Regulation FD
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| Regulation FD | |
|---|---|
| Name | Regulation FD |
| Enacted | 2000 |
| Regulator | Securities and Exchange Commission |
| Sector | Securities law |
| Country | United States |
Regulation FD
Regulation FD is a rule promulgated by the Securities and Exchange Commission in 2000 intended to address selective disclosure by issuers of publicly traded securities. The rule seeks to ensure fair access to material information among investors and to complement provisions of the Securities Exchange Act of 1934 and the Sarbanes–Oxley Act of 2002. It interacts with practices on Wall Street and affects communications among corporate officers, investor relations professionals, and securities analysts at firms like Goldman Sachs, Morgan Stanley, and J.P. Morgan Chase.
Background and Purpose
Regulation FD arose after high-profile incidents involving selective disclosure at firms such as ImClone Systems and concerns voiced by lawmakers including Paul Sarbanes and Alan Greenspan during hearings before the United States Congress. The rule was adopted by the Securities and Exchange Commission in response to investigations involving market participants like Merrill Lynch and institutions tied to scandals scrutinized by committees chaired by members of the House Financial Services Committee and the Senate Banking Committee. Policy objectives echoed themes in legislation like the Insider Trading Sanctions Act of 1984 and reforms advocated after the 1998 Long-Term Capital Management crisis.
Scope and Requirements
Regulation FD applies to disclosures of "material" nonpublic information by issuers of securities listed on exchanges such as the New York Stock Exchange and the NASDAQ Stock Market. The rule distinguishes communications to market professionals at firms like Credit Suisse, UBS, Deutsche Bank, and to certain audiences including analysts at Moody's and Standard & Poor's. When issuers communicate material information inadvertently or intentionally to select audiences—participants at events hosted by NASDAQ OMX Group or meetings with investors at conferences run by CFA Institute—they must publicly disseminate the information via filings with the SEC or through broadly accessible channels such as press releases distributed by services like Business Wire or PR Newswire. The rule dovetails with disclosure obligations under the Securities Act of 1933 and reporting requirements for forms like SEC Form 8-K, Schedule 13D, and rules administered by the Office of the Comptroller of the Currency.
Compliance and Best Practices
Compliance programs developed by chief legal officers, general counsels, and compliance officers at corporations like Apple Inc., Microsoft Corporation, ExxonMobil, Procter & Gamble, and General Electric emphasize training for executives, written communications policies, and use of nonpublic disclosure protocols during earnings calls with houses such as The Wall Street Journal, Bloomberg L.P., and Reuters. Best practices include preclearance of speeches delivered at events hosted by Goldman Sachs or Barclays, embargo procedures for interactions with research units at Morningstar and Fitch Ratings, and simultaneous public filings through EDGAR when material facts are shared with buy-side firms like Vanguard Group, BlackRock, and hedge funds including Bridgewater Associates. Corporate bylaws and codes of conduct often reference principles akin to those enforced by the New York Attorney General and state regulators such as the California Department of Business Oversight.
Enforcement and Penalties
Enforcement actions have been brought by the Securities and Exchange Commission against issuers and executives, sometimes coordinated with investigations by the Department of Justice. Cases involved firms and individuals linked to financial intermediaries like Salomon Brothers and prominent corporate executives whose conduct drew scrutiny in administrative proceedings by the SEC Office of Compliance Inspections and Examinations. Remedies have included cease-and-desist orders, monetary penalties, undertakings requiring enhanced disclosure controls, and, in rare instances, referrals for criminal investigation under statutes enforced by the United States Attorney's Office and informed by standards in Federal Rule of Evidence jurisprudence.
Impact on Market Communication and Disclosure
Regulation FD shifted practices among investor relations teams, affecting interactions with sell-side analysts at firms such as Citigroup, BNP Paribas, and HSBC. It influenced market intelligence activities at proxy advisory firms like Institutional Shareholder Services and voting behavior at institutional investors including CalPERS and sovereign funds such as the Norwegian Government Pension Fund Global. The rule also altered media engagement protocols for broadcasters like CNBC and Fox Business Network, and for financial publications such as The Financial Times and Barron's. Academic research at institutions including Harvard Business School, Stanford Graduate School of Business, and University of Chicago Booth School of Business has examined effects on information asymmetry, trading volume on exchanges like the Chicago Board Options Exchange, and analyst forecasts at outlets connected to Dow Jones and Thomson Reuters.
Criticisms and Legal Challenges
Critics including some Securities Industry and Financial Markets Association members, legal scholars from Yale Law School and Columbia Law School, and commentators in publications like The Economist argued the rule can chill legitimate forward-looking dialogue and complicate compliance for multinationals operating under regimes such as European Securities and Markets Authority guidance. Litigation and administrative petitions have tested contours of materiality and intent in proceedings before the United States Court of Appeals for the D.C. Circuit and the Supreme Court of the United States. Debates involve interactions with free speech issues raised by scholars and litigants associated with institutions like American Civil Liberties Union and corporate trade groups such as the Chamber of Commerce of the United States.