SEC Issues Report on Selective Disclosure and Insider Trading Rules

Washington, DC, December 18, 2001 - SEC Commissioner Laura Unger recently issued a report examining the impact of Regulation Fair Disclosure (Regulation FD) on the marketplace. The report examines Regulation FD one year after its effective date and makes recommendations to the Commission for increasing the regulation’s effectiveness based on an April 2001 SEC Roundtable and eight FD-related surveys conducted by various industry and other groups.

Commissioner Unger’s report makes three key recommendations.

• First, the report recommends that the SEC consider issuing an interpretive release to make its position on materiality under Regulation FD clearer. The report notes that questions concerning materiality “generated more discussion than any other issue during the Roundtable.” In particular, roundtable panelists expressed confusion about what is included under the rubric of “earnings information” that may be deemed material, and when issuers can confirm previously announced earnings guidance. The report specifically recommends that Commission guidance on materiality focus on these two issues, as well as whether plant and factory private tours, which may convey a competitive advantage, but not material information, are permissible.
• Second, the report recommends that the Commission make it easier for issuers to use technology to satisfy Regulation FD’s public information dissemination requirements. The report states that, although the rule allows issuers to take advantage of technology, the flexibility of Regulation FD is limited by the rules of self-regulatory organizations (SROs), which require listed companies to disclose material news through a press release, and the Commission’s position that website publication alone does not satisfy Regulation FD. Specifically, the report recommends that the Commission explore with the SROs ways to amend their rules to accommodate Regulation FD and “embrace technology to expand opportunities for issuers to disseminate information online.”
• Third, the report recommends that the Commission closely examine post-Regulation FD market information and issuer filings to better determine the regulation’s impact on the depth and quality of company information in the marketplace. The report maintains that “certain key questions have not yet been answered about whether Regulation FD has chilled corporate communications.” The report also states that if the Commission’s examination illustrates that Regulation FD has caused companies to cut back on making future projections, “it should consider using its authority under the Private Securities Litigation Reform Act of 1995 to expand the safe harbor to encourage more forward-looking disclosure.”

The Commission issued interpretive guidance concerning Regulation FD in October 2000.