Mark Hynes - thoughts on corporate disclosure

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

Thursday, February 26, 2009

Ban short selling, enforce disclosure or both?

Next Tuesday I have the pleasure of moderating a webinar with 3 distinguished speakers. Details are on the IR Society’s website here. The title is "Shorting - To Ban or Not To Ban". It’s an interesting question, to which I suspect many regulators would like to know the answer.

In the US the ban was short-lived and in the UK it was lifted last month, as was Australia’s. But Belgium, France, Germany and Switzerland extended their bans until further notice or through to the spring. CESR maintains a list here. This week the French regulators have started a consultation process allowing the market until early April to give feedback on the ideas offered by a working group the AMF commissioned back in September.

Many would argue that short selling is a force for good when used in investment strategies and risk management activities to enhance returns to investors. It contributes to market liquidity, reduces transaction costs and helps ensure pricing efficiency. Research from Cass Business School and from Edhec Risk & Asset Management Research Centre argued that short selling does not get in the way of efficient markets.

So the wider argument may be around the issue of disclosure, where views from the market differ. Regular short sellers argue that disclosures of short positions give the wider market access to the proprietary research that they have done. And trading platforms exist that will mimic their strategies, based on those disclosures.

Meanwhile, IR may argue that withholding information about who influences their shares creates an unbalanced – and hence unfair – market. The argument will rumble on, with many similarities to that surrounding long CFD’s. (By the way, look for an FSA announcement on the new CFD rules next Tuesday).

But what about stock lending? Stock lending is not a proxy for short selling, but IR would welcome the non aggregated disclosure of stock lending positions to enhance the quality of their share register analysis. And in fact the Reserve Bank of Australia has just announced that ASX will require all transactions related to securities loans to be ‘tagged’ when they are submitted for settlement, and the ASX will publish data on securities loan transactions and the stock of loans outstanding on a daily basis.

So the debate on Tuesday will be interesting.

Thursday, February 19, 2009

The IRO – from communicator to accountant and now to compliance?

Has the IR profession taken another turn? I only ask because, in managing another Compliance course for the IR Society yesterday, it is evident that the interest in compliance issues is now high up on the agenda for many companies.

25 years ago, when IR was young, a lot of the early practitioners were communications people. Perhaps coming from PR or corporate communications departments.

Fast forward a few years, and a financial background was essential. Qualified accountants and ex analysts came in to help support the financial story, with others coming from Treasury. Many are still there. I suspect a survey of the professional background of IR people would show a majority with this sort of training.

However the landslide of new and changed rules in IR, triggered by European Commission and their aim of a single European market for capital raising, is changing this. Since 2005, we have seen complete rewrites of the FSA Handbook, the Companies Act, the market abuse rules, rules on takeovers.....As a result, best practice among companies is changing fast.

Evidenced by the rising number of sanctions from regulators, the recession is also creating a stepping up of supervision of compliance.

So how are companies reacting to this? Where does the balance lie between IR and the company secretariat, legal and external advisors? If there is tension between managing the company’s communications and ensuring that company is seen to comply, how will that balance be achieved?

In the US, various mandatory filings, such as the MD&A, have become dominated by safe harbour statements, rather than being used as a potential communications opportunity; is the European market headed into a similarly compliance dominated world?

IR professionals have always had to be aware of the compliance obligations. However in this brave new environment, it may be that we will see more compliance-trained people coming to the job.

Tuesday, February 10, 2009

Social media – why haven’t IR embraced it?

Can I try something out on you?

Why does the social networking revolution seem to have been largely ignored by the IR community? Apart from the occasional excellent blog, and some online YouTube annual reports, companies and their IR teams seem not to want to use the social media.

I only ask because IR people – in my experience – are the most excellent networkers. They have to be able to keep up with large communities of investors, maintaining the changes and managing the flow of information. Therefore ignoring the tools of networking seems to me to miss an opportunity.

Maybe its because the social media are simply about individual investors? After all, they largely rely on traditional media, annual reports and corporate websites to get whatever they need. However there is a movement in the US, which seems to me to be creating a new breed of investor; neither institutional nor ‘retail’.

Social media has created a suite of – largely free - tools which allows these investors to manage their portfolios in new ways. There is a terrific blog New Rules of Investing which describes some of these.

The word ‘free’ is important. The current discussions going on between the FT and Blackstone on the use of multiple accesses to FT content through one paid for password, seems to highlight the potential for paid for media to be replaced by free, social media, research and tools created by and for this new breed of investor. They share information about companies and trade on the back of these. Aside from those mentioned in the above blog, is an example of what’s happening in the Twitter world.

If these services are as good as they seem, individual investors will by-pass traditional media – the target of IR programmes – and influence stock prices directly between themselves. Aside from being a missed opportunity, it may also be a risk in allowing unanswered criticisms.

I’d be really interested to know whether investor relations IS using these tools to share the company’s equity story – and I simply haven’t seen it, or whether this is an opportunity created in the US, which may be coming to the UK soon.