Regulation Fair Disclosure

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The U.S. Securities and Exchange Commission's (SEC's) Regulation Fair Disclosure, also commonly referred to as Regulation FD or Reg FD was an SEC ruling implemented in October 2000 ([1]). It mandated that all publicly traded companies must disclose material information to all investors at the same time.

The regulation sought to stamp out selective disclosure, in which some investors (often large institutional investors) received market moving information before others (often smaller, individual investors).

Regulation FD changed fundamentally how companies communicate with investors, by bringing better transparency and more frequent and timely communications, perhaps more than any other regulation in the history of the SEC.

Most of the corporate announcements are issued in press releases or during the conference calls and are summarized at websites such as EarningsWhispers.com.

[edit] Background on Reg FD

Before the 1990s, most individual investors followed the progress of their stock holdings by receiving phone calls from their broker, by reading annual or quarterly reports mailed to them by the company, by reading news in newspapers or financial publications, or by calling the company with questions. Most investors relied primarily upon full service brokers, such as Merrill Lynch, for trading advice.

During the 1990s, Internet usage became widespread and online discount brokers such as Charles Schwab, E-Trade and Ameritrade allowed individual investors to trade stocks online at the push of a button. At the same time, these investors began using the Internet to research stocks and make timely, more informed trading decisions. The Internet placed a plethora of rich research information into the hands of investors, who became more empowered than ever to make their own informed investing decisions. As these investors learned the joys of real-time stock quotes and near-real-time access to press releases, they began to demand even more access.

By 1999, individual investors became more aware of quarterly analyst conference calls, where a company's management would disclose the results of the quarter and answer analyst questions about the company's past performance and future prospects. At the time, most companies did not allow small investors to attend their calls.

One small investor, Mark Coker, founded a company called Bestcalls.com, a directory of conference calls open to all investors, to help persuade public companies to open up all their calls ([2] and [3]). Coker campaigned in the press to educate individual investors about the benefits of conference call attendance as a fundamental research tool, and worked constructively with the SEC to educate them about the pervasiveness of selective disclosure on earnings conference calls. At the same time, companies such as Broadcast.com, Vcall.com, Shareholder.com and Thomson Financial offered webcasting technology and services that made it more practical, and more affordable, for companies to allow all investors to listen in.

In December 1999, the SEC proposed Regulation FD. Thousands of individual investors wrote the SEC and voiced their support for the regulation. But support was not unanimous. Large institutional investors, accustomed to benefiting from selectively-disclosed material information, fought vigorously against the proposed regulation. They argued that fair disclosure would lead to less disclosure. In October 2000, the SEC ratified Regulation FD.