Senior managements are constantly working under pressure from news media,
including Wall Street analysts’ news and regulatory agencies.
4.11 A case for regulated financial news media
There is a case to be made about what constitutes news coming from financial news
media regarding publicly traded companies in the US. Given that the public perceives
news articles coming from prestigious news sources as being ‘‘material’’ news, shouldn’t
these news articles abide by the same rules as the company they write about?
Take the following example, which unfortunately is a real-life example that happened
a few years back. A prestigious news source wrote an article about a big public company
that basically said the company’s CEO reported that the market share for the company’s
products was going to decrease by 10% over the next year. The market reacted to the
news immediately by bringing the stock price down by over 5%. It turned out that the
news reporter made a mistake. The CEO was talking about the overall market decreas-
ing by 10% and not about the company’s market share, which he had actually forecast
as going to increase by 10% or so. The publisher did update the story but the stock price
took days, if not weeks, to recover from that first erroneous report.
Publicly traded companies spend a considerable amount of time and money before
they release material information about the company. They do that because they need to
abide by current laws and because they are aware of stock price implications.
Shouldn’t financial news organizations be subject to the same rules and, yes, the same
amount of rigorous attention and expense in time and money before they publish news
that could affect a company’s stock price?
4.12 Wall Street analysts may create ‘‘material’’ news
Issues regarding the timeliness of news reports are reflected in the caseBarclays Capital
et al v. Theflyonthewall.com Inc., U.S. District Court, Southern District of New York,
No. 06-04908 which considered important questions regarding the news that Wall Street
creates.
The case surrounds the fact that Theflyonthewall.com made a business out of posting
in real time news that it finds in ‘‘proprietary’’ research reports about publicly traded
companies. Interestingly enough, the judges allowed Theflyonthewall.com to post the
news under the condition that they delay the postings.
Lost in the battle was the real question, though: Shouldn’t the ‘‘material’’ findings of
the reports themselves be available to the public, as per the requirements of regulation
FD?
Apparently, the judges are fine with letting major institutions have a legup on the
investing public and potentially profiting from the timeliness of the information
contained in those reports.
Wall Street loves having an edge—who doesn’t? But if strict regulations are in place
for corporations regarding ‘‘material’’ news, shouldn’t everyone abide by the same
rules?
116 Quantifying news: Alternative metrics