Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Saturday, January 22, 2005

If you only read one thing…


Please make it the Price Sensitive Information Guide from the UK Listing Authority.

The PSI Guide is a wonderfully helpful document, in that it does not ADD to the obligations in the Listing Rules, and there is no obligation to follow the guide slavishly, however if the Guide is adhered to in the circumstances foreseen by the Guide, the Listing Authority will view this as compliance.

Picking from among its 43 pages and 27 chapters…

It deals with the concept of ‘materiality’ by highlighting that there is no set quantum of change in a share price that constitutes ‘a substantial movement’. In some continental European countries, where for example an expected change of 5% should trigger a release, create a problem for issuers. How is an issuer expected to read the market as accurately? And absurdly, if an issuers’ results are smack in line with forecasts, and likely therefore NOT to move the market, should they be disclosed?

The Guide also helps on rumours. It points out that having nothng to announce can be price sensitive, and it confirms that issuers are under no obligation to deny wholly unfounded rumours.

Mosaic. The Guide specifically advises against a mosaic approach to allowing price sensitive information to seep into the market. Contrast this with the US, where...

Unexpected events merit specific mentions; the Guide highlights that short delay is acceptable in making the announcement to clarify the situation. However case law suggests that this should be limited to 24/48 hours, and that most have applied to profits warning announcements.

It also offers a lot on analysts relationships and guidance. Again in contrast to the US practices, the Guide highlights that companies are not obliged to correct public forecasts, but should consider correcting major errors, especially those based on underlying, published price sensitive information.

And finally the Guide reminds issuers of the ‘out of hours’ procedures, where the RIS service is closed. Id price sensitive information becomes known during these hours, issuers should send it to 2 UK national newspapers and 2 UK newswire services. This requirement also highlights the distinction of the so called ‘Friday night drop’ where – in the past – companies and their advisors may have been trying to win coverage in the business section of the Sunday newspapers by releasing news under embargo to those newspapers. This has now been specifically outlawed.

In summary, the Guide is useful in providing examples of good and bad practice.

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