Navigating the Changes at the NYSE and NASDAQ

On Wednesday, August 22, 2007, the NIRI Virtual Chapter hosted its first program of the 2007-2008 program year, "Navigating Changes at the NYSE and NASDAQ." Patrick Healy from the Issuer Advisory Group and James Angel from Georgetown University offered their views on ongoing changes at the two primary U.S. exchanges and articulated strategies for issuers and their IRO's to stay "Ahead of the Curve" during a time of unprecedented change in the marketplace.


The panelists agreed that the two primary U.S. exchanges are becoming more similar than ever. They further agreed that differentiating one from the other based on volatility or trade execution is extremely difficult as best. They have demutualized into "for-profit" entities and are executing strategy on a global scale.


With the NYSE's Hybrid system (that resulted from the SEC's Regulation NMS), the Archipelago exchange, and its European cash markets in Paris, Amsterdam and Brussels, and its futures market in London, traditional NYSE floor revenues account for less than one quarter of their total revenues.


Similarly, with NASDAQ's Central Limit Order Book (which matches customer orders and bypasses dealers), and its 30% stake in the London Stock Exchange, dealers are a much smaller part of the market now.


The transparency of the markets translates into increased trading volume being executed away from the exchange where the issuer is listed. Two markets have fundamentally converged in how they trade the stocks, and consequently they are much more competitive.


These changes have created several implications for IRO's.

• Markets are more volatile and anonymous
• Less information available about trading activity
• Listing business is more competitive

Pat Healy offered several suggestions for both NYSE and NASDAQ listed company IRO's. Whether your company is listed on the NYSE or NASDAQ, make sure to educate your management, finance committee and Board of Directors on developments across all markets (not just your current market)

If your company is NYSE-listed:

• Visit both the NYSE and your specialist with a very specific agenda:
• Validate your market selection in light of the market reforms
• Command maximum value for your listing fee (or fee relief)
• Confirm your specialist firm/individual selection (yes, you can now switch
  specialists)
• Request periodic trading reports from your specialist firm
• Set Trading Benchmarks (volatility guidelines, etc)
• Understand your specialists’ algorithms
• Discuss the long term implications to issuers of the Euronext merger
• Closely track trading away from the NYSE floor to ensure trading quality
• Fully consider your alternatives to include Arca or dual listing on Nasdaq
• Tap the expertise of the Capital Markets Desks of the Investment Banks

If your company is NASDAQ-listed:

• Seriously reconsider any business relationship with any market maker in your stock
  who is not “Select” status
• Push your market makers to expand their service agenda to you
• Ask NASDAQ for higher qualification standards for the “Select” Market Maker Program
• Validate your market selection in light of the market reforms
• Command maximum value for your listing fee
• Fully consider your alternatives to include listing on the NYSE
• Tap the expertise of the Capital Markets Desks of the Investment Banks

The accompanying presentations, a transcript, a Webcast and an MP3 download of this program can be found at the NIRI Virtual Chapter Website at http://www.nirivirtual.org/phoenix.zhtml?c=142203&p=irol-calendarPast.

A copy of the SEC's Release No. 34-56037 filed on July 10, 2007 regarding reservation of securities symbols can be found here.

Should Investor Relations Officers Meet Regularly with the Board of Directors Without Management?

Last week in a meeting with another IRO, an interesting question was posed to the group - Should IRO's report regularly to an executive session of the Board of Directors (without management present).

While senior management, investor relations and the Board, are all technically serving the company's shareholders, the IRO may be uniquely qualified to update the Board on how well the company's strategy is resonating with investors. Additionally, with the increased activity from activist shareholders, the IRO may be best able to determine whether the company's strategy is likely to come under attack by shareholders with alternative proposals.

Please post your comments. We would like to hear your thoughts on pro's and con's to this suggestion.

Sincerely,

Don

Building Connections - Part 3

The Professional Development Committee, led by Bernadette McCormick and Nancy Brown, is supporting the "Building Connections" theme through both direct one-on-one contact and small group meetings. I'm especially excited to report that our Professional Development Committee has taken the traditional junior/senior mentee/mentor program one step further. Building on the success of the traditional junior/senior IRO pairings, the Professional Development Committee is also developing a peer-to-peer pairing to allow professionals with similar backgrounds and/or industries to connect and share questions, ideas, etc.

In addition to the more personal direct connection of the mentor/ peer-to-peer program, the Professional Development Committee is also coordinating small group meetings in the United States and abroad.

Together with our external outreach and membership outreach, the Professional Development Committee plays an integral role in "Building Connections" by ensuring member education and interaction through a variety of interactive opportunities.

Don

Economic Forecast '07 - From the Experts

On January 10, 2007, the NIRI Virtual Chapter sponsored its annual Economic Outlook featuring an insightful “macro view” discussion between leading economic experts about what to expect for the upcoming year, from the impact of commodity prices and interest rates to rising/falling industries and more. Steve Liesman, Senior Economics Reporter from CNBC moderated a panel of experts including, David Joy, Chief Market Strategist at RiverSource Investments, LLC, Alex P. Paris, President and Founder of Barrington Asset Management, Inc. and Barrington Research Associates, Inc. and Scott J. Brown, Ph.D. and Senior Economist at Raymond James.

An audio replay, transcript and MP3 download are available by clicking the link above.

E-Learning - Executive Compensation

In NIRI's first e-learning forum for 2007, Executive Compensation, Nancy Humphries moderated a discussion with Sue Morgan, a Partner at Perkins Coie LLP in Seattle, WA, Heather Wietzel, VP Investor Relations at Cincinnati Financial Corporation in Cincinnati, OH and Janet Fisher, a Partner at Cleary, Gottlieb, Steen & Hamilton in New York, NY who discussed the implications of the new SEC rules on reporting executive compensation. The seminar offers tips for writing the CD&A, for handling difficult questions, and how to have a role in shaping the corporate response to implementing the new rules. From www.NIRI.org, click on Education, E-Learning, On Demand. A password for NIRI members can be obtained at no charge from NIRI National.

Participants on the conference call learned:

• CD&A will effectively communicate not just raw compensation data points but also the Company's strategy, prospects and objectives of management.
• CD&A disclosures about incentive compensation targets and growth rates must be consistent with overall investment story.
• SEC will be reviewing CD&A not just for technical compliance but also for how it relates to MD&A disclosure.
• Compensation targets defined with adjustments (Adjusted EPS or Adjusted EBITDA) can be an easy target of criticism if investors feel the adjustments were crafted in order to meet compensation targets.
• Many companies are disclosing other services provided by executive compensation consultants so as to be transparent in the disclosure of any potential conflict of interest.
• Compensation targets/methodology may cause analyst community to change models positively or negatively.
• If major changes or explanations will be required in CD&A, management may want to consider introducing thought process/strategy as early as the year-end conference call.

Building Connections - Part 2

While the Virtual Chapter is reaching out to other NIRI chapters and outside professional organizations, the Membership Committee of the NIRI Virtual chapter is also incorporating the "Building Connections" theme to better serve the needs of our members.

Janina Messenger, Diane Brown and Chris Symanoskie lead the chapter's Membership Committee and are charged with welcoming and connecting new members with other chapter members and growing the overall Virtual Chapter membership. In support or the "Building Connections" theme, Janina, Diane & Chris have developed a system for ensuring new members are given the opportunity to benefit from multiple points of contact. Each new member is contacted by one or more individuals on the Membership Committee and if appropriate, the President or President-Elect, the Professional Development Committee and possibly the International Committee. We want each new member and every existing member to be aware of the value that the Virtual chapter can provide. In addition to our programming, our Professional Development Committee pairs Jr. & Sr. IRO's as well as peer-to-peer pairing and coordinates several dozen small group meetings around the World. Our International Committee is specifically focused on meeting the needs of our International members seeking to learn about and access the U.S. Capital Markets.

Its our primary goal to make sure both our exiting and new members can rely on the Virtual Chapter for knowledge, support, networking, etc. In the next post in this series, I look forward to highlighting how the Professional Development Committee is "Building Connections."

Don

Google - Adding Value to Options

Today Bloomberg reported on Google Inc.'s most recent move to attract and retain talent by introducing Transferable Stock Options (TSOs) which help employees realize both the intrinsic value of their options as well as the time-value-of-money component.

Available to all but the top 13 employees of the company, the Morgan Stanley administered program will allow employees to value their vested options through a competitive quote system involving several banks which, upon request, will make a bid for the options an employee may wish to sell. The value is expected to include the intrinsic value plus a time-value component for in-the-money options while also potentially providing value to out-of-the-money options solely through their time-value component.

Approximately 6.6 million options granted after Google's IPO in August 2004 will be eligible for trading. The term, or life, of the options traded on the exchange will automatically be cut to two years from 10 years (or even shorter than two years, if more than eight years have passed since the grant date).

Google follows Microsoft Corp. and Cisco Systems Inc. but is different in that Google's exchange will continue rather than be a point-in-time opportunity. According to Bloomberg reporter, Jonathan Thaw, Google worked with the U.S. Securities and Exchange Commission on the program, which doesn't need formal approval. Mr. Thaw also reported that Mark Fuchs, Google's chief accountant, indicated that Google will need to modify the options to make them transferable, triggering an expense. Stock-based compensation will also rise for each option in the future because they will probably have a longer life than options granted today.

To learn more about Google's program, visit the Google Blog and reference the posting titled "About Transferable Stock Options" or click here for an example scenario, related accounting and Q&A.