Regulation FD (Fair Disclosure) Requires Public Disclosure

Image credit: Lareina Giles

Regulation Fair Disclosure is a U.S. Securities and Exchange Commission (SEC) rule. It prohibits companies from selectively disclosing material non-public information (MNPI) to investment professionals or key shareholders. Sometimes as simply Reg FD, the rule states that companies cannot selectively share MNPI with certain individuals covered by Regulation FD unless the also share that information with the public.

The objective of the regulation is to promote full and fair disclosure of information by issuers. The purpose of Regulation FD is to level the playing field between individual investors and market professionals. Failure to comply with Regulation FD can result in insider trading liability.

Public Disclosure Obligation of Regulation FD

Regulation FD SEC
Regulation FD SEC

Materiality of Information

Examples of material information that would likely require disclose by Regulation FD:

  • Mergers/acquisitions
  • Market/industry trends
  • New products
  • Significant changes in customers or suppliers
  • Regulatory developments
  • Revenues/earnings results
  • Increases in indebtedness
  • Securities events (i.e., stock splits, dividends, etc.)
  • Changes in management
  • Significant litigation
  • Changes in auditors
  • Information to correct misrepresentations in previous public disclosures

The issuer often holds earnings and forecasts conference calls with institutional investors and analysts. As a result of Regulation FD, companies match conference calls with analysts with simultaneous press release of the statements made during the call. Following these calls, the company must also issue recordings of the call that the general public can access.

The SEC Draws a Line

As the SEC has noted with respect to Regulation FD, “since materiality is an objective test keyed to the reasonable investor, Reg FD will not be implicated where an issuer discloses immaterial information whose significance is discerned by the analyst. Analysts can provide a valuable service in sifting through and extracting information that would not be significant to the ordinary investor to reach material conclusions.”

Individuals Exempt from Regulation FD

SEC Enforcement of Regulation FD Violations

Regulation FD was adopted in 2000. SEC enforcement actions under Regulation FD reached a peak in 2009 and 2010, as the United States was rebounding from the 2008 financial crisis. In recent years, charges against individual companies have been rare. The penalty against TherapeuticsMD in 2019 marked the first SEC action against an individual company in over five years.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.

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