Thursday, July 24, 2008

Hindsight is always 20-20 -- but why wasn't Schering-Plough's NYSE trading halted on Monday morning, when it delayed its Q2 Earnings Release?

First off -- I do recognize, from extensive experience, that no one really knows how any particular event to going to affect trading in a listed security, until the event is announced -- but the better advisors and counsellors usually have "Kentucky-windage" as to which way it will break -- before it breaks.

That is -- of course -- the main reason for NYSE Listed Company Manual Section 202.06(B), discussed last night: To seek, and receive, the considered wisdom of the NYSE (that deals in such matters daily -- as opposed to once in a blue moon, for most public companies) -- before an unwarranted trading-trainwreck ensues.

Now, I have set to thinking -- after looking at the trading on the morning of July 21, 2008 -- and knowing that Schering had chosen to delay its Second Quarter Earnings Release to post-market close (presumably for tactical advantage), from pre-market open, some time during the night/early morning on July 20-21 -- why on Earth didn't Schering ask the NYSE for a halt in trading -- until the 1 PM EDT conference on SEAS could be held -- if, in fact, there was no possibility of moving the timing of the SEAS disclosure web-cast? Why?

I am curious. Look now at the Monday morning trading -- shaded red -- click it to enlarge (graphic derived from a rather-flat Yahoo! screen-shot):

Might a lot of that awful morning's carnage been avoided if, in the wise words of NYSE Manual Section 202.06, time had been allowed for a "period of calm for public evaluation" of the SEAS news -- during a trading-halt? And, wouldn't all the buyers between 1:15 PM and 1:20 PM, EDT on Monday (at a plainly-artificially-high price) have had a chance to avoid all the losses they are now suffering (shaded in lemon-lime, above)?

I think so, in both cases.

Remember, over 108 million shares changed hands that day -- there were perhaps 7 million shares bought at the higher (1 PM) prices.

Finally, Schering specifically chose to arrange all the elements -- and the chronological sequence of those elements -- that resulted in Monday's debacle, depicted, and on-going, above. For ease of reference, here is Section 202.07 -- on NYSE Trading Halts:

202.07 Trading Halt Procedures

Whenever the Exchange determines that trading in a listed security should be halted or delayed pending the release of a material news announcement:

* Implementation of the halt or delay will be announced and the reason for the halt or delay will be stated "news pending";

* Thereafter, the Exchange will monitor the situation closely and will commence the opening or reopening of trading in the listed security in accordance with its normal procedures as soon as the material news announcement has been made. If the announcement is not made within a reasonable time after the halt or delay is implemented, trading in the listed security may be opened or reopened in the interests of providing a liquid market. While the time period may vary from case to case as a result of the particular circumstances involved, normally if the announcement is not made within approximately 30 minutes after the delay or halt is implemented, the Exchange may commence the opening or reopening of trading in the listed security. Such action will be preceded by an announcement to the effect that trading is resuming even though the material news announcement has not been released. . . .

No one really likes trading halts -- they are scary. Unnerving to the market-makers, afterall. But, the above may be a text-book example of why a halt should occassionally issue from the NYSE. It may have been something Schering's advisors should have requested from the NYSE -- given that Schering knew what the SEAS Update foretold.

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