PIPs to the Post

Has opening up the market improved the cost and quality of regulatory news distribution – announcements such as results, mergers, acquisitions and directors’ share dealings? Eighteen months after it started, the answer is a definite maybe.

When the Financial Services Authority first said it planned to approve competitive primary information providers (PIPs), FSA managing director Michael Foot predicted that competition would make “information dissemination cheaper for the market as a whole”.

According to Foot, “Listed companies should also benefit from a more transparent and fair pricing structure for their listing needs, and from being able to choose the information provider that can offer the best deal.”

The usual benefits of competition were trotted out to justify the new system. “All types of investor will benefit from having instant access to all company announcements,” Foot said. Has it happened?

In fact, there were seven entrants at the starting blocks when the competitive market opened in spring last year. But in the year-and-a-half since the new system has been operating, the eager new competitors have made little impact on the London Stock Exchange’s market share.

Best estimates suggest RNS holds 80% of the regulatory news business, with the remaining five competitors (Newslink suspended its service in June) scrambling for the crumbs (see panel). Perhaps the new hopeful will continue to nibble away at RNS’s share, but there doesn’t seem any prospect of a competitive market – in the sense of having several evenly matched competitors – appearing in future.

But Ken Rushton, director of listing at the FSA, seems content with the progress so far. “We were very pleased that we got seven approved suppliers which met our quality standards. Seven was rather more than we had expected, and the fact that it has only gone down to six is equally satisfying.”

Rushton says it’s for the market to decide whether one supplier should dominate. “It doesn’t trouble us. We want to ensure we have good, proper disclosure of pricing information. We are satisfied we have got that.”

But although nobody wants to stick their head above the parapet, there are whispers that the market could consolidate further. After all, just how many primary information providers does a stock market need?

Among users, there seems to be a cautious welcome for the new system. Quite a few people believe that RNS needed the salutary kick in the pants a monopoly needs to get itself more closely aligned with what the clients want. Most announcements are routed from listed companies through their financial PR advisers to the chosen service.

One firm that has changed is independent corporate and financial communication adviser Waughton.

It switched from RNS to Disclose, provided by PR Newswire. Waughton associate Sorrel Davies reviewed the various offerings before making a decision.

“I’m very pro-change. With the old RNS system, we used to spend wasted hours formatting the documents so they would be accepted. Now we access Disclose over the internet and can see what the document looks like before it’s released,” she says.

But one of the larger financial PR agencies that reviewed all the offerings before the new system started says several were not ready to compete. It recommends RNS and Disclose to its clients, but wouldn’t stand in their way if they wanted to use one of the other providers.

At the Stock Exchange, Simon Wilkinson, head of RNS, says he welcomes the competition. The Stock Exchange announced a bundle of new services in the period running up to the competitive market.

He says the key criteria companies look for in regulatory news distribution are “service, quality and availability”. He admits RNS is among the more costly services, but says that even a large plc will have regulatory news costs capped at £5,000 a year. Smaller companies could be paying in the region of £2,000 to £3,000.

One of the FSA’s arguments in favour of the new system was that it would reduce total regulatory news costs from about £5.6m to about £3.2m. But users are sceptical the cost savings are on that scale. In any event, regulatory news costs were previously bundled in listing fees; under the new system, they’re paid separately to the distributor of choice.

“In order to win market share, competitors came in at lower prices and, in some cases, very significantly lower prices. That doesn’t appear to have been a successful strategy and competitor prices are drifting up,” says Wilkinson.

The fact is that cost of regulatory news distribution is small compared with the total cost of running a listing. It’s not even going to register on most FDs’ radar screens.

What FDs are concerned about, however, is getting regulatory announcements out on time and accurately, as the penalties for not doing so are, at best, embarrassing and, at worst, seriously inconvenient.