simultaneously available to the public at large.
Because, as you now know, PR wires are neither fair nor simultaneous.
Dominic, excellent piece that accomplishes two very important things:
1] Drives the point home that wires are not Reg FD compliant.
2] Significantly advancing the argument for simultaneous website posting, as well as, blogs, RSS feeds, twitter, etc. After all, if wires can’t provide equal access, we must provide investors with more points of access to even out the playing field.
Excellent, excellent post. When someone starts digging into patent filings, you know they are serious.
Regards,
George
[...] Read “Why Almost No One is Complying with Reg. FD” [...]
This is great stuff. Although I don’t necessarily agree with all of the SEC’s guidance on “corporate use of websites,” I don’t find it overally vague and I have trouble understanding why most lawyers think it is.
My guess is too many of them – at least the more senior lawyers – remain technophiles despite the fact that most of them live with their BlackBerries. I’m not sure why these lawyers would want the SEC to provide bright-line guidance given the fast-changing pace of technology.
But it’s not just the lawyers at fault here, the vendors hosting IR web pages clearly aren’t helping things – and as Dominic has ably pointed out on this blog, even NIRI doesn’t really get it when it comes to IR web pages.
Anyways, I’m on a panel this Saturday at the Fall meeting of the ABA’s Federal Regulation of Securities Committee regarding this topic and it should be provocative…
Thanks to all who have commented. I didn’t want to respond quickly because I wanted to see what reaction there would be.
The lack of response from certain quarters troubles me deeply. This issue is not a minor one. It cuts to the very heart of fairness in the markets. It doesn’t just impact retail investors.
EVERY investor must now question whether they are getting their information at the same time as everyone else. Who is getting it before them? What is the latency of their current service providers? Material market-moving news is being released at times when investors can trade on it. A late trade due to not getting the information in time can mean millions in losses or missed gains for fund managers and their clients.
What has happened is that the IR profession has failed to evolve with changes in technology, trading and regulation. These issues have been a consistent theme of mine for years. A big obstacle to progress are the big vendors who have gotten fat and lazy. But we can’t just blame them because companies are not demanding better.
NIRI is too close to the vendors and so is IR Magazine. Without the financial support of the big vendors, these institutions of the profession will crumble. I believe this has clouded their good sense. They’ve developed a sort of bunker mentality, seeing IR Web Report and others like us as mavericks and crazy people rioting outside the gates.
But we are beyond the point where it is acceptable to protect our own franchises. The capital market system is in crisis. The situation I exposed in this post is minor compared to the other problems, but it still contributes to a lack of confidence among investors.
People need to trust a system before they will be willing to participate in it. This isn’t one company’s problem. This problem belongs to all of us. What disturbs me is the lack of leadership in the profession. There is nothing to wait for. No new rule is required from the SEC. NYSE doesn’t have to change its requirements. Companies just have to change their disclosure processes.
NIRI must come out immediately and bring this issue to their members’ attention. It’s easy to fix.
Is it the wire services that are non-compliant or the third party site redistributing the news that has the issue here. In the case listed above, isn’t the issue with Yahoo! for not posting the release in real-time?
What other sites did Henry check? bloomberg.com, nasdaq.com? Nasdaq has a 4:01 time stamp.
It might not hurt to remind your readers that they should be looking at FINANCIAL sites for financial news. Yahoo may be popular but it is most reliable database in the world.
@Mediawoman
“Is it the wire services that are non-compliant or the third party site redistributing the news that has the issue here. In the case listed above, isn’t the issue with Yahoo! for not posting the release in real-time?”
It’s the wires. And, as I quoted, Business Wire stated emphatically to the SEC that there was no delay between Bloomberg professional and Yahoo! Finance, but that is not true. Also, all the wires have gone to great lengths to create the impression they are real-time and simultaneous, and they’ve known all a long that they can’t in practice guarantee that.
“What other sites did Henry check? bloomberg.com, nasdaq.com?”
The wires complain that if companies use their websites then investors have to go to multiple websites, so this argument of yours is the same. So do wires expect investors to shop around for a site that may or may not be real-time? Why not just post the releases immediately on the corporate website, in addition to sending it out on a wire? At least investors will know there is at least one place where they can be assured of getting the news immediately.
“Nasdaq has a 4:01 time stamp.”
Yes, the time stamp. That’s a fiction in many cases. The time stamp on the release is not the time that the release actually appears on the site in all of the cases we’ve monitored.
“It might not hurt to remind your readers that they should be looking at FINANCIAL sites for financial news. Yahoo may be popular but it is most reliable database in the world.”
Henry *was* looking at Yahoo! Finance, the most popular investment website. And Yahoo! Finance and all the other finance sites we’ve monitored are the same. There’s a delay of between 1 and 4 minutes.
We stand by our story. PR wires cannot ensure simultaneous delivery and they should stop claiming they are doing that. Companies are being remiss in not posting their releases directly to their websites at the very instant it is released via other channels. It’s not a complicated issue.
[...] disclosure, the truth is that they aren’t as fair as they claim. The wires in practice are do not publish simultaneously. Different websites, Bloomberg terminals, news services — all receive and post wires with [...]
[...] in more detail in a prior post on my Enforcement Action blog, a recent article by IR Web Report (click here) states that leading PR wire services used for corporate disclosure do not deliver information [...]
[...] DOMINIC JONES, IR WEB REPORT (Nov. 18, 2008): Why Almost No One is Complying with Regulation FD, Par… Dominic Jones follows up on his article revealing that certain investors receive PR wire information before others. [...]
[...] CFA Institute backs IR Web Report on Reg. FDJP Morgan takes high road over unsponsored ADRsNew technologies make audio and video searchableInnovator: Q4 Web SystemsShould IROs worry about LinkedIn?Why almost no one is complying with Regulation FD [...]
[...] But just as blogs and social networks removed the barriers to publishing information online, new technologies are making it easier for ordinary people to distribute messages to multiple points across the Internet, in most cases faster than the PR wire services can. [...]
Twitter Comment
@gcrossEXTR PR wires are not simultaneous, not fair. Some get the news ahead of others. [link to post]
– Posted using Chat Catcher
[...] In future, I think Dell could, with some technology improvements, stop using paid newswire services like Business Wire and simply announce earnings exclusively on its website. Pre-announcing earnings release times and then posting news at a disclosed URL company’s website will also help to quell growing accusations of insider trading and unfair disclosure by investors who feel that some investors are consistently getting information ahead of others, which they are in many cases. [...]