Are sophisticated professional investors getting important market information minutes before the general public? That’s what investor relations technology consultant Dominic Jones claims today.
The problem is that companies have been slow to use their websites to make public disclosures, even after the SEC attempted to clear away regulatory legal hurdles that companies feared might penalise them for using the web. Instead, many rely on public relations wire services to make disclosures. This is a lucrative gig for the wire services–one popular service, Business Wire, is owned by Warren Buffett–but because of the way the wire services distribute information, some investors may be given an advantage.
“What few people realise 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.”
He cites our sibling site AlleyInsider as one place where we witnessed this in action.
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.
We can’t think of any innocent reason why a company wouldn’t post disclosure documents on the front page of their websites at the same time as they are released by wire services. The Federal Reserve, a government bureacracy, manages to make timely statements on its website. Why shouldn’t a large public company be able to manage it? It’s even worse when that public company is an internet company.
(Hat Tip: Securities Docket.)
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