Like a drum major, Andrew Ross Sorkin leads his marching band to DealB%k's new page right after Itineraries in today's New York Times. Welcome to dead-tree media. In his Tuesday M&A column, Sorkin tackles a big issue, transparency, though it's a little hard to tell where he comes down on it. He's for it, of course; only communists and denizens of dark markets could possibly be against transparency. But it's confounding. Sorkin himself admits that he once thought that allowing companies to announce news off their websites was a swell idea. After all, the Internet, birthplace of DealB%k (do we all have to use that damn "%" now?), represented the closest thing to ubiquity that we have. But then Microsoft tried it out, and while the globe still spins, Sorkin got a call from the chairman and CEO of PR Newswire and Business Wire, both of which are threatened by the development, complaining of confusion and delays.
Let's sort this out. There undoubtedly was some confusion, although it's not necessarily clear that, as Sorkin says, "the system doesn't work nearly as well [as the old]." Any change requires adjustment. And the biggest problem, slight delays, would seem to affect mostly the high-frequency trading crowd, which has done more to bring opacity back into equity trading than any other group this side of the dark market folks. Should we worry that some high-frequency traders might have to wait? Should the standards of dissemination be set by the cutting edge of speculative trading? And most importantly, have we confused dissemination with transparency?
These are difficult questions. Sorkin cites Regulation Fair Disclosure, or Reg FD, which the Securities and Exchange Commission launched in 2000 to "combat selective disclosure." When Reg FD became effective, the howls, mostly from the media (notably The Wall Street Journal), were loud and strident. The then-mainstream business media worried that banning "selective" disclosure meant that sources would dry up; and indeed orchestrated deal placements did fizzle out. Generally, nearly everyone hated Reg FD except the lawyers: Companies didn't know what the rules really meant, analysts felt able to cater to some clients and not others (Eliot Spitzer was lurking as well), and investors felt the policy would simply be used to justify disseminating less information. It was a hassle, but while it's hard to tell whether Reg FD made the world better or worse, the situation has long since settled down.
Still, Reg FD did represent a subtle shift, which is exacerbated by the Web-based transmission of information. First, Reg FD was not about transparency as content, but about transparency as a sort of equality of dissemination: No one should have an advantage by getting information first. Second, Reg FD was an acknowledgment by the SEC that fair-trading was important; it was an attempt to level the playing field between institutions and individuals (the fact that it appeared at the height of the dot-com bubble is important). In that sense, Reg FD was a response to abundant Internet data, which gave the appearance of leveling the informational disparity that had long defined the two groups. And of course even then, the Internet had all but destroyed the timeliness and relevance of market quotes and data in the business pages of hard-copy newspapers. In short, Reg FD attempted to set rules for markets defined not by long-term investors, but by short-term speculators.
The debate over Internet disclosure took this further. Transparency is not just the equal dissemination of information; it's immediacy of access: No one should struggle to find information. The issue now is not that newspaper stock pages are rendered obsolete, but that media websites, fed by PR Newswire and Business Wire, find themselves scrambling to pick up information from corporate websites. They're like everyone else out there. The advantage here goes to those who can quickly and easily monitor corporate sites, which may (or may not be) Reuters, Bloomberg, The Wall Street Journal or The New York Times, but could as easily be any organization with sophisticated RSS feeds. (Meaning, of course, day traders remain at a disadvantage.) Sorkin now finds himself uncomfortably caught between the omnipresence of the Web and traditional news intermediaries, like PR Newswire and the Times itself.
The issue capsulizes the mounting difficulties of transparency in an age of increasingly rapid-fire speculation -- and not just for traditional news organizations. Regulators have spent so much time and effort chasing the chimera of the level playing field that they have lost any sense of improving "transparency-as-content" in an age that, through intensive technology and innovation, has made it harder and harder to understand what's going on out there. More and more, we are struggling to regulate a thin slice of trading time that has little to do with traditional investing and everything to do with capturing the tiny perturbations of stocks, most of which have no "meaning" at all. Meanwhile, derivatives, dark markets, the interconnectivity of markets, remain enormous black boxes.
Robert Teitelman is editor in chief of The Deal.