To ensure the proper operation of the financial markets, it is vital that investors receive up-to-date information about the companies they invest in. The FSA’s listing rules set out the circumstances in which listed companies are required to make announcements. The range of this information is very wide, from daily statements of net asset value by investment companies, which are only one or two sentences in length, to detailed announcements of price-sensitive information such as a major acquisition, merger or profits warning. It is essential that investors receive this information promptly and that they can be certain it is accurate. From a company’s perspective, ensuring that the way it provides regulatory information to investors is secure and cost-efficient is of key concern.
Listed companies currently make announcements through the Regulatory News Service run by the London Stock Exchange. On May 2 the Financial Services Authority published proposals in Consultation Paper 92: Review of the UK mechanism for disseminating regulatory information by listed companies. This sets out how announcements should be made available in future and addresses what the users of such a system (from listed companies and their advisors to investors, private and institutional) want out of the news system.
Users told us they want full, accurate and easily accessible real-time regulatory information. This requires:
-a high level of security over input, processing and output to avoid erroneous announcements being released or information leaking into the market;
-a user-friendly input method;
-adequate access for end users to the regulatory information. It is essential that regulatory news be distributed widely enough to allow as many interested people as possible to gain access to it as quickly as possible. It was clear from discussions that all users want access to the full text of regulatory announcements from one source, as well as, or in preference to, edited text.
It is important that, whatever the system, private investors should not be disadvantaged in terms of equality of access to information;
-a transparent charging structure so companies can see how much they’ll have to pay, when and for what; and
-no significant increase in charges.
Competing providers
We want to enable listed companies to publish their regulatory announcements through any one of a number of FSA approved services. An approved service will then act on behalf of listed companies by passing these announcements on to news vendors, such as Reuters, Bloomberg, AFX News and Dow Jones, as well as to internet providers, as the RNS currently does. It is through these vendors that investors will typically access the news. Our proposals are summarized in the diagram on the next page.
There are a number of companies, both in the UK and elsewhere, such as PR Newswire, Business Wire, Hugin Online and Ubiqus, already providing the required service which is currently carried out exclusively in the UK by the London Stock Exchange.
If, as we expect, more than one provider should be approved, each will be able to compete freely with others for the custom of listed companies. Competition will be based primarily on price, service levels and the overall package of services offered.
We believe the main advantages of competition are to ensure costs are transparent and kept low and that the latest technology is used for input, processing and distribution.
The alternatives to introducing competition merely result in the perpetuation of the existing monopoly, albeit under tightly regulated conditions. We also believe these alternatives are likely to be less cost-effective than our proposed model. Under the alternative proposals the monopoly would be held by, or on behalf of the FSA, but this would not address all the disadvantages of a monopolistic system, in particular the need to ensure that the technology is kept up-to-date.
We also looked at licensing one provider to provide the service exclusively for a specified period. However, this is potentially disruptive to listed companies who could build a relationship with the licensee, only to see that licensee replaced by another on a frequent basis.
Service levels
In order to be approved by the FSA, each prospective provider will have to demonstrate that its service meets certain minimum standards which reflect the requirements specified by users – particularly in terms of security, timely processing, distribution and ease of use. They will be required to demonstrate that their service meets the criteria in all these areas, both before the FSA grants approval and on a continuing basis, relying on the results of an independent audit on application and annually thereafter.
It is particularly important to us that users do not need to go to more than one place to access the announcements. We have been assured by a number of information vendors that they will collate all the regulatory information from the various providers and make the complete range of announcements available on their systems at no extra cost to their customers.
We recognize that many private investors will not want to pay for these services from information vendors and will want cheap access. At present, private investors can access free or low-cost real-time regulatory information via the internet, using sites such as hemscott.net, Interactive Investor and, starting recently, the LSE. We expect that at least some of these internet sites will provide collated information as they believe this is an important part of the service they provide to their customers. We do not, therefore, see a need to provide an alternative source of this news specifically aimed at private investors.
However, should we find that no free or low-cost aggregated service is available in the future, we will provide a web site to provide an aggregated source of real-time regulatory information. This would involve development and maintenance costs that will need to be borne by the market and, although access would be free or low cost, the FSA would seek to recover such costs through the annual listing fees paid by listed companies.
Costs
We believe our proposals will result in lower costs to the market as a whole, although the charges paid by some listed companies may increase. Under the current system, it is not clear how the RNS is funded, although part of the overall costs (up to £1.5 mn per year) are funded through listing fees paid to the FSA, which are passed on to the LSE. As listing fees are broadly the same for all listed companies, firms issuing few RNS announcements (typically smaller companies) subsidize those issuing many. The proposed cost structures from companies interested in becoming approved information providers are much fairer, being based on number and type of announcement issued.
Although costs to some listed companies may increase, it is important to bear in mind that the absolute amounts involved in making announcements are not high. For example, we have looked at a typical FTSE 100 company and the cost for its announcements over a one-year period under our proposals would be approximately £7,000. The proposals will also result in a more transparent pricing structure, allowing listed companies to compare competing information providers.
Next steps
Listed companies will benefit from continued improvements in the input mechanisms, with the latest technology used to facilitate input. Competition should also ensure that charges are proportionate to the service provided and are completely transparent.
In addition, any cost savings to the FSA as a result of implementing the proposals will be passed on to listed companies through lower UKLA listing fees.
It is important to stress that, although our proposals are set out in detail, these proposals are offered to market users for comment. A number of specific questions and issues are highlighted throughout the body of the consultation paper, which is available from the FSA (www.fsa.gov.uk). We welcome comments on these questions and on any aspect of the proposals by August 1, 2001.
During the consultation period and beyond we will be working with potential providers to ensure that, should our proposals be accepted, we will be in a position to approve providers and ensure their systems are ready to start by the end of 2001.
Iain Wright is head of the equity and capital markets group at the FSA. This group considers applications for listing and reviews and approves prospectuses, offering circulars and other documentation published by issuers for all equity and specialist securities. He is responsible for the information dissemination project.
