Nasdaq faces questions over Twitter release

The mood ahead of a big earnings release is typically tense. The anticipation for Twitter's quarterly results on Tuesday was interrupted by, ironically, a tweet that revealed its results about an hour ahead of schedule. Worse yet, the news was not good. Twitter missed revenue expectations and lowered full-year guidance. It shares fell as much as 26 per cent, shaving more than $6bn from its market capitalisation.

The messaging platform quickly pointed a finger at Nasdaq, the equity exchange that owns Shareholder.com, a service that Twitter uses to manage its investor relations website. The Nasdaq unit inadvertently posted Twitter's earnings release prematurely.

Describing how Anthony Noto, Twitter's chief financial officer, rushed into his office to break the news about the early publication, Dick Costolo, Twitter's chief executive, said he realised then it was "not particularly fortuitous timing", given Twitter's results would have disappointed the market even if they had been released on time.

Shares in Twitter continued to fall in afternoon trading in New York on Wednesday - down 6.8 per cent to $39.43 - as analysts cut their expectations for the year.

Given Twitter's disappointing performance and less than rosy outlook, its shares would likely have fallen regardless. But the bungled release threatens to be another black mark for Nasdaq after high-profile problems with its technology in recent years. Those include a delay to the market debut of Facebook and a three hour outage on its own market in 2013.

"It is certainly negative for their reputation," said Paul Gulberg, an analyst at Portales Partners of the Twitter error. He added that Nasdaq "specifically tries to sell itself as an information technology business rather than just an exchange".

Nasdaq admitted that the fault lay in an operational issue that exposed the release on Twitter's investor relations website for less than a minute. "During those seconds the site was scraped by a third party that publicly disseminated the earnings information," it said. "We regret the incident and remain fully committed to providing the highest quality investor relations communication product and services to our clients."

The exchange's push into corporate services has been part of a broader move to diversify beyond its historical business of equities trading and initial public offerings. Rival exchanges and banks with cheaper, faster technology have provided fierce price competition and taken market share, while its longtime rival, the New York Stock Exchange, has also taken a larger number of technology IPOs in recent years.

However, that push has been accompanied by missteps in its traditional business. Just last week, the exchange said it had established a $31m loss reserve for litigation arising from the Facebook IPO. It has already agreed to pay $10m - at the time the largest penalty levied against a US exchange - to US regulators over the issue. Also in August 2013, Nasdaq's public data network that shows the quotes and trades for the exchange was shut down for more than three hours, which halted trading on the Nasdaq.

Collectively that has taken a toll. While Nasdaq last year had more IPOs than NYSE, its arch rival scooped some of the coveted deals of late, such as Lending Club and China's Alibaba and Twitter itself.

Investors have nonetheless rewarded the Nasdaq's strategy in recent years. Nasdaq shares, barely changed on Tuesday, have risen by about a third in the last year and more than doubled in the last five years.

The SEC will probably review the earnings release error because US law calls for all investors to be informed about market sensitive information simultaneously, according to people familiar with the matter.

The Twitter release comes months after a similar leak occurred at Nasdaq's Shareholder.com with JPMorgan Chase's earnings in October.

Selerity, which broadcast Twitter's first-quarter earnings after discovering them on the messaging group's website, has also 'leaked' information early from ADP's employment report last December, and Microsoft's quarterly results four years ago.

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But Jill Fisch, a law professor and securities expert at the University of Pennsylvania, said premature disclosure of results was not in itself a violation of securities law.

Although there are laws prohibiting the selective disclosure of results, and they are by convention released before or after the stock market closes, she said: "There is nothing in the securities law that determines when a company discloses earnings information."

Ms Fisch said another issue for Twitter, Shareholder.com and Nasdaq was whether any contractual obligations had been breached.

Companies prefer to release results when the market is closed to give investors time to digest their implications. "Twitter could say 'we wanted it disclosed after the market closed so investors wouldn't overreact or panic'. But that seems like contract-type damage," she said.

Reporting by Nicole Bullock, Hannah Kuchler, Philip Stafford, Barney Jopson and Gina Chon

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