Listing Standards and International Enforcement

The WSJ provided a short article on the resolution by OMX (the Nordic Stock Exchange recently acquired by Nasdaq) of an alleged violation of listing standards.  Here is the article in toto:

• Telefon AB L.M. Ericsson didn't violate OMX AB's listing regulations by making an announcement about sales forecasts at an analyst conference last year, the Nordic stock-exchange operator concluded.
• OMX's disciplinary committee began a review after officials from the wireless equipment maker told a group of analysts in New York that sales for the fourth quarter were likely to be at the lower end of the previously forecast range.
• The November announcement, which wasn't communicated to the overall market, sent shares in Ericsson down more than 10%. OMX said the committee found the announcement was inappropriate but that "it would have been excessive to classify this as a contravention of the listing agreement."

We have no idea about the merits but what seems clear is that Ericsson engaged in selective disclosure and that this was found to be consistent with the listing standards of the exchange.  This sends a message that ordinary investors, those not invited to the analyst conference, lose out.

In the US, there is a different message.  This same issue would not be a matter for the stock exchanges.  Regulation FD, which is enforced by the Commission, requires that disclosure to analysts be accompanied by disclosure to the entire market, either simultaneously or promptly thereafter.  There are some matters too important to be left to enforcement by a for profit company.   

Comments

[RJP]

While you raise a good point about Reg FD, (1) this wasn't a rule in the US until relatively recently, and (2) isn't the rule in most of the world. Personally, I think Reg FD is a good thing, but, to be fair, the message you state is being sent by OMX is the same message that the NYSE, Nasdaq and every other American exchange sent until 2000. (And, as you know, the real reason that Reg FD was created wasn't to give ordinary investors better direct access to issuer information, but to prevent issuers from blackballing analysts that gave issuers unfavorable reviews.)

[J. Robert Brown]

All true. But in an era when stock exchanges have become "for profit," the pressure is to maximize revenue, reducing even further the incentive to enforce. And, as I have noted on this blog, problems of enforcement exist with the exchanges in the US. See http://www.theracetothebottom.org/the-sec-governance/commission-disclosure-requirements-and-a-private-right-of-ac.html One wonders whether there ought to be a alternative enforcement mechanism for listing standards.