The Case for Timely Disclosure

The New York Stock Exchange, already venerable, was curtly rebuffed in 1866, when it requested information from the Delaware, Lackawanna & Western Railroad about the line's capitalization. "We make no reports and publish no statements," declared President John Brisbin. And that was that.

If he were alive today, Brisbin would have to be more politic. At the least, he would find trading in D. L. & W. shares suspended until he provided the appropriate information; at the most, the stock would be delisted. To protect the individual investor, who accounts for about half the shares traded, the stock exchanges have moved to order that more and more corporate information be made available. The New York Stock Exchange's board of governors recently expanded its Timely Disclosure policy to provide that merger negotiations, if they are known to a few, must henceforth be disclosed to the many as well.

Demands of Fairness. Specifically, the N.Y.S.E. board of governors ruled that "negotiations leading to acquisitions and mergers, stock splits, the making of arrangements preparatory to an exchange or tender offer, changes in dividend rates or earnings, calls for redemption, new contracts, products or discoveries, are the type of developments where the risk of untimely and inadvertent disclosure of corporate plans is most likely to occur." Such activities may be kept secret by top management, but secrecy is less and less possible because "at some point it usually becomes necessary to involve persons other than top management." At that point, according to the board, "fairness requires that the company make an immediate public announcement."

Policing the policy is the job of N.Y.S.E. Vice President Phillip West. He and his counterparts at the American Stock Exchange have power to recommend a halt in trading when unusual activity may indicate an insider's secret or an unexplained development. The Big Board halted trading in various stocks 720 times last year, sometimes merely to give time for important news to get out.

In the same area, President Johnson last week signed a bill that expands the SEC's powers over disclosure. The SEC is concerned about the rapid increase in the number of cash tender offers being made to shareholders. There were 100 such acquisition offers in 1966 v. only eight in 1960. To make sure that they are legitimately and fairly made, the new law provides that anyone who wants to buy 10% or more of a company's stock must immediately identify himself and give a complete accounting of his negotiations and intentions. "Everybody is so scared of the SEC," observes one broker, "that they don't need to be afraid of the New York Stock Exchange too."

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