Back in the 1980s, when the film “Wall Street” was all the rage in Hollywood, corporate earnings releases were still somewhat of an inside game.
In the heady days before the 1987 market crash, a savvy trader could grab the earnings off “the wire” and trade for a moment or two before the general public got the full message. Greed really was good for business, especially for those with quick eyes and nimble fingers.
But then, in August 2000, came Regulation FD and the Securities and Exchange Commission’s mandate that earnings releases be public and publicly available. A proliferation of websites such as Yahoo Finance and MSN Money made sure the releases went out at literally the same moment as SEC filings. The earnings game was at an endgame.
Now a sequel to “Wall Street,” tagged “Money Never Sleeps,” is making the rounds, and the SEC is going a bit wobbly on what “full disclosure” really means.
As Andrew Ross Sorkin pointed out in a recent edition of his DealBook blog at NYTimes.com, some large corporations have asked the SEC whether merely posting their earnings on their corporate websites, without a broader release, constitutes compliance.
The SEC guidance suggests that might be good enough, a move that raises all sorts of questions about whether a new generation of Gordon Geckos might rig the earnings game. “The web is making this all very complicated,” Sorkin wrote via e-mail. Some immediate issues:
• After an earnings release is posted to a corporate website, investors can expect delays of perhaps 30 minutes or more before a news organization is able post them for wider — and, we would argue, truly public — distribution.
What happens in that 30 minutes in terms of trading probably gives a huge advantage to any private equity fund or hedge fund that has a way to permanently mine the corporate site for earnings data. Companies the size of Teledyne or Semtech — two relatively large public companies in the Tri-Counties — could post earnings without any broader public dissemination for hours.
• According to a memo making the rounds, one Wall Street firm has found instances in which earnings figures for Disney and NetApp were inadvertently posted by the companies in documents meant to accompany earnings conference calls. In both cases Bloomberg got the scoop because it has become expert at “scraping” the websites of big public companies for just such document-posting snafus.
Bloomberg is doing what any street-smart journalist would do — scouring every last bit of the web for documents that might be sitting outside of a password-protected area. At least it has honest competitive instincts in making the information available.
Hedge funds may already have spiders, bots or whatever you want to call them crawling over the websites of public companies looking for a misplaced earnings document. In addition to never sleeping, Wall Street’s newest devices never demand bonuses, raises or overtime.
But getting access to public documents prior to their release without anybody else knowing you’ve got them would indeed change the whole earnings game.
• This editorial was adapted from a column by Editor Henry Dubroff for www.sabew.org, the website of the Society of American Business Editors and Writers. He is a past president of the organization.