London Stock Exchange Group Plc (LSE) is conducting a study on how it distributes company statements, fueling speculation banks and brokers will have to pay to receive the information.
As part of a consultation on the workings of its Regulatory News Service, LSE has asked to be provided with users’ details, sparking concern it will start charging them because it’s unlikely to need the data for any other purpose, according to two people familiar with the matter who declined to be identified because it is private.
The RNS carries nearly 175,000 statements each year via data vendors such as Thomson Reuters Corp. and Bloomberg LP, the parent of Bloomberg News. LSE says it features more than 70 percent of price-sensitive U.K. announcements. Companies and public-relations agencies already pay to publish releases and the exchange risks upsetting its customers if it introduces charges to receive timely news as well, according to Simmy Grewal, a market structure analyst at Aite Group LLC in London.
“RNS is information everyone needs to be part of the market,” Grewal said. “There will be a backlash if they try to introduce a per-user fee.”
Lucie Holloway, a spokeswoman for LSE, declined to comment on whether the London-based exchange plans to introduce charges to receive real-time RNS statements.
“LSE announced details of a customer consultation process in respect of its Regulatory News Service, RNS, on Feb. 10 2012,” she said in an e-mail. “The consultation covers a full analysis of user information and user access and is expected to conclude in the summer.”
Publicly listed companies in the U.K. must disseminate statements through one of seven approved Regulated Information Services, or RISs, to ensure that investors receive market-moving news at the same instant.
The RNS had a monopoly for regulatory statements until 2002, when the U.K.’s Financial Services Authority introduced competition. At that point, LSE started to charge companies to publish announcements, having previously provided the service for free. The FSA “doesn’t look at the commercial agreements between the primary information providers and those who distribute the announcements,” said Chris Hamilton, a spokesman for the regulator.
Traders rely on the RNS for news that moves the price of securities. GlaxoSmithKline Plc, the U.K.’s largest drugmaker, tumbled the most in three months on April 25 after an RNS statement at 12 p.m. London time showed the company’s first-quarter profit and sales missed analyst estimates. The shares sank from 1,444 pence in the moments before the release to 1,425 pence one minute later.
Essar Energy Plc surged 5.3 percent on March 30 after an RNS release said the company’s Essar Oil unit made “significant” progress with lenders toward exiting a loan agreement. BP Plc shares pared their losses on April 18 when Europe’s second-largest oil company used the RNS to tell investors it reached agreement with plaintiffs to resolve private claims related to the Deepwater Horizon oil spill.
LSE is seeking to expand sales sources from traditional equities trading after new market entrants took about 50 percent of volume in its biggest stocks. The exchange lags behind Deutsche Boerse AG, NYSE Euronext, CME Group Inc. and IntercontinentalExchange Inc. in the more lucrative business of derivatives transactions and is buying LCH.Clearnet Group Ltd. to expand in the post-trade business.
“It’s completely understandable why LSE want to do it,” said Andrew Bowley, managing director for electronic trading product management at Nomura Holdings Inc. in London. “There may be resistance depending on the pricing. If there’s monopoly pricing, there will be outrage.”
LSE made 89 million pounds ($143 million) from its Information Services business in the fiscal first-half, 27 percent of total revenue. The company, which is due to release annual results on May 18, doesn’t disclose specific sales from the RNS, Holloway said.
LSE shares declined 0.8 percent to 989.5 pence at the close of trading in London today.
Data vendors pay a fee for each RIS, and bundle the feed for customers, who are prepared to pay a premium for real-time corporate disclosure as they make investment and trading decisions. LSE currently charges data providers 20,000 pounds a year for the RNS, according to its pricing and policy guidelines.
The seven RISs are: the RNS; Business Wire; PR Newswire; ONE, owned by Thomson Reuters; News Releases Express, provided by Marketwire; marCo; and DGAP IR, owned by EquityStory AG. Some websites such Hemscott distribute corporate disclosures from the RIS’s free of charge, with a delay.
Under Xavier Rolet, who became LSE’s chief executive officer in 2009 after a career in investment banking, Europe’s oldest independent bourse has forged a strategy of entering partnerships with the biggest banks, seeking to work with the customers who set up alternative trading systems that drove stock trading fees down and grabbed market share.
LSE was forced to scrap a planned takeover of Canada’s TMX Group Inc., equity trading market share hasn’t returned and the company’s fledgling derivatives business hasn’t thrived.
On Jan. 27, LSE said fiscal third-quarter sales rose 6.8 percent to 160.8 million pounds as gains in information and technology services outweighed a drop in capital-markets revenue. Information-services revenue increased 24 percent to 52.8 million pounds while sales from capital markets fell 3.6 percent to 68.9 million pounds.
“Stock exchanges need additional income as trading turnover declines,” said Trung-Tin Nguyen, a hedge-fund manager at TTN AG in Zurich. “In a way it’s understandable, even though it’s for regulatory, compulsory disclosures. Still, it’s cheeky if you can’t get around it.”
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