SEC Approves Regulation FD
On August 10, 2000 the Securities and Exchange Commission approved a new rule that would end the practice of selective disclosure, whereby officials of public companies provide important information to Wall Street insiders prior to making the information available to the general public. The Commission also approved two new rules to clarify existing insider trading law According to Chairman Levitt, the Commission received more than 6,000 comment letters from the public and that most were from individual investors concerned about fairness in the markets.
Regulation FD requires that when an issuer intentionally discloses material information, it must do so publicly and not selectively. The company may make the required disclosure by filing the information with the Commission, or by another method intended to reach the public on a broad, nonexclusionary basis, such as a press release. When selective disclosure of material information is made unintentionally, the company must publicly disclose the information promptly thereafter.
The regulation will apply only to an issuers communications with market professionals, and holders of the issuers securities under circumstances in which it is reasonably foreseeable that the security holders will trade on the basis of the information.
The regulation will not apply to issuer communications with the press, rating agencies, and ordinary-course business communications with customers and suppliers. The regulation will apply only to communications by the issuers senior management, its investor relations professionals, and others who regularly communicate with market professionals and security holders.
The regulation text makes clear that it is a disclosure rule. It does not create liability for fraud. Where the regulation is violated, the SEC could bring an administrative proceeding seeking a cease and desist order, or a civil action seeking an injunction and/or civil penalties. The regulation has been revised to eliminate the prospect of private liability for companies solely as a result of a selective disclosure violation.
The Commission has issued a press release and a fact sheet regarding the new regulation.
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
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