Regulation Fair Disclosure
Encyclopedia
Regulation Fair Disclosure, also commonly referred to as Regulation FD or Reg FD, is a regulation that was promulgated by the U.S. Securities and Exchange Commission (SEC) in August 2000. The rule mandates that all publicly traded companies must disclose material information to all investors at the same time.
The regulation sought to stamp out selective disclosure
, in which some investors (often large institutional investor
s) received market moving information
before others (often smaller, individual investors).
Regulation FD fundamentally changed how companies communicate with investors by bringing more transparency
and more frequent and timely communications, perhaps more than any other regulation in the history of the SEC.
Most of the corporate announcements are issued in press releases or during the conference calls and are summarized at websites.
, by reading annual or quarterly reports mailed to them by the company, by reading news in newspapers or financial publications, or by calling the company with questions. Most investors relied primarily upon full service brokers, such as Merrill Lynch
, for trading advice.
During the 1990s, Internet usage became widespread and online discount brokers such as Charles Schwab
, E-Trade and Ameritrade allowed individual investors to trade stocks online at the push of a button. At the same time, these investors began using the Internet to research stocks and make timely, more informed trading decisions. The Internet placed a plethora of rich research information into the hands of investors, who became more empowered than ever to make their own informed investing decisions. As these investors learned the joys of real-time stock quotes and near-real-time access to press releases, they began to demand even more access.
By 1999, individual investors became more aware of quarterly analyst conference calls
, where a company's management would disclose the results of the quarter and answer analyst questions about the company's past performance and future prospects. At the time, most companies did not allow small investors to attend their calls.
One small investor, Mark Coker, founded a company called Bestcalls.com, a directory of conference calls open to all investors, to help persuade public companies to open up all their calls (http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/1999/04/02/BU83193.DTL and http://www.thestreet.com/comment/siliconbabylon/734615.html). Coker campaigned in the press to educate individual investors about the benefits of conference call attendance as a fundamental research tool, and worked constructively with the SEC to educate them about the pervasiveness of selective disclosure on earnings conference calls. At the same time, companies such as Onstream Media, Broadcast.com
, Vcall.com, Shareholder.com and Thomson Financial
(now Thomson Reuters
) offered webcasting technology and services that made it more practical, and more affordable, for companies to allow all investors to listen in.
In December 1999, the SEC proposed Regulation FD. Thousands of individual investors wrote the SEC and voiced their support for the regulation. But support was not unanimous. Large institutional investors, accustomed to benefiting from selectively disclosed material information, fought vigorously against the proposed regulation. They argued that fair disclosure would lead to less disclosure. In October 2000, the SEC ratified Regulation FD.
The regulation sought to stamp out selective disclosure
Selective disclosure
Selective disclosure is a situation when a publicly traded company discloses material information to a single person, or a limited group of people or investors, as opposed to disclosing the information to all investors at the same time....
, in which some investors (often large institutional investor
Institutional investor
Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets...
s) received market moving information
Market moving information
A term used in stock market investing. Defined as information that would cause any reasonable investor to make a buy or sell decision.When a public company insider fails to publicly disclose material, market moving information, that is called selective disclosure, an act that is prohibited by the...
before others (often smaller, individual investors).
Regulation FD fundamentally changed how companies communicate with investors by bringing more transparency
Transparency (humanities)
Transparency, as used in science, engineering, business, the humanities and in a social context more generally, implies openness, communication, and accountability. Transparency is operating in such a way that it is easy for others to see what actions are performed...
and more frequent and timely communications, perhaps more than any other regulation in the history of the SEC.
Most of the corporate announcements are issued in press releases or during the conference calls and are summarized at websites.
Background on Reg FD
Before the 1990s, most individual investors followed the progress of their stock holdings by receiving phone calls from their brokerStock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
, by reading annual or quarterly reports mailed to them by the company, by reading news in newspapers or financial publications, or by calling the company with questions. Most investors relied primarily upon full service brokers, such as Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, for trading advice.
During the 1990s, Internet usage became widespread and online discount brokers such as Charles Schwab
Charles Schwab
Charles Schwab may refer to:*Charles M. Schwab , American steel magnate*Charles R. Schwab , founder of the eponymous brokerage*Charles Schwab Corp., an American based brokerage firm...
, E-Trade and Ameritrade allowed individual investors to trade stocks online at the push of a button. At the same time, these investors began using the Internet to research stocks and make timely, more informed trading decisions. The Internet placed a plethora of rich research information into the hands of investors, who became more empowered than ever to make their own informed investing decisions. As these investors learned the joys of real-time stock quotes and near-real-time access to press releases, they began to demand even more access.
By 1999, individual investors became more aware of quarterly analyst conference calls
Earnings call
Earnings Calls are a teleconference in which a public company discusses the financial results of a reporting period. The name comes from the bottom line numbers in the income statement - earnings per share. The U.S. based National Investor Relations Institute says that 92% of companies...
, where a company's management would disclose the results of the quarter and answer analyst questions about the company's past performance and future prospects. At the time, most companies did not allow small investors to attend their calls.
One small investor, Mark Coker, founded a company called Bestcalls.com, a directory of conference calls open to all investors, to help persuade public companies to open up all their calls (http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/1999/04/02/BU83193.DTL and http://www.thestreet.com/comment/siliconbabylon/734615.html). Coker campaigned in the press to educate individual investors about the benefits of conference call attendance as a fundamental research tool, and worked constructively with the SEC to educate them about the pervasiveness of selective disclosure on earnings conference calls. At the same time, companies such as Onstream Media, Broadcast.com
Broadcast.com
Broadcast.com was a web radio company founded as "AudioNet" in September 1995 by Chris Jaeb. Todd Wagner and Mark Cuban later led the organization to hugely capitalize on the Dot-com bubble and be sold to Yahoo.com.-History:...
, Vcall.com, Shareholder.com and Thomson Financial
Thomson Financial
Thomson Financial was an arm of The Thomson Corporation, which was one of the world's leading information companies, focused on providing integrated information solutions to business and professional customers...
(now Thomson Reuters
Thomson Reuters
Thomson Reuters Corporation is a provider of information for the world's businesses and professionals and is created by the Thomson Corporation's purchase of Reuters Group on 17 April 2008. Thomson Reuters is headquartered at 3 Times Square, New York City, USA...
) offered webcasting technology and services that made it more practical, and more affordable, for companies to allow all investors to listen in.
In December 1999, the SEC proposed Regulation FD. Thousands of individual investors wrote the SEC and voiced their support for the regulation. But support was not unanimous. Large institutional investors, accustomed to benefiting from selectively disclosed material information, fought vigorously against the proposed regulation. They argued that fair disclosure would lead to less disclosure. In October 2000, the SEC ratified Regulation FD.
External links
- SEC proposes Reg FD
- SEC ratifies Reg FD
- SEC analyzes impact of Reg FD
- PDF of academic article examining Reg FD impact
- http://www.businessweek.com/2001/01_02/b3714196.htm
- http://www.thestreet.com/stocks/brokerages/1036845.html
- http://www.wired.com/news/business/0,1367,43261,00.html?tw=wn_story_related
- http://www.aei.org/publications/pubID.11848,filter.all/pub_detail.asp
- http://www.businessweek.com/2000/00_38/b3699137.htm
- Reg FD Disclosure wire (North America & UK)