Flying in the face of protest, the SEC has approved a controversial new NYSE rule giving issuers free IR services. Service providers outside of the exchange’s coterie of partners bitterly opposed the change, saying it would squash competition and stifle innovation.
The free services, which include market intelligence from Thomson Reuters, Ipreo and the exchange itself, plus website hosting and press release distribution, can add up to nearly $100,000 for top-tier issuers.
While the rule is new, the free services aren’t. The NYSE began favouring issuers with freebies after it launched its Market Access centre and partnered with Ipreo and Thomson in late 2008.
Inside NASDAQ, whose schemes to woo issuers with free offerings have repeatedly been blocked, the practice was derided as ‘the NYSE gift card.’
The NYSE told Inside Investor Relations its rule proposal was a response to a request from the SEC, which suggests that the problem wasn’t the free services but the shadowy manner in which they were given away. As its ruling shows, the SEC wants issuers treated fairly and transparently, and it believes the NYSE’s new rule achieves that.
Companies that compete with Thomson and Ipreo, including MZ Group, which earlier this year bought Ilios, as well as PrecisionIR and SNL Financial, objected in comments to the SEC, saying the NYSE’s system of perks would lower the quality of IR services, drive small providers out of business and deter others from getting going in the first place.
The SEC not only batted down these vendors, it threw their words back at them. Its ruling repeatedly cites Darrell Heaps of Q4 Web Systems as proof that others can ably compete with the NYSE’s partners; his comment letter said Q4 recently took over website hosting for several former Thomson clients because of limitations and poor service.
Another commenter, who, like Heaps, questioned the quality of the free services, said many issuers have continued to use their existing service providers despite the NYSE’s free services – which the SEC took as proof of the plan’s competitiveness.
The SEC appears to have been comforted by the NYSE’s official response to the negative comments, which said issuers don’t have to use its free services. Also, its partnerships aren’t exclusive, and high-quality vendors can apply to join the roster.
The SEC comes across as sympathetic to the mighty old Big Board, saying the exchange is responding to the ‘competitive pressures’ in the market for listings, and that it needs to give away products and services to attract new listings and retain current ones.
As the controversy mounted, the SEC in early July extended its review period, leading your correspondent to predict the NYSE rule would be trashed.
After all, NASDAQ’s efforts to bundle IR services had been repeatedly stomped on. But Inside Investor Relations also suggested that a victory for the NYSE would be a victory for NASDAQ, too, because now it could resurrect its own free packages.
Too bad about the timing, though, with a former market intelligence worker from NASDAQ just sent to jail for insider trading. It’s hard to sell that kind of service, much less give it away.
[Article by Neil Stewart, Inside Investor Relations]