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.

An Anonymous CafePharma post that deserves to be seen. . . .

UPDATED: 07.25.08 @ 8:30 AM EDT – That fine gent — at PharmaGossip — has linked this, and made a poignant reference to the fantastic Joseph Heller novel “Catch 22“. Do go see his!

I have also set the comments, and some observations on them, as a new post, here.

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Schering has prepared a “Dear Doctor” letter related to the cancer issue in its SEAS study. Here is one purported salesperson’s incredulity — given that Schering will only provide the letter to doctors who ask for it – I thought I’d link the letter, and quote the salesperson’s reaction:

Today, 01:14 PM Anonymous

Re: Is this what you were trying to show with SEAS?

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Quote:
Originally Posted by Anonymous

One word summary..CANCER

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I just had a Physician ask me for the letter explaining the Cancer concern coming out of SEAS. He saw it on the internet. Beautiful. It actually states that we will not be automatically sending letters to all Docs, instead we will hand them a letter if they ask about it. God I have to get out of this company quick. Again SP is doing the bare minimum to inform our customers. Personally, I am going to make copies and hand one to every doctor and nurse in my territory. This shell game bullshit is another SP manipulation of our credibility and I told my DM on the phone that this is what I plan to do. Nothing but silence on the other end. I don’t think she had a clue about this. . . .

Jaw-slacking. Simply jaw-slacking.

Did Schering-Plough comply with the terms of the NYSE Listed Company Manual when it released SEAS?

I broadly hinted at my concern about this, early on Monday morning, but I wonder whether Schering made the required “pre-event” phone call to the NYSE Department of Stock List, to solicit the opinion of the Listed Company Representative assigned to Schering — about whether the timing of the SEAS study release (from Europe) was appropriate — and was the best way to handle news of such gravity.

I really wonder, given the wrenching volitility the stock suffered before — and after — the 1 PM EDT (Mid-Trading-Day) web-cast. That was evening in Europe, by the way. What was the magic about that time? I do wonder.

Let’s read from the NYSE Listed Company Manual — these are the standards that govern NYSE-listed public companies — like Schering-Plough (and Merck):

202.06 Procedure for Public Release of Information. . . .

. . . .(B) Telephone Alert to the Exchange

When the announcement of news of a material event or a statement dealing with a rumor which calls for immediate release is made shortly before the opening or during market hours (presently 9:30 A.M. to 5:00 P.M., New York time)*, it is recommended that the company’s Exchange representative be notified by telephone at least ten minutes prior to release of the announcement to the news media. If the Exchange receives such notification in time, it will be in a position to consider whether, in the opinion of the Exchange, trading in the security should be temporarily halted. A delay in trading after the appearance of the news on the Dow Jones, Reuters or Bloomberg news wires provides a period of calm for public evaluation of the announcement. The halt also allows customers to revise the terms of limit orders on the specialist’s book in view of the news announcement. Even if limit orders are not canceled or changed during the halt, the fact that trading is halted results in the reopening being considered a new opening, thereby enabling limit orders to participate at the new opening price regardless of the previously entered limit. A longer delay in trading may be necessary if there is an unusual influx of orders. The Exchange attempts to keep such interruptions in the continuous auction market to a minimum. However, where events transpire during market hours, the overall importance of fairness to all those participating in the market demands that these procedures be followed.

* Effective June 13, 1991 the New York Stock Exchange off-hours trading sessions became operational. The facility offers the opportunity to trade at NYSE closing prices after the NYSE’s 4:00 P.M. close until 5:00 P.M.

(C) Release to Newspapers and News Wire Services

News which ought to be the subject of immediate publicity must be released by the fastest available means. The fastest available means may vary in individual cases and according to the time of day. Ordinarily, this requires a release to the public press by telephone, facsimile, or hand delivery, or some combination of such methods. Transmittal of such a release to the press solely by mail is not considered satisfactory. Similarly, release of such news exclusively to local press would not be sufficient for adequate and prompt disclosure to the investing public. . . .

It seemed rather strange to me, back then (and more so, now, that I have gone back to refresh my memory of the NYSE Listed Company Manual’s terms), that the SEAS study presenters — in Europe — waited until something like 7 PM (local time in Europe) to conduct the web-cast. Why was that time chosen? Was the NYSE pre-notified?

Did Schering actually believe the results would be “immaterial”, and thus did not call the NYSE — to pre-notify, under Section 202.06(B)? That approach would have been “at variance” with the pro-offered reason for moving the time of the Q2 Earnings Conference Calls. Did Schering think it material, or not so? I do wonder.

Certainly, the SEAS release web-cast could have also been held prior to market open on Monday — say 11 AM, local Europe time, and still have held both the Merck and Schering conference calls at the originally-scheduled time — avoiding perhaps a half-day of market turmoil.

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.