After it became clear Tuesday that the Dow Jones News Service had fallen victim to a hoax, reporting a bogus takeover bid for Minneapolis retailer Dayton Hudson, the retailer's stock fell precipitously, and some aggravated traders on the New York Stock Exchange floor fell to grumbling about the vulnerability of the nation's most powerful financial news wire.
But not veteran Wall Street analyst Robert H. Stovall. "This sort of thing happens when the market is getting frothy and overheated," Stovall said. "This goes into my mosaic bag with all the other signs that this market is building to a top."
In effect, the Dow Jones "broad tape" is now so influential a purveyor of information to the financial community that even its mistakes can be read as leading indicators.
As was the case with Dayton Hudson Tuesday, stock prices have been known to gyrate madly within seconds of an announcement crossing the Dow Jones teletypes--"tickers" as they are better known.
In just two minutes after Dayton Hudson stock resumed trading Tuesday, the stock price shot up from $53.25 to $59.25 a share, and more than 655,000 shares were traded--all based on Dow Jones' report that a little-known Ohio investment firm had made an offer for the retailer. The news service later reported that the bid was a hoax.
(The New York Stock Exchange and the Securities and Exchange Commission indicated Wednesday that they will investigate the circumstances under which P. David Herrlinger, a Cincinnati investment adviser, phoned Dow Jones with false information about a purported $6.8-billion bid for Dayton Hudson. Herrlinger has been hospitalized for an undisclosed ailment since Tuesday afternoon.)
The bizarre episode has done little to diminish the influence of the Dow Jones ticker, Wall Street observers agreed. Banks, brokerages and other money managers wouldn't be without at least one of the machines in their offices. Financial newsmakers and companies obeying disclosure rules nearly always make their first call to Dow Jones.
And traders on the New York Stock Exchange floor often keep one eye on machines spewing out current stock prices and the other glued to the Dow Jones ticker--sometimes jumping in like game show contestants with buy and sell orders as soon as they have seen enough of a Dow Jones headline to divine the contents of a story.
"The ticker . . . is the brainstem of Wall Street through which all of the vital signals pass," wrote former Dow Jones News Service and Wall Street Journal reporter R. Foster Winans in his book about the scandal over his role in an illegal stock trading scheme.
"If you need to have right up-to-the-minute financial news, this is the service you need to have," said Bruce Thorp, a media analyst for the Washington firm of John Morton & Co.
Despite aggressive competition from the Reuters news service and others, the service sold by Dow Jones & Co., which pioneered the field, still commands more than 90% of the market.
However, the news service is no longer the company's "cash cow"--that honor now goes to the Wall Street Journal--but the ticker continues to grow and now blankets the nation with about 36,800 teleprinters and video terminals spewing out the latest in financial news.
Despite the vital role the ticker plays in millions of investment decisions every year, it is unregulated--unlike the financial markets it serves. As an independent news service, its only controls are those imposed by Dow Jones itself.
(Officials at Dow Jones said Tuesday that it followed established procedures in reporting the bogus bid. It held the Herrlinger information until it called him back and confirmed his identity, the officials said. But no attempt was made until later in the day, when the hoax became evident, to check with Dayton Hudson or the purported members of the investment group making the offer.)
The view on Wall Street and in Washington on Wednesday was that Dow Jones' self-policing of its news service seemed sufficient to deter most attempts to abuse it.
"Despite their considerable clout in moving the market, they are still principally a news-gathering organization, and we are not going to call for regulation of them," an official of the New York Stock Exchange said. "But we hope that this incident will throw up a red flag and encourage them to review their rules."
Some journalism critics were less forgiving. "This ought to scare the hell out of them," said Norman Isaacs, former dean of the Columbia University Journalism School and former editor of the Louisville (Ky.) Courier-Journal.
But a spokesman for Dow Jones said Wednesday that the service plans no changes in its verification procedures, which he said were followed to the letter.
In fact, Dow Jones gets high marks from regulators and securities analysts for both its accuracy and speed--the standards a wire service must meet to remain competitive. Breaking financial news too slowly, some analysts point out, can be just as costly to investors as when mistakes are made in the interest of breaking the news quickly.
"In this business, you have to balance the need to get the news out as quickly as possible with the need to verify its accuracy and that is really a tough call," analyst Thorp said.
Difficult to Prevent
That is why the Dow Jones ticker often prints only a headline and then follows several minutes later with details, once its reporters--who are constantly under pressure because the three dozen telephones in the main office in New York never stop ringing and the deadlines are frequent--piece together a story.
Some observers also say the Dayton Hudson hoax was unusual and difficult to prevent. More typical, some said, is the person who calls pretending to be someone else. Dow Jones' policy of calling the person's employer to verify employment stops that type of hoax.
But in this case, the would-be bidder was who he said he was.