Mark Hynes - thoughts on corporate disclosure

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

Wednesday, July 23, 2008

Hot on the heels of HBOS rumours, calls for action from US regulators

“To comment on rumours or not; that’s the question.” To paraphrase Hamlet it is indeed a question of growing importance on both sides of the Atlantic. Companies across the world are suffering the “slings and arrows of outrageous fortune” (OK enough Shakespeare) and share prices are suffering as a consequence.

The New York Times piece 2 weeks ago on troubles at Lehman Brothers has highlighted how fast rumours can travel, and how much impact they can have the subject of the rumour. Lehmans stock has fallen 70% in the last year – and 10% in the last month – on rumours on their financial troubles and the potential sale to Barclays.

As a consequence many in the US are calling for increased action from the regulators. Of course in the UK, we have seen the fast (and demanding) introduction of rules on short selling in during a rights issue. (Of course whether rights continue after the HBOS scenario is another subject…).

However, for me the question reverts to one of investor relations. It starts with the (critical) decision from the company and its policy on disclosures, as to whether to comment on rumours at all.

As so often the rules in the US and the UK vary quite widely. In the UK (DTR 2.7.1):

“Where there is press speculation or market rumour regarding an issuer, the issuer should assess whether a disclosure obligation arises under DTR 2.2.1 R. To do this an issuer will need to carefully assess whether the speculation or rumour has given rise to a situation where the issuer has inside information.” Full text

whereas as in the US (NYSE 202.03)

“The market activity of a company’s securities should be closely watched at a time when consideration is being given to significant corporate matters. If rumors or unusual market activity indicate that information on impending developments has leaked out, a frank and explicit announcement is clearly required. Full text.

One gives clear guidance, the other suggests an assessment.

As always, this blog will argue for the widest possible transparency. Its about believeability. If the company has a habit of responding to rumours and consistently keeping the market informed, investors will tend to support the company.


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