News Analysis: FSA's disclosure ideas stir dissent

Tom Williams discovers how the FSA's proposed shake-up of the timing of major company announcements could unsettle the markets and hamper IR practitioners.

The sharp intake of breath at last week's meeting between financial PROs and the Financial Services Authority at the IPR must have been audible.

During an apparently innocuous slide presentation on the dos and don'ts of disclosing information that might affect a company's market price, FSA director of markets Gay Huey Evans indicated that the FSA did not like embargos and that company board meetings that agreed results in the afternoon should release the information straight away.

The death knell of the embargo, through which companies approve publication of price-sensitive information but hold release until the regulator deadline of 7am the following day, did not go down well.

Unrealistic aims

'I think (Evans) was under the impression that everything that goes out on the Regulatory News Service (RNS) is written about by the press, which is just not realistic. (The FSA) is more interested in getting the information out to the market, regardless of how it is communicated,' says Mj2 director Richard Sunderland, who attended last Tuesday's meeting.

Concerns focus on the practical implications of the change mooted by Evans on the analysts and financial journalists who follow stock market-quoted companies. Financial analysts tend to get into work early and leave around 4:30pm, while financial journalists, though no doubt used to late nights, are not likely to be at their sharpest or have the time to scrutinise a trading statement properly at the end of the day.

As The Maitland Consultancy partner Duncan Campbell-Smith puts it: 'You have to wonder about the desirability of any changes that could pitch company results into the market in the late afternoon. Neither the City nor the media are geared to that timetable.'

But Campbell-Smith's concerns - shared by many - are not simply about a shake up in their working day. They fear that an undignified rush to get information out to the market will ruin the considered way in which, they argue, the market digests new information. They believe abandoning the 7am cut-off for a kind of fire-and-forget afternoon release time would leave little scope for effective financial PR.

'While companies might get the results signed off the night before, there can often be changes right up to the wire,' says Campbell-Smith.

'But no one really needs to know this because the full picture will be made public at 7am. As soon as you say that results have to be published immediately after the board have agreed the figures, you will have people hanging around all afternoon waiting for the RNS release,' he adds. 'The greater the delay, the more journalists and the market will be inclined to speculate what is going on behind the scenes.'

Some financial PROs might think financial journalists, and particularly newswire hacks eager to break the story as the day progresses, might welcome such a development.

But some experienced company writers take a very different view, pointing out that the FSA could unintentionally inflict a great deal of volatility on the market, as company share prices spike and dip in the build-up to and aftermath of a later afternoon announcement.

'This would be a nightmare for journalists not to mention investors,' says Financial Times UK companies editor Charles Pretzlik. 'If the results are released in the late afternoon when trading is thin it would risk making a more disorderly market and I am sure that is not the FSA's intention.'

Pretzlik argues that any change would make it more difficult for companies to 'drip-feed news to the market' and that while he acknowledges there may be certain benefits in getting information out immediately, he fears the sudden jolts that would result from a market trying to catch up the following morning.

Another senior market source, who preferred not to be named, says he is horrified at the prospect of the end of the 7am embargo and doubts if the FSA would be able to make the new regime work.

'Listed companies have an obligation to communicate with the market effectively and in an orderly fashion. To do that as the market is going home strikes me as absurd,' he says.

Framework for disclosure

The FSA may have sensed this concern, and already appears to be backtracking on Evans's suggestion, insisting that no changes are planned before the regulator announces how it will implement the European Union's Market Abuse Directive, which sets a common framework for tackling insider dealing and market manipulation in the EU and the proper disclosure of information.

But the fact that Evans suggested these changes and talked tough about how companies answer questions about uncompleted deals and the 'Friday Night Drop' - a practice most PROs and journalists argue is no longer extensively used - shows that the regulator is flexing its muscles and testing the sentiments of the financial PR community.

Pretzlik says the change has not gone unnoticed. 'Things are going to get more complicated because regulators on both sides of the Atlantic are extremely nervous about (a lack of) equal disclosure,' he says.

Financial PROs will have to wait a month or two to find out just how nervous the FSA is, and how serious it is about turning the world of financial comms upside down.

DISCLOSURE: WHAT IS THE FSA'S POSITION?

- Selective disclosure - The disclosure of information to an individual source that might substantially affect a company's share price is not allowed. But in certain defined circumstances companies can discuss this information with their advisers, though these advisers are bound by the same rules.

- The Friday Night Drop - The phrase for keeping price-sensitive information confidential until Friday evening in order to give snippets to favoured Sunday newspaper journalists to get positive weekend press coverage, is against listing rules. Price-sensitive information must be released without delay. If a regulatory information service is closed, companies have to give the full announcement, to at least two UK national newspapers and two newswires.

- Price-sensitive decisions - Companies must tell a regulatory information service about price-sensitive decisions such as board appointments and trading statements immediately and no later than 7:30am on the next business day. The FSA says this will not change until the regulator implements the EU's Market Abuse Directive next month.

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