Backlash from service providers and precedents at NASDAQ don’t bode well for proposed NYSE rule
The SEC this week extended the review period for a controversial NYSE rule that would formalize a bundle of IR services for listed companies.
It is likely that the NYSE’s plans will be stymied, delighting the few dozen service providers that have complained that the NYSE is squashing competition and stifling innovation in IR services. There are precedents: NASDAQ has twice been reined in when it tried to bundle similar services for its listed companies.
A negative decision from the SEC would also jeopardize the NYSE’s existing ‘gift card’ scheme, an informal system in place since 2009.
In a May SEC filing, the NYSE outlined a structure for providing free IR services including its own market intelligence as well as services from Thomson Reuters and Ipreo such as press release distribution, website hosting, shareholder ID and surveillance. New issuers would get a package worth nearly $100,000 a year, while existing large issuers would get a package worth around $60,000.
The original comment period was meant to expire on July 7, but the SEC has extended it another 45 days until August 21. By then the SEC will have to approve or disapprove the scheme, or launch a bigger review.
The NYSE previously told IR magazine that its May filing was requested by the SEC. That implies that the commission wanted the NYSE’s two-and-a-half-year-old freebie scheme to be formalized. In late 2008 the NYSE created a market access center and partnered with Ipreo and Thomson to give listed companies other market intelligence services on an ad hoc basis.
Inside NASDAQ, all the way to the top, the Big Board’s subsidized package was bitterly called ‘the NYSE gift card’. Meanwhile, issuers complained that it wasn’t clear who was eligible for the free services, and even those that got them disliked being pressured to use only Thomson or Ipreo. In response the NYSE expanded the service to include other services from Thomson, like IR website hosting, rather than just shareholder ID and surveillance.
Bundle of trouble
NASDAQ must be keenly watching the SEC’s decision. In 2006 it made the mistake of proposing higher listing fees at the same time as it introduced bundled services under a new division, NASDAQ OMX Corporate Services, including website hosting and press release distribution from its newly acquired assets Shareholder.com and GlobeNewswire.
After a backlash from competing service providers as well as some issuers, NASDAQ retreated and the new listing fees came into effect in 2007 without any bundled services. Instead, NASDAQ offered a free sampling of basic services for a limited amount of time, and at the SEC’s prompting, made the package available to any company, regardless of where it was listed or was planning to list.
Over time, and especially after the advent of the NYSE gift card, NASDAQ began bundling more services and offering discounts to existing and prospective issuers despite the SEC’s earlier strictures.
When NASDAQ proposed another listing fee increase in 2009, competing service providers attacked again. Spearheaded by Business Wire, a competitor in the lucrative business of news releases, they complained to the SEC about the way NASDAQ was offering free trials or discounts as part of discussions over where an issuer would list.
In February 2010 NASDAQ retreated for a second time. While it said it would still offer a core services package and may give discounts to companies, there would be no link to where an issuer is listed or will be listed.
The upshot is that the SEC has repeatedly come down heavily on NASDAQ’s practice of giving away IR services. Given those precedents, it seems unlikely that it will green-light the NYSE’s plan.
If it does, however, the path will be open for NASDAQ to aggressively push ahead with the type of bundling that it had to abandon in the past, so a positive decision could be a Pyrrhic victory for the NYSE.
The SEC is still taking comments here, and the 18 or so comments received to date – with a response from the NYSE – can be read here.
Less formal feedback
After IR magazine's article on June 22, including an interview with the NYSE saying it didn’t have exclusive vendor agreements and would be open to new partners, we got some good comments from readers:
‘Yes, but who does one contact to become a partner? We've written countless emails to ask this question – of which, not a single reply has been given. Saying it and following through with it are two different things. If they are receptive to having people bid to become partners, they need to provide a means of actually allowing that to happen – who to contact, contact details and so on.’
‘Compliance is one thing. Doing something about increasing the capital formation of the corporation quite another.’
‘Free IR services given to companies as an incentive as one gives an extra tube of toothpaste in a package to encourage consumers to try the brand, has continued to devalue and commoditize the discipline and will ultimately minimize its importance within corporations. If companies get it for nothing, how important can it be? And why should a company pay for a high-priced IRO when a junior can figure out how to distribute a release and produce a list from a free service? It has reduced investor relations to a commodity rather than the strategic function it truly should be. Most of the large organizations giving away investor relations don’t really understand how to position a company, what makes a really good presentation, how to handle a crisis in these days of social media, how to provide counsel drawing on years and years of experience to keep companies out of trouble, how to really counsel the board on likely market reactions to management decisions, how to really identify issues affecting valuation, and how to identify the really important institutions by factors other than size. Computer programs are wonderful and an excellent addition to investor relations, but they cannot replace it. If we want to truly devalue investor relations, bundling it into computer programs and giving it away for free is the best way to do it.’
