Patricia Baronowski-Schneider
Pristine Advisers
New York, NY
Patricia is CEO of Pristine Advisers, an IR/PR/Media Relations/Marketing firm with 33 years of experience working her way to starting her own Company a decade ago. She can be reached at pbaronowski@pristineadvisers.com
Perhaps the best way to define Regulation FD is that it leveled the playing field between individual and institutional investors. Since its enactment in 2000 by the Securities Exchange Commitment, Reg FD has attempted to do just that.
Moreover, Reg FD (Fair Disclosure) continues to evolve, as evidenced by rulings in recent years concerning companies’ ability to communicate with investors through social media channels. But its core boundaries and guidelines remain the same.
In this post, we’ll take a closer look at Reg FD, including what it means, the reasons for its introduction, what it requires, and more.
Regulation FD: What it is
Reg FD is simply defined as a ruling that requires publicly-traded companies to disclose material, non-public information to all investors at the same time. The aim of it, as its name suggests, is to promote full and fair disclosure (i.e., the level playing field aspect).
The purpose of Reg FD is to prevent selective disclosure of information that’s considered “market moving” to individuals and entities such as stockbrokers or certain shareholders. Such information impacts the market when those individuals and entities make trades based upon it.
The 1990s represented a pivotal period in which the impetus to enact a regulation such as Reg FD grew urgent because many companies disclosed important material information to select individuals while excluding smaller investors who might also benefit from the information.
What Qualifies as “Material” Information?
The SEC defines material information as anything that a reasonable shareholder – in all likelihood – would consider important for making an investment decision. Such information usually includes:
- Earnings information
- Mergers, joint ventures, acquisitions, etc.
- News about new products or discoveries
- Changes in management or control
- Developments regarding customers or suppliers
Which Individuals May Receive the Information?
Regulation FD’s main guidelines say that material information disclosures must be made to securities market professionals (brokers, dealers, investment adviser, etc.) and shareholders who are likely to make trades based on the information.
What Companies Must Follow Reg FD?
Any company that has a class of securities registered under Section 12 of the Exchange Act or are required to file reports under Section 15(d) of the Exchange Act must follow Reg FD guidelines.
Meanwhile, Reg FD covers a wide range of employees of those companies, including senior company officials and those acting under their direction, as well as any employee of the company who communicates regularly with securities market professionals or shareholders.
Reg FD & Social Media
In 2013 the SEC examined the use of social media as a way for companies to communicate with investors without violating Reg FD. The SEC affirmed that it was OK for companies to use social media to disclose material information, while advising them that they needed to follow all SEC disclosure guidelines when doing so. They also offered the following suggestions:
- Identify the precise location where the information will appear – such as a Facebook page – rather than on a general homepage that provides a link to the social media page.
- Decide what information it will disclose.
- Briefly explain what the company plans to disclose and on what site it will appear and also publish this information in annual and quarterly reports.
Has Regulation FD had an impact since its inception 18 years ago? The short answer is yes, because it provides greater transparency and more frequent disclosures about company performance that’s important to potential investors and shareholders.