Wall Street insiders may lose some of their edge after a ruling last week by the Securities and Exchange Commission preventing officials of public companies from providing information to select people before releasing it to the general public.
“High quality and timely information is the lifeblood of strong, vibrant markets. It is at the very core of investor confidence,” SEC Chairman Arthur Levitt said in a statement. “Regulation FD will bring all investors, regardless of the size of their holdings, into the information loop.”
The adoption of Regulation FD, for “full disclosure,” forces companies to distribute nonpublic information broadly, not selectively. The company can make the required disclosure by filing the information with the SEC, or by any other method that reaches the public on a nonexclusive basis, including press releases.
“We ground ourselves in a trust that, through equal opportunity, everyone has a chance to succeed,” noted Levitt. “America’s marketplace should be no exception. Instead, it should serve as a beacon. No one should be excluded.”
Levitt said the SEC received more than 6,000 comment letters from the public, before voting 3-1 in favor of the regulation, mostly out of concern for fairness in the markets.
Laura Unger, who cast the one dissenting vote on the proposal, said she was in favor of the fairness and openness of the market for all investors, but thought the rules as written were too vague and “cast too wide a net.”
Investment professionals echoed Unger’s view, saying the ruling could slow the flow of information as some companies, fearful of legal liability, would release less information altogether.
Levitt acknowledged that many of the comments it received from securities industry professionals, issuers, lawyers, media representatives and trade associations expressed concern about the approach of the proposal.
The agency responded to the concerns by modifying and narrowing the scope of the regulation from its original form, issued in December of last year, to ensure the rules would be both practical and effective.
The SEC said the rules will only apply to an issuer’s communications with market professionals and holders of the issuer’s securities in which it is foreseeable that the security holder will trade on the basis of the information.
In addition, the regulation will not apply to issuer communications with the press, rating agencies and ordinary-course business communications with customers and suppliers.
A provision was added stating that failure to make a disclosure required solely by Regulation FD would not result in a violation of the rule.
“Clearly it is the responsibility of this and successor commissions to continually evaluate the impact of laws and regulations on our markets and seek ways to adjust in a increasingly competitive global environment,” Levitt stated. “This is no one-shot process but, rather, an ongoing effort to adapt to change by fine-tuning the important guideposts that will ensure the primacy of U.S. markets and protection of U.S. investors.”
