On Feb 23, 2009 BGC Partners became one of the first widely known companies to utilize a ‘Notice-and-Access’ release for their quarterly earnings. This approach was based on the SEC’s guidance regarding using websites for disclosure under Reg. FD.Leading up to and following the announcement, a lot of online discussion took place about potential pitfalls. The day after the event, Dominic Jones of IR Web Report provided detailed commentary as to how the event unfolded.
As a follow up to this, I contacted Jason McGruder, VP Investor Relations at BGC Partners to find out why his company decided to utilize notice-and-access, how the process went and what the feedback had been from the market. Finally, I also asked what best practices Jason and his team could share so that other companies considering this approach could learn from their experience.
**Interview**
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Since the SEC released new guidance permitting public companies to (forgo using newswire services and) disclose material information on corporate web sites and blogs, it has been a wait and see period. Many of the issuers I spoke with across the US (as well as inter-listed Canadian companies) are intrigued at the prospect of reducing newswire costs, but do not want to pioneer the web disclosure model.
Instead some are taking steps to transition and ensure that they can meet the SEC’ s criteria (which contrary to what some people would have you believe, doesn’t mean you can just bury information in the bowels of your site and never tell a soul).
So for those of you who take comfort in knowing that others have gone before you, here’s a bit of news on some who are leading the way as well as thoughts on how to improve their approach:
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I received a “Reg FD” Google alert the other day about a new study entitled: “News Dissemination and the Impact of the Business Press” by Phd student, Eugene Soltes. Shortly after this I came across responses to the study by Michael Becker/Business Wire who posted a response that positions the study as endorsement of their services and Anna Snider/IR Magazine who used the study to write another post on her opinion that web disclosure won’t work (it would be nice to see you write about the positive’s now and again Anna). After I read each of these posts I felt compelled to dig into the study to see what it was all about.
First, let’s clarify what the study is about:
The study is about how greater news dissemination increases the visibility of the firm issuing the news and lowers the cost of acquiring information for investors, AND that this has a direct effect on tightening the bid–ask spread, increasing trading volumes and reducing volatility.
The first thing to understand is that ‘news dissemination’ (as defined in the study) is based on the effect of repeating and transmitting the same piece of information through the business press. For example, when the WSJ writes an article about a firm’s earnings, part of the information distributed by that article is strictly the disseminated news (the other part is new information). The degree to which this is measured in the study is based on the number of articles created by the business press from a company issuing a press release.
Therefore, if a press release is issued and has 100 articles written based on it, it is deemed to have a higher degree of dissemination than one that results in only 10 articles. Following this example, the news with more articles (aka dissemination) results in the issuer experiencing a tighter bid-ask spread, increased trading volumes and reduced volatility. it is important to note that this has no impact on the movement of the stock, these effects occur when the stock moves up and when it moves down.
This is not a study or an endorsement of press newswires and their capital market benefits. In fact, according to the research, if a press release is issued and does not receive any press coverage, it is not considered ‘disseminated’ (regardless of how widely it was distributed through a newswire) and therefore was not included in the study. As such, none of the capital market benefits listed in the report would apply.
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A couple of weeks ago Darrell posted about how Twitter is changing the face of communication. If you are not very familiar with Twitter I recommend reading his post as it’s a great overview of the service.
There is no doubt that social media is dramatically changing the landscape of communication and more and more companies are using Twitter to market their products or services and bloggers and journalists around the world are using Twitter to break news.
Two recent events come to mind that demonstrate the power of Twitter, one involving a recent exchange between GE and an investor and the now Twitter-famous Motrin ad scandal. Read more…
The new Reg. FD guidance governing web disclosure has underlined the importance of the corporate web site as a primary source of information for investors and the capital markets. As more issuers look to fully leverage web technologies to meet compliance requirements, the need for integrated disclosure controls and comprehensive records becomes increasingly important.
Determining the best approach to these requirements should not be something delegated to the web master or IT department (although they will ultimately be involved). These are communications, compliance and risk management issues – requiring the involvement of Corporate Legal Counsel, Investor Relations and the Disclosure Committee.
Strong disclosure controls & procedures, supported by consistent, thorough and searchable records is an issuer’s best defence in the wake of a regulatory inquiry. To reduce risk and liability, records should be able to demonstrate due diligence by documenting:
- what was on the web site at any given point in time (including all downloads, presentations and information populated through data feeds)
- the accessibility of the content (to illustrate that negative information wasn’t ‘buried’)
- the full chain of approvals/timelines for information posted to the site
There are several ways that issuers try to capture and maintain records of their web site disclosure including:
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This month marks roughly the 2nd anniversary for Twitter. If you don’t know what Twitter is here is a brief description from Wikipedia:
Twitter is a free social networking and micro-blogging service that allows its users to send and read other users’ updates (otherwise known as tweets ), which are text-based posts of up to 140 characters in length.
Updates are displayed on the user’s profile page and delivered to other users who have signed up to receive them. The sender can restrict delivery to those in his or her circle of friends (delivery to everyone being the default). Users can receive updates via the Twitter website, SMS, RSS, email or through an application such as Twhirl or Facebook.
Twitter was officially launched in October 2006 and by many accounts is now the fastest growing social network in the world with more than 400% growth over the last 12 months. According to TwitDir there are now just over 3.2 million. In all likelihood by the time I’m finished writing this post it’ll be around 3.3 million.
What makes Twitter so interesting is the accessibility of the platform. Unlike blogging, posting to Twitter is super easy as each post can only be 140 characters long. Combined with its ability to instantly notify huge numbers of people, what is emerging is the new global shared notification system. Here are a couple examples from Wikipedia
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The other day I came across a Tweet from Tom Becktold at BusinessWire:
becktold From IR Magazine: Perils in relying on company website as primary channel http://tinyurl.com/6qnlx9 about 3 hours ago from web
I’m always interested to see what IR Magazine has to say so I checked it out. I was disappointed to see the article was based on a “study” from The Equity Group that says the majority of security lawyers don’t support web-site disclosure. I dug in more and found the press release that the article was based on.
Here are a couple of key things to note…
The Equity Group was commissioned by someone to conduct this study. They spoke to 15 security lawyers and used this as their sample, which according to research experts , falls well below what would be required to represent the full population of US securities lawyers. In addition, no information was given as to the nature of the survey – which as it turns out, was actually a poll. Personally I would love to see what the actual questions in the poll are.
According to the Equity Group, an ‘overwhelming majority’ are against web disclosure. In addition to the problems associated with the sample size and the ‘survey’ itself, let’s take a look at some of the ‘problems’ the article identifies with respect to the Reg. FD web disclosure model:
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Every now and then something happens in the market that almost demands for me to shout from the rooftops about what we’re doing here at Q4.
On August 1 the SEC issued new guidance that deems corporate web sites and blogs as compliant with Reg. FD providing that certain criteria are met. This allows a public company to disclose information on their corporate web site, without having to issue a press release through an approved news wire service.
What’s bad for the newswires, whom have long enjoyed a guaranteed flow of business, is great news for issuers who stand to save tens or hundreds of thousands of dollars in newswire fees. Considering the economic climate, this couldn’t happen at a better time, as companies look to trim the fat.
Many issuers are adopting a ‘wait and see’ attitude, looking to their peers to see how the market responds to the new Reg. FD web disclosure model. Others are starting now to transition their web sites toward Reg. FD compliance. Darrell Heaps, CEO of Q4 Web Systems, wrote an interesting blog post on how to make your web site a ‘public’ disclosure channel under new SEC guidance and Reg. FD.
Q4 Web Systems has long recognized the importance of web disclosure and the inevitability of this new legislation. More than 3 years ago we built Q4 WEB – a fully-featured IR web content and disclosure management system that is a perfect response to the SEC’s new guidance. Here’s why:
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