SEC's New Reg. FD Aims at Leveling Playing Field
In Providing Data to Institutional & Individual Investors

By Don Allen, The Allen Group/IR Associate to Hilary Kaye Associates

The Securities & Exchange Commission's new Reg. FD (Fair Disclosure) promises to bring major changes in the way public companies disseminate financial information to institutional and individual investors. SEC Chairman Arthur Levitt first publicly expressed his concerns about selective disclosure of financial information as far back as September of 1998, in a speech at New York University.

Levitt felt that executives at the majority of public companies were providing material information to financial analysts and professional money managers in advance of making the same information available to the general public, and that this put individual investors at a disadvantage. Often, by the time a retail investor could take any action on company financial news, the market had already taken a run up or down and the individual ended up at a disadvantage.

Reg. FD, which takes effect on October 23, is the result of Levitt's concerns. It calls for a number of changes in corporate practices to preclude selective disclosure and level the playing field between institutional and individual investors.

Under the new regulation, companies must disseminate material information via a news release or a Form 8-K filing (with the SEC) either before making that information available to selected analysts, institutional investors or existing holders of the company's securities - or simultaneous with the disclosure. If a company executive, director, investor relations or public relations officer makes an inadvertent disclosure of material information that has not been publicized previously, then the company must issue a news release within 24 hours or before the stock market opens, whichever comes first.

The new rule encourages companies to provide information and earnings performance guidance to everyone simultaneously. In the past, many companies conducted conference calls with securities analysts and institutional investors following the release of quarterly financial results. The majority of U.S. companies surveyed by the National Investor Relations Institute (NIRI) already are taking steps to open up these conference calls to the general public and the news media by broadcasting them on the Internet simultaneous with the telephone conference call.

According to NIRI, companies now should also consider putting their earnings guidance in the quarterly news release or in the Management Discussion & Analysis section of their quarterly Form 8-Q report filed with the SEC. On a practical basis, it's no longer advisable for company officers to provide "a nod and a wink" guidance to analysts or indicate whether the officers are "comfortable" with industry estimates of future performance. If a company does provide forward-looking guidance in its published news releases or SEC filings, these should be accompanied by appropriate "Safe Harbor" statements about forward-looking information in order to head off litigation.

The new rule is expected to have the greatest effect on the common practice among many companies of providing guidance to financial analysts as to future performance. Private meetings with analysts will put executives at risk under the new rule. The common practice of making corporate presentations at conferences sponsored by investment bankers or brokerage houses may continue, but once a company has made its presentation to a large group session, the subsequent use of "breakout" sessions will likely be discontinued.

Violations of Reg. FD aren't subject to private litigation under the new rule, but the SEC may take administrative action against a company or individual who violates the regulation. Communications with the news media are not subject to the rule, but the National Investor Relations Institute recommends to its members that any material non-public information should only be provided to the media via a broad news release.

Although the burden of issuing information falls on the company, NIRI feels that it would be wrong for companies to use Reg. FD as an excuse for reducing their communications with Wall Street. There's a lot of information about a company that can be provided during discussions with analysts that doesn't relate directly to earnings guidance and, of course, information that has already been made public is still good fodder for marketing of a company's stock. Corporate officers and investor relations managers who want to learn more about the new Reg. FD can obtain a copy of the rules from the SEC web site at:

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