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U.S. Securities and Exchange Commission

Special Study:
Regulation Fair Disclosure Revisited

Commissioner Laura S. Unger

December 2001

This is a report by Commissioner Laura S. Unger. The Commission and other Commissioners have expressed no views regarding the analysis, findings, conclusions, or recommendations herein.

This report is dedicated to David S. Berry, Director of Research at Keefe, Bruyette & Woods, whose life was cut short on September 11, 2001. We are indebted to him for sharing his wisdom and insights with us at the Regulation FD Roundtable.

Table of Contents

I.   Introduction

II.   Executive Summary

A.   The Commission Should Provide More Guidance on Materiality
B.   The Commission Should Make It Easier for Issuers
       To Use Technology To Comply With Regulation FD

C.   The Commission Should Analyze What Issuers Are Saying

III.   Discussion, Surveys and Recommendations to the Commission

A.   Materiality and Tools of Dissemination

1.   What Can Issuers Say Without Triggering Reg FD?

a.   Confirmation of prior guidance
b.   Disclosure of product-related and other
       non-financial information

c.   Correcting outdated analyst estimates

2.   How Do Issuers Comply with Reg FD?

a.   Form 8-K filings
b.   Webcasts
c.   Press releases
d.   Technology

B.   Quantity and Quality of Information

1.   Regulation FD May Provide More Access to Information
2.   But Does More Access Equal Better Information?

IV.   Conclusion

Appendix A:   Roundtable Agenda

Appendix B:   Roundtable Transcript

I. Introduction

Regulation Fair Disclosure ("Regulation FD" or "Reg FD" or "FD") was adopted by the Securities and Exchange Commission ("SEC" or "Commission") on August 10, 2000.1 Aimed at curbing the selective disclosure of material nonpublic information by issuers to analysts and institutional investors, Regulation FD requires that when an issuer discloses material information, it do so publicly.2

Regulation FD has engendered lively debate since the Commission proposed it in December 1999. More than 6,000 comment letters, mostly from individual investors, were submitted in response to the Reg FD proposal.3 Individual investors and the media generally favored the proposed regulation, believing that it would level the playing field for the retail investor. Large brokerage firms, on the other hand, generally opposed the rule, predicting that it would lead to a chilling of the information flow from issuers to the marketplace.

The Commission modified certain aspects of the proposed regulation in response to comments.4 At a meeting on August 10, 2000, the Commission adopted the revised rule by a vote of 3 to 1, with Commissioner Unger dissenting.5

At the public meeting adopting Reg FD, the Commissioners committed to monitor the impact of Reg FD on information flow and assess whether the rule had chilled corporate communications or given rise to any other negative, unintended consequences. To begin fulfilling this commitment, the Commission convened a roundtable discussion in New York six months after the rule's effective date ("Roundtable").6 On April 24, 2001, the Commission heard from four separate panels about the initial experience of issuers, analysts, investors and information disseminators under Reg FD. Legal practitioners, law professors and Commission staff also participated on each panel.

This report examines Regulation FD one year after its effective date. It (1) summarizes the views expressed at the Roundtable, (2) identifies issues of common concern, and (3) makes recommendations to the Commission for increasing the effectiveness of Reg FD. The materials on which this report is based include the transcript of the Roundtable ("Roundtable Transcript")7, and information regarding eight FD-related surveys conducted by various industry and other groups.8

II. Executive Summary

The principal issues raised at the Roundtable, together with recommendations for further action, are summarized below.

A.   The Commission Should Provide More Guidance on Materiality

Questions concerning materiality generated more discussion than any other issue during the Roundtable. A number of issuers expressed uncertainty about how to apply the materiality standard under the Reg FD regime. They also stated that fear of Commission enforcement action had exacerbated their uncertainty.

In particular, panelists expressed confusion about two specific areas: (i) what is included under the rubric of "earnings information" that may be deemed material? and (ii) when can issuers confirm previously announced earnings guidance? Panelists also requested clarification about whether plant and factory private tours would trigger Reg FD disclosure obligations.


  • The Commission should consider issuing an interpretive release to make its position on materiality under Regulation FD clearer. This would provide the Commission a constructive opportunity to articulate its views on materiality, using real-world factual scenarios.
    • Commission guidance on materiality should focus particularly on clarifying the meaning of "earnings information" as used in the Adopting Release. Are certain income statement items more likely to be deemed material than others? Is the term limited to end of quarter earnings announcements or does it cover any information that may eventually find its way into income statements? What factors should issuers take into account when deciding if they may confirm prior guidance?
    • The Commission should also opine on whether plant and factory private tours, which may convey a competitive advantage but not material information, are permissible.
  • If enforcement action is warranted, the Commission should consider issuing a Section 21(a) report.9 A Section 21(a) report would provide the Commission an opportunity to express its views on materiality under Reg FD.

B.   The Commission Should Make It Easier for Issuers To Use Technology To Satisfy Regulation FD

Regulation FD permits issuers to make public disclosure by filing or furnishing a Form 8-K with the Commission or by disseminating information "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public."10

Although the rule allows issuers to take advantage of technology, issuers and information disseminators indicated that the flexibility of Reg FD is limited by: (1) the rules of the self-regulatory organizations ("SROs"), including the New York Stock Exchange, Inc. ("NYSE") and the National Association of Securities Dealers, Inc. ("NASD"), which require listed companies to disclose material news through a press release, and (2) the Commission's position that website publication alone does not satisfy Reg FD's broad distribution requirement.


  • The Commission should explore with the SROs ways to amend their rules to expand the range of tools that would satisfy both Reg FD and SRO information dissemination requirements.
  • The Commission should embrace technology to expand opportunities for issuers to disseminate information online. The Commission should make clear that options such as adequately noticed website postings, fully accessible webcasts and electronic mail alerts would satisfy Regulation FD.
  • The Commission should encourage issuers to post written transcripts of webcast presentations and to archive webcasts and transcripts on their websites.

C.   The Commission Should Analyze What Issuers Are Saying Post-FD

Certain key questions have not yet been answered about whether Regulation FD has chilled corporate communications. On its face, Regulation FD has increased investor access to corporate information, but the regulation's impact on the amount and quality of information investors receive has not yet been quantified. Some issuers and investor representatives at the Roundtable believed that more information is now available, while sell-side analysts generally believed the opposite. As to the quality of information, some panelists found no change, while others believed that Reg FD has led to a decline in the quality of information. Panelists said that some issuers have used the rule as a shield to limit information flow and that issuers have generally retreated to scripted presentations.

Some panelists expressed concern that Reg FD has decreased disclosure of forward-looking information under the Private Securities Litigation Reform Act of 1995 ("PSLRA") in that companies inadvertently disclosing material information privately must disclose the information publicly. As a result, companies may be forced to make projections public and face unintended consequences.


  • The Commission should examine both the amount of information being disclosed and the type of information issuers are providing in Form 8-K filings, webcasts, press releases and through other modes of dissemination.

    • Is the information disclosed pursuant to Regulation FD general or specific?
    • Do companies disclose earnings forecasts or discuss future business plans?
    • How does the specificity and depth of information disclosed compare to pre-Reg FD disclosures?
  • If the Commission determines that Reg FD has caused companies to cut back on making future projections, it should consider using its authority under the PSLRA to expand the safe harbor to encourage more forward-looking disclosure.

    III.   Discussion, Surveys and Recommendations to the Commission

    A.   Materiality and Tools of Dissemination

    Intended to eliminate (or at least reduce) analysts' and favored clients' unfair informational advantage, Reg FD goes to the heart of how public companies communicate with investors and the marketplace. Right now, most of the evidence about Reg FD's impact is anecdotal rather than empirical. At the Roundtable, participants spoke about their actual experiences in the first six months after the effective date of Reg FD, and raised a number of concerns about the regulation.

    Simply put, two of the key issues were: (1) What can issuers say without triggering Reg FD?; and (2) Once triggered, how can issuers comply with the rule?

    1. What Can Issuers Say Without Triggering Reg FD?

    The first step is determining what information is material under the rule.   Reg FD prohibits selective disclosure of material information. As a result, liability under Reg FD hinges on the element of materiality. As the Supreme Court defined it, a statement is material if "there is a substantial likelihood that a reasonable investor would consider it important in deciding how to [act]."11 The Court declined to provide bright-line guidance, stating that a determination of materiality is one based on facts and circumstances.12

    Several of the comment letters received regarding proposed Reg FD requested that the Commission provide guidance concerning the sort of information that it would consider material under the rule. Commenters worried that a general materiality standard would require issuer personnel to make real-time or after the fact materiality determinations that could be second-guessed by the SEC.

    Shortly after enactment, news about a handful of Reg FD investigations by the SEC was reported in the press.13 To date, the Enforcement Division has brought no such cases. Even so, issuers and their corporate counsel have taken little comfort from the Commissioners' assurance at the Roundtable and in subsequent public statements that they would only authorize cases of clear-cut violations involving unquestionably material information.14

    Although the Adopting Release listed seven categories of information likely to be considered material,15 to many of the panelists, the seven categories have provided more confusion than clarity about what materiality means under the Reg FD regime. Most issuer panelists agreed that uncertainty about materiality under Reg FD caused them to err on the side of caution. One panelist noted that "placing a regulatory structure based on materiality decisions around a voluntary disclosure process might well result in a chill on the flow of legitimate information, and that may be happening."16

    Reg FD purports to leave intact the mosaic theory so that analysts can use pieces of nonmaterial information to build a material mosaic. Right now, though, these pieces are hard to come by due to the confusion about materiality. As one panelist revealed:

    Certainly now information is much more broadly disseminated, but it is the incremental information from which we get nuance, from which we develop the mosaic theory, that . . . is harder to achieve. So, in that sense, it is probably making our job a little harder. There are certain kinds of conversations that we are no longer having with companies, conversations like, "So how is the quarter going?"17

    Several of the panelists stated that their materiality determinations were further complicated by Staff Accounting Bulletin 99 ("SAB 99").18 SAB 99 states that materiality determinations must encompass consideration of qualitative factors in addition to quantitative factors and that no numerical threshold exists for assessing materiality. It also states that subsequent stock price movement should be considered in deciding whether a statement is material. One panelist went as far as saying, "I think, frankly, that the Commission itself should reread SAB 99, should look at it and should really come back with a much simpler, straightforward definition of materiality."19

    Panelists strongly advocated the Commission's giving additional guidance concerning materiality – beyond that provided in the Adopting Release. They also suggested that the contours of "earnings information" are unclear. "When the SEC listed earnings guidance at the top of the list of items it considers material . . . the name of the game changed considerably."20

    All panelists deemed quarterly earnings information material,21 but they were unsure what information could be disclosed in the period leading up to a company's announcement of final quarterly numbers. Concerns tended to center in three areas:

    a. Confirmation of prior guidance.   Several panelists noted uncertainty about when and how they may confirm prior guidance. One issuer stated: "[I]t is difficult to know exactly when our confirmation of prior publicly made earnings expectations by the company to an analyst may be considered material. There is no bright line test . . . ."22

    Panelists indicated some of the ways they deal with prior earnings guidance. Simultaneous with confirming estimates, one participant actually issues a "no new news" press release announcing that previous guidance is still reliable.23 Another company said that it engages in real-time continuous disclosure. The company maintains continuous website posting of current expectations,24 and holds mid-quarter conference calls to update guidance.25

    b. Disclosure of product-related and other non-financial information.   Panelists expressed uncertainty over the types of non-earnings information that may trigger Reg FD reporting requirements. A representative of one large issuer noted: "Just the nature of disclosure today, we can all appreciate less focus solely on the reported financial results of the company and the increasing extent the investors of the company are demanding a better understanding of what drives the company's performance . . . . [D]ealing with both financial information and basic operation information becomes an increasing challenge [under Regulation FD]."26

    c. Correcting outdated analyst estimates.   Issuer panelists also expressed frustration that Reg FD may prevent them from contacting an analyst who has not revised his or her numbers in response to recently announced company news.27


    • The Commission should consider providing more guidance on materiality. The Commission should consider issuing an interpretive release to make its position on materiality under Regulation FD clearer. This would provide the Commission a constructive opportunity to articulate its views on materiality, using real-world factual scenarios.
    • In providing guidance, it would be helpful for the Commission to provide concrete examples of what information issuers could give analysts to build their mosaics without running afoul of Regulation FD.
      • Define what is meant by "earnings information." Are certain income statement items more likely to be deemed material than others? Is the term limited to end of quarter earnings announcements or does it cover any information that may eventually find its way into income statements?
      • Clarify the circumstances under which issuers may confirm prior guidance. The staff has stated that the factors to be considered include how much time has passed between the public dissemination of the guidance and the private confirmation, and whether any intervening events have occurred.28 The staff has also stated that it is safer to confirm guidance earlier in the quarter, rather than later.29 Given the importance of this issue, the Commission should consider opining on it in a Commission statement.
      • Clarify the interplay between Reg FD and SAB 99. In determining materiality under FD, how should an issuer interpret the language in SAB 99 about the relevance of stock price movement subsequent to an event or announcement?
      • Discuss and clarify whether plant and factory private tours are allowed.
    • If enforcement action is warranted, the Commission should also consider issuing a Section 21(a) report.30 A Section 21(a) report would provide the Commission an opportunity to express its views on materiality under Regulation FD.

    2. How Do Issuers Comply With Regulation FD?

    The second step is determining how to disseminate Regulation FD information.   Once issuers answer the materiality question and figure out what must be publicly disseminated, they must decide how to accomplish this. Regulation FD allows for a number of options by not specifically mandating any particular medium of public disclosure. Instead, the rule states that issuers can make public disclosure by filing or furnishing a Form 8-K, or by disseminating information "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public."31 While the plain language of Reg FD makes it appear that issuers have a wide variety of available options, other factors must be considered.

    a. Form 8-K Filings.   The most straightforward disclosure option – a Form 8-K filing – ranks lowest in issuers' estimation.32 Although explicitly referenced as a dissemination tool in the text of Regulation FD, panelists did not favor Form 8-K as the best means of information dissemination. For the most part, responsible corporate citizens do not rely exclusively on Form 8-K, but use it only in conjunction with other disclosure tools.33 Ironically, filing on Form 8-K may be an attractive means of complying with the letter, but not the spirit, of Reg FD.34

    b. Webcasts.   Another disclosure option – webcasting – has been met with great enthusiasm. According to a wire service representative, between October 1, 2000 and April 23, 2001, the number of corporate webcasts on its service nearly quadrupled from the same period twelve months earlier (3,000 to 11,000).35 A representative of another wire service stated that his company had experienced a 400 percent increase in webcasts since Reg FD became effective.36

    NIRI research reflects another benefit of webcasts in that they allow investors to tune in to archived webcasts at a later date. In fact, the number of investors listening to archived calls is "significantly higher" than those listening to live calls. Many issuers do not, however, archive webcasts for more than a week or a month.37 Panelists believed that investors would benefit from webcasts being saved for a uniform minimum period of time. "Some companies archive their events for a day, some archive them for two years. And it has always kind of boggled my mind that an SEC filing is archived for perpetuity; yet, a webcast might disappear in a day."38 One panelist also encouraged companies to post a written transcript of the webcast, which could be scanned and searched, in addition to the audio recording.39

    c. Press releases.   Issuers still turn to press releases most frequently as a tool of information dissemination. Issuers rely on press releases in part because of their effectiveness in reaching investors,40 but mainly because SRO rules mandate press releases.

    Roundtable participants expressed frustration about these rules, and pointed out that any flexibility written into Reg FD is overridden by SRO rules prescribing issuers' use of a press release to disclose material information.41 NYSE rules mandate that the "normal method of publication of important corporate data is by means of a press release."42 NASD rules require disclosure to the public "through international wire services or similar disclosure media."43

    In practice, companies that disseminate material information through a webcast must first issue a press release announcing the upcoming webcast. That company must then issue another press release simultaneous with releasing material information during the webcast. Companies frequently issue a third "clean-up" press release following the webcast in case any additional material information may have been disclosed.

    Issuers believe they need to issue press releases to comply with SRO rules and Reg FD. Among other things, companies want flexibility to adapt their information dissemination approach to their own situation. For example, some smaller issuers find that wire services do not carry their press releases. As one attorney panelist stated, "[O]ne size doesn't fit all, not just in terms of methods of dissemination but in terms of the companies as well. We have companies who will issue a press release and not have it picked up. We have companies that literally can be pounding the door of a service and still not get the information carried . . . ."44

    Information disseminators are waiting in the wings to play a part in disseminating information. A representative from CNBC stated that his network, which reaches 77 million homes and has the technology to deliver real-time text on-screen, could play a much larger role as an information disseminator if the SROs modernized their rules.45 He stated that CNBC would like to serve as a principal disseminator of earnings announcements, but that SRO rules prevent the network from acting in this capacity.

    The panelists urged the SROs to liberalize their requirements. By requiring companies to use a press release, SRO rules stifle the use of technological advances to disseminate information. The Commission recognized technology as a disclosure tool in the Adopting Release:

    Whereas issuers once may have had to rely on analysts to serve as information intermediaries, issuers now can use a variety of methods to communicate directly with the market. In addition to press releases, these methods include, among others, Internet webcasting and teleconferencing. Accordingly, technological limitations no longer provide an excuse for abiding the threats to market integrity that selective disclosure represents.46

    Yet if SRO rules force issuers to disseminate material information by press release, issuers cannot avail themselves of technology as the sole means of complying with Reg FD. As one panelist put it: "We are seeing technological advances, as we heard today discussions of push technology, which . . . put[s] the onus on the Commission to scrutinize the means of distribution . . . and [the SROs'] insistence on [a] press release is something maybe you need to look at."47

    d. Technology.   Beyond press releases and webcasts, and presumably Form 8-K as well, issuers are uncertain as to what other options they have to disseminate information to satisfy Reg FD. As one issuer representative noted: "[A]s long as you have a press release, a webcast and a conference call, you feel protected. Anything else, you have to [ask] . . . ."48

    The Commission has generally embraced the use of new communications technologies to satisfy disclosure and other requirements under the securities laws, and provided guidance in that regard.49 The Commission now needs to expand issuers' opportunities for using technology to comply with Regulation FD.

    So far, the Commission has refrained from allowing Reg FD disclosure to be made solely by means of the Internet. In the Adopting Release, the Commission stated: "In the Proposing Release, we stated that an issuer's posting of new information on its own website would not by itself be considered a sufficient method of public disclosure. As technology evolves and as more investors have access to and use the Internet, however, we believe that some issuers, whose websites are widely followed by the investment community, could use such a method."50

    Even as of a year ago, government research shows that dramatic gains are being made to eliminate the digital divide. According to an October 2000 U.S. Department of Commerce report51:

    • Households with Internet access increased by 58 percent, rising from 26.2 percent in December 1998 to 41.5 percent in August 2000.
    • More than half of all households (51 percent) have computers, up from 42.1 percent in December 1998.
    • Internet access among households earning $35,000 to $49,000 rose from 29 percent in December 1998 to 46.1 percent in August 2000.

    In many cases, investors can access information from the Internet more readily than from offline sources, such as press releases. Most public libraries provide free Internet access to anyone who walks in.


    • The Commission should work with the SROs to embrace technology as a means for public companies to disseminate material information. Amending SRO rules would remove a major impediment to companies that want to make use of technology to provide information to the public.
    • As the digital divide continues to narrow, the Commission should continue to reevaluate its position on how the Internet can further the goals of Reg FD.52 The Commission should consider encouraging use of the Internet as a prime dissemination tool. In particular, the Commission should deem adequately noticed website postings, fully accessible webcasts (without an accompanying press release repeating the substantive information) and electronic mail alerts53 to satisfy Reg FD.
    • The Commission should encourage issuers to post written transcripts of webcast presentations and to archive webcasts and transcripts on their websites for a uniform minimum period of time.54

    B. Quantity and Quality of Information

    The Roundtable also explored how Reg FD has affected information flow. Panelists cautioned the Commission not to equate better access to information with better disclosure. While all agreed that FD affords market participants relatively equal access to information, panelists did not agree that FD has produced more information. Panelists expressed concern over whether Reg FD has resulted in more or better disclosure, with many believing that, even if the quantity has increased, the quality has not.

    1.   Regulation FD May Provide More Access to Information.

    Panelists presented survey findings as well as factual and anecdotal evidence to help judge Regulation FD's impact on the quantity of information disclosed.

    Some panelists believed that issuers use Reg FD as a shield, refusing to disclose virtually any information. One panelist noted that he was "disappointed to learn how companies hid behind the umbrella of Reg FD. At a time when I thought the industry should be leading the information flow, the default was: `Let's stay protected. Let's say less.'"55 An analyst described how his firm routinely sends paper questionnaires to issuers requesting general background information. Although the questionnaire does not call for the disclosure of material non-public information, many issuers, he said, are no longer willing to return the questionnaire, citing Reg FD.56

    Some panelists expressed concern that Reg FD has decreased disclosure of forward-looking information in that companies inadvertently disclosing material information privately must disclose the information publicly. As a result, companies may be forced to make projections public and face unintended consequences. One panelist suggested that the SEC address this situation by bolstering the safe harbor for forward-looking statements contained in the PSLRA.57

    In contrast, panelists associated with information disseminators believed that the quantity of information has increased. A representative of a wire service stated that "companies are now providing more earnings guidance to the investment community as a whole and they are doing it on a more sustained basis."58 To support this conclusion, she cited statistics showing that the number of earnings guidance releases increased more than tenfold from October 1, 2000 until April 23, 2001, compared to the same period the prior year, and that webcast announcements nearly quadrupled during this same period.59 Another wire service representative echoed these sentiments, saying that his company has noticed "earnings projection stories increasing each quarter."60 He cited a 400 percent increase in webcasts on his service since Reg FD became effective.61

    Some panelists stated that Reg FD has also caused at least some issuers to cease granting one-on-one meetings and other private meetings with analysts and investors.62 The results of two surveys also support this impression. The ABA FD Task Force Survey, which surveyed securities attorneys about their clients' practices, reported that prior to FD, 77 percent said most of their clients conducted one-on-ones; this number declined to 27 percent post-FD.63 In addition, AIMR Survey #1 revealed that 69 percent of buy-side analysts saw a decrease in their ability to have these meetings; 70 percent of sell-side analysts had the same experience.64

    On the other hand, in the NIRI Survey of issuer representatives, 80 percent of issuers reported that they continued to hold face-to-face meetings.65 A panelist representing a large institutional investor noted he was also aware of another institutional investor that has had 18 one-on-one meetings with corporate management since Reg FD became effective. Concern about the applicability of Reg FD was raised at only two of the meetings, he reported.66

    Those issuers cutting back on one-on-one meetings are viewed as most likely to be reluctant to grant plant and factory tours. One analyst noted, "We have heard instances, for example, of a company who will say, `We were going to give a plant tour to really show you how we make the goods, etc., so that you really understand the efficiencies of what we are trying to create, what our competitive edge is. But we are nervous about Reg FD, so we are not going to do that.'"67 This assertion is supported by AIMR Survey #2, which found that 37 percent of analyst respondents believe the opportunity to participate in company and plant tours has decreased, only three percent believe it has increased, and 60 percent believed it had stayed the same.

    To explain why less information may be publicly available, many issuers noted that, post-Reg FD, companies have shifted disclosure oversight from the investor relations department to the legal department. Generally, the legal department adopts the conservative stance of wanting to say nothing for fear of running afoul of Reg FD. As one issuer stated, "Although legal always reviewed investor presentations before Reg FD, today I find legal wanting input as to the actual meeting program I proposed with veto power being given on certain meetings and presentations. That, to me, says that people are being muzzled in a sense."68

    There was consensus among the panelists that Reg FD has not caused companies to lose analyst coverage. When asked whether they had dropped coverage of any issuers as a result of FD, none of the analysts replied in the affirmative.69 Only one of the 577 companies in the NIRI Survey said it lost analyst coverage due to Reg FD.70

    Various surveys report different information about whether issuers are disclosing more or less information post-Reg FD. Analysts believe that companies now disclose less information to them. But issuers generally deny that they are disclosing less information. The following table summarizes survey findings:

    Survey Date Respondents Findings
    Thomson Financial 1/17/01 81 public companies Nearly 33 percent said FD has limited the flow of information they provide to buy- and sell-side analysts.
    NIRI Survey 2/26/01 577 investor relation professionals 28 percent responded that they are providing more information post-FD; 48 percent responded that they are providing the same amount; and 24 percent responded they are providing less.
    AIMR Survey #1 3/26/01 423 AIMR members (investment analysts and portfolio managers) 57 percent believe the volume of substantive information released by public companies has decreased in the wake of FD; 14 percent said the volume has increased.
    ABA FD Task Force Survey 4/01 62 members of the securities bar 45.2 percent said their clients are providing more information post-FD; 24.2 percent are providing the same amount; and 25.8 percent are providing less information.
    PWC Survey #1 4/23/01 123 large issuer executives and 41 small issuer executives 31 percent say they are disclosing more, while 23 percent are disclosing less. 44 percent say FD has no impact on the quantity of their disclosure.
    SIA Survey 5/01 30 analysts, 505 investors, 94 SIA member firms, and 25 issuer general counsels Approximately 25 percent of issuers feel they are communicating less to the public. Analysts estimate that nearly two-thirds of the issuers they follow communicate less.
    PWC Survey #2 10/17/01 201 public companies executives 48 percent said FD has influenced the quantity of their disclosures – of these, 37 percent said they are disclosing more information, while 11 percent said they are disclosing less.
    AIMR Survey #2 10/18/01 303 AIMR members 51 percent believe companies are disclosing less substantive information; 18 percent believe more information is being disclosed; and 24 percent believe the same amount is provided.

    2.   But Does More Access Equal Better Information?

    Perhaps even more critical than sheer numbers, has Reg FD caused companies to disclose valuable information? Panelists expressed differing views about whether Reg FD has diminished the quality of company information. Analysts generally believed that it has, as reflected in both statements by panelists and surveys. Issuers disagreed.

    Analysts mainly complained that post-Reg FD disclosure is generalized and boilerplate with little nuance. One analyst best summed up this viewpoint: "[W]e do see a reluctance on the part of companies to give some explanation, to give some nuance sometimes. It feels like there is a lot of reliance on the script, like the investor relations person has a script in front of him and regardless of what is asked, just a standard answer is given."71 This view was not limited to analysts. A representative of a large institutional investor agreed that "greater orchestration and greater scripting of one-on-one meetings" is noticeable.72

    The tendency towards boilerplate language also carried over into company press releases. Panelists noted that, by erring on the side of caution, companies are stating too few facts in too many words, making their press releases overly long. Clearly an example of information overload, the press releases have produced a watershed of useless information. One panelist stated that "trying to separate the wheat from the chaff in some of these releases is very, very difficult as a shareholder."73

    Analysts voiced concerns regarding the quality of information, pointing out that there is no longer any "give and take" in discussions with issuers.74 As a result, analysts' work now involves "[m]ore guess work, less real information, [and a] greater propensity for mispricing securities."75 Analysts stated that due to conference call time restraints, they do not always get to ask their questions.76 Also, they may refrain from asking certain questions in a public setting because their questions constitute work product.77

    Survey results reflected a variety of views on whether the quality of information has declined post-FD. The following table sets forth these results:

    Survey Findings
    Thomson Financial 50.7 percent of respondents said FD has changed their communications practices. Of that figure, 29.4 percent said they have less frequent contact with analysts and investors and 27.5 percent said they now give less detail.
    NIRI Survey While 80 percent of issuers responding continue to hold one-on-one meetings with analysts and institutional investors, "less information" is conveyed in these forums.79 The percentage of issuers willing to review analyst earnings models has declined from 81 to 53 percent.
    AIMR Survey #1 Finds a significant deterioration in the quality of oral communications – 62 percent say candor has deteriorated, with just five percent saying it has improved. The opinions concerning the quality of written communications were more evenly split.
    ABA FD Task Force Survey 30.6 percent said their clients are providing better quality information post-FD; 50 percent are providing the same quality; and 17.7 percent are providing worse quality.
    PWC Survey #1 n/a
    SIA Survey 72 percent of analysts feel that information communicated by issuers to the public is of low quality post-FD; 28 percent state the information is of the same quality.
    PWC Survey #2 33 percent of issuer respondents noted a change in the quality of their disclosures – 29 percent higher, and four percent lower.
    AIMR Survey #2 55 percent believe the usefulness of issuer oral communications has deteriorated, while six percent believe it has improved. 35 percent believe the usefulness of issuer written communications has deteriorated, while 22 percent believe it has improved.


    • In order to assess Reg FD's effectiveness, the Commission must first identify more precisely what post-FD corporate disclosure looks like. To accomplish this, the Commission needs to examine both the amount of information being disclosed and the type of information issuers are providing. In reviewing Form 8-K filings, press releases, webcasts and other modes of dissemination, the Commission should consider the following questions:
      • Is the information disclosed pursuant to Regulation FD general or specific?
      • How does the specificity and depth of information disclosed post-Reg FD compare to pre-Reg FD disclosures?
      • Have companies cut back on disclosing earnings forecasts or discussing futurebusiness plans?
    • If the Commission determines that Reg FD has caused companies to cut back on making future projections, it should consider using its authority under the PSLRA to expand the safe harbor for forward-looking statements to encourage more forward-looking disclosure.80.

    IV.   Conclusion

    The Commission's current Chairman, Harvey Pitt, has said a number of times, "The goal of Regulation FD is unassailable." I wholeheartedly agree. The 6,000 comment letters received during Reg FD's proposal stage demonstrate keen investor interest in having equal access to information.

    Perhaps the regulation has accomplished its goal of equal access to information. As the surveys and panelists revealed, some investors and issuers think there is more and better information post-Regulation FD – suggesting that securities professionals no longer have the upper hand information-wise. Other investors, issuers and certainly analysts, tell a different story. According to them, Regulation FD has caused issuers to say nothing, analysts to hear nothing and investors to see nothing. Of course, no matter what the story, both versions now end on a more level playing field.

    While reasonable minds may differ about whether Regulation FD was the appropriate response to selective disclosure, those minds would likely agree that some fine tuning to the regulation is in order. After all, investors do not benefit from having the appearance of access to good information – they need the facts (or projections).

    This Report discusses the main issues raised in the Roundtable and the surveys and provides certain recommendations to the Commission. It also suggests that Reg FD would benefit from more precise Commission or staff analysis of how disclosure has changed post-FD. Mainly, the input on Regulation FD suggests that the Commission itself must speak more clearly about the types of information the regulation seeks to make public. Once the Commission makes its views on materiality clearer, issuers may feel more comfortable engaging in dialogue with industry professionals about non-material information. This dialogue will allow analysts to bring more nuanced information to the marketplace.

    Finally, the Commission is poised to undertake comprehensive review of the Securities Act of 1933. Many of the Commission's considerations during this review will focus on technology and the nearly seven decade old disclosure regime. In the short-term, the Commission should expand and clarify ways issuers may use technology to comply with Regulation FD. In the long-term, I share Chairman Pitt's views about making real-time company disclosure a reality. Eventually Regulation FD may become obsolete. Until then, I urge the Commission to make it better.


    1 Reg FD was proposed on December 20, 1999, SEC Release Nos. 33-7787, 34-42259, IC-24209 (Dec. 20, 1999), 64 FR 72590 (Dec. 28, 1999) (File No. S7-31-99) ("Proposing Release"). It was adopted on August 10, 2000, SEC Release Nos. 33-7881, 34-43154, IC-24599 (Aug. 15, 2000), 65 FR 51716 (Aug. 24, 2000) (File No. S7-31-99) ("Adopting Release"), and became effective on October 23, 2000.

    2 17 CFR 243.100 et seq.

    3 File No. S7-31-99. Comments are available at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Comments submitted through electronic mail are also available online at www.sec.gov/rules/proposed.shtml.

    4 The modifications narrowed the scope of Reg FD by, among other things: (1) limiting the covered categories of recipients to industry professionals and investors likely to trade on the information; (2) making explicit that Reg FD creates no duties under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; (3) extending the scienter requirement to the element of materiality; and (4) excluding from the regulation's coverage communications made in connection with most offerings under the Securities Act of 1933.

    5 Commissioner Unger did not favor adopting a sweeping communications rule to address a trading problem. Her dissent was based on concern that the costs of the broad new rule – in particular, a chilling of corporate communications – would outweigh the benefits of eliminating opportunities for trading on non-public material information by a select few. She also believed that the Internet was already democratizing investors' access to company information.

    6 A copy of the Roundtable agenda, including a participant list, is attached as Appendix A.

    7 The Roundtable Transcript is attached as Appendix B.

    8 The eight surveys are: (1) Thomson Financial, Jan. 17, 2001 (www.carsongroup.com/carson/reg_fd.html); (2) National Investor Relations Institute, Feb. 26, 2001 (www.niri.org/publications/cdps2001.pdf) ("NIRI Survey"); (3) Association for Investment Management and Research, March 26, 2001 (www.aimr.org/pressroom/01releases/regFD_survey.html) ("AIMR Survey #1"); (4) American Bar Association FD Task Force Survey, April 2001 (www.abanet.org/buslaw/fedsec); (5) PriceWaterhouseCoopers, April 23, 2001 (http://www.barometersurveys.com/pr/te010423.html) ("PWC Survey #1); (6) Securities Industry Association, Costs and Benefits of Regulation Fair Disclosure, May 2001 (www.sia.com/reg_fd/pdf/RegFD.pdf) ("SIA Survey"); (7) PriceWaterhouseCoopers, Oct. 17, 2001 (www.barometersurveys.com/pr/mg011017.html) ("PWC Survey #2"); and (8) Association for Investment Management and Research, Oct. 18, 2001 (www.aimr.com/pressroom/01releases/01RegFD.html) ("AIMR Survey #2"). [Webmaster's note: links in (1) and (6) are no longer valid; the active link has been removed.]

    9 Section 21(a) of the Securities Exchange Act of 1934 authorizes the Commission, in its discretion, to publish information "concerning any . . . violations" and to investigate "any facts, conditions, practices or matters which it may deem necessary or proper" in fulfilling its responsibilities under the Exchange Act.

    10 17 CFR § 243.101(e)(2).

    11 TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).

    12 "Any approach that designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily be over- or underinclusive." Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988).

    13 The press reported that, in one situation, a company allegedly contacted analysts to reiterate statements made in an earlier call and analysts subsequently lowered their earnings estimates. In another situation, according to press reports, a company allegedly provided information to analysts following an investor conference, causing the analysts to lower their estimates.

    14 See Statement of Commissioner Isaac C. Hunt, Jr., Roundtable Transcript at 193 ("We are not going to define this Rule through enforcement actions . . . ."); Letter from then-SECChairman designee Harvey L. Pitt to the Chief Clerk, United States Senate, Committee on Banking, Housing & Urban Affairs, July 23, 2001 ("The Commission's Enforcement Staff has stated that it will not attempt to second-guess reasonable, good faith judgments by persons who honestly attempt to comply with Regulation FD. I agree with that approach."). See also Speech of then-Enforcement Director Richard H. Walker, "Regulation FD: An Enforcement Perspective," before the Compliance and Legal Division of the Securities Industry Association, New York, Nov. 1, 2000 (stating that, at least in the early stages, the Enforcement Division will focus its efforts on "egregious violations" and that the division is "not looking to frustrate the purpose of the rule – which is to promote broader and fairer disclosure of information to investors – by second-guessing reasonable disclosure decisions made in good faith, even if we don't agree with them.").

    15 These include: (1) earnings information, (2) mergers and acquisitions, (3) new products or discoveries, (4) change in control or management, (5) change in auditors, (6) events regarding the issuer's securities, such as a default or stock split, and (7) bankruptcies or receiverships. Adopting Release at 23.

    16 Louis Thompson, Jr., National Investor Relations Institute, Roundtable Transcript at 89.

    17 David Berry, Keefe Bruyette & Woods, Roundtable Transcript at 155. See also Louis Thompson, Jr., Roundtable Transcript at 86.

    18 Staff Accounting Bulletin No. 99 (Aug. 12, 1999).

    19 Herbert Wander, Esq., Katten, Muchen & Zavis, Roundtable Transcript at 274-75.

    20 Louis Thompson, Jr., Roundtable Transcript at 86-87.

    21 There was consensus that issuers mainly follow the model provided by the SEC in the Adopting Release to disclose earnings – a press release followed by an adequately noticed and open conference call.

    22 David Shedlarz, Pfizer Inc., Roundtable Transcript at 11-12.

    23 Id. at 12.

    24 Doug Lusk, Intel Corp., Roundtable Transcript at 19.

    25 Id. at 28. Other issuers may be following this approach. In the NIRI Survey, six percent of respondents stated that they plan to issue a mid-quarter review of guidance.

    26 Shedlarz, Roundtable Transcript at 62-63.

    27 Bina Thompson, Colgate-Palmolive Co., Roundtable Transcript at 31 (citing comments of others).

    28 See Manual of Publicly Available Telephone Interpretations, Division of Corporation Finance, U.S. Securities and Exchange Commission (rev. July 18, 2001), available online at http://www.sec.gov/interps/telephone/phonesupplement4.htm.


    30 In an unrelated matter, the Commission recently issued a Section 21(a) report setting forth certain general factors it considers in determining sanctions for cooperating parties or defendants. See Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934, Securities Exchange Act Rel. No. 44969 (Oct. 23, 2001). The report is available online at www.sec.gov/litigation/investreport/34-44969.htm.

    31 17 C.F.R. § 234.101(e)(2).

    32 Although it cannot be directly attributed to Reg FD, there has been an appreciable increase in the number of Forms 8-K filed with the Commission since the effective date of Reg FD. According to internal statistics, in October 2001, companies filed an estimated 3,500 Forms 8-K, compared with an estimated 2,760 filings in October 2000. Cumulatively, companies filed an estimated 37,425 Forms 8-K for fiscal year 2001 (October 2000 to October 2001), compared to an estimated 31,560 filed in fiscal year 2000. Approximately 2,776 filings making Reg FD disclosures were made under Item 9 of Form 8-K in fiscal year 2001.

    33 See Louis Thompson, Jr., Roundtable Transcript at 134 ("[C]ompanies are using the filings . . . [as] really kind of back-up, but to use that as a primary means is a mistake because individual investors are not cruising EDGAR for this.").

    34 "[S]ome companies have, in effect, furnished [negative] information under Item 9 in an 8-K . . . because they feel that bad news is going to look a lot worse in a news release, so they file it under Item 9 because it is lower profile . . . ." Id. at 135.

    35 Cathy Baron Tamraz, Business Wire, Roundtable Transcript at 93. The number of open teleconference calls during the same period more than tripled from approximately 600 to 2,000. Id.

    36 David Armon, PR Newswire, Roundtable Transcript at 102-03.

    37 Louis Thompson, Jr., Roundtable Transcript at 122-23.

    38 Mark Coker, BestCalls.com., Roundtable Transcript at 126.

    39 T. Perry Boyle, Thomas Weisel Partners, Roundtable Transcript at 176. As one analyst noted, "Transcripts would be great because, frankly, now there are replays and you can go back and there is an hour's worth of stuff you have to slog through to find that little nuance." Berry, Roundtable Transcript at 176-77.

    40 Members of the media and other information disseminators provided statistics during the Roundtable on the reach of press releases. Press releases sent to wire services are distributed to in excess of 16,000 news outlets both on- and off-line and are generally posted to the newswires' websites.

    41 See Louis Thompson, Jr., Roundtable Transcript at 117 ("This regulation really is a wonderful opportunity to look at diverse means of communication . . . but the SEC, in a footnote in the release says, in effect, that this rule does not necessarily mean that . . . the self-regulatory organizations have to change their requirements, so they are not.").

    42 Section 202.6(A) of the NYSE Listed Company Manual.

    43 NASD Rule 4320(e)(14).

    44 John Huber, Esq., Latham & Watkins, Roundtable Transcript at 65.

    45 Ron Insana, CNBC, Roundtable Transcript at 118-19.

    46 Adopting Release at 5.

    47 David Ruder, Esq., Northwestern University Law School, Roundtable Transcript at 114-15.

    48 Kipp Bedard, Micron Technology, Roundtable Transcript at 67.

    49 See, e.g., Use of Electronic Media for Delivery Purposes, SEC Release Nos. 33-7289, 34-37183, IC-21946 (May 9, 1996), 61 FR 24652 (May 15, 1996) (File No. S7-31-95); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information, SEC Release Nos. 33-7288, 34-37182, IA-1562, IC-21945 (May 15, 1996), 61 FR (File No. S7-13-96); Use of Internet Web Sites to Offer Securities, Solicit Securities Transactions, or Advertise Investment Services Offshore, SEC Release Nos. 33-7516, 34-39779, IA-1710, IC-23071 (March 23, 1998), 63 FR 14806 (March 27, 1998).

    50 Adopting Release at 34.

    51 U.S. Department of Commerce, Falling Through the Net: Toward Digital Inclusion, A Report on Americans' Access to Technology Tools, October 2000.

    52 The Commission has recently signaled a willingness to reconsider its electronic interpretations when it declared effective the registration statement of an electronic-only variable annuity offering. Order Declaring the Registration Statement Effective, as amended, of the American Separate Account 5 of the American Life Insurance Company of New York, SEC Release Nos. 33-8027, 34-44980, IC-25243 (Oct. 25, 2001).

    53 E-mail alerts use "push technology" to actually get information directly into the hands of investors in real time. See NIRI Survey ("55 percent of survey respondents are using `push technology' whereby interested investors who want an e-mail alert are notified directly") and AIMR Survey #2 (finding that 34 percent of analyst respondents believe that the availability of issuer e-mail alerts has increased post-FD). The alerts can be used either to transmit information or to inform of an upcoming website posting or webcast.

    54 In the Adopting Release, the Commission stated that "if an issuer is using a webcast or conference call as part of its method of effecting public distribution, it should consider providing a means of making the webcast or call available for some reasonable period of time. This will enable persons who missed the original webcast or call to access the disclosures made therein at a later time." Adopting Release at 35, n.73.

    55 Bedard, Roundtable Transcript at 40-41.

    56 Berry, Roundtable Transcript at 167-68.

    57 Hann, Daniel, Esq., Biomet, Inc., Roundtable Transcript at 29.

    58 Tamraz, Roundtable Transcript at 92.

    59 Id. at 92-93.

    60 Armon, Roundtable Transcript at 102.

    61 Id. at 102-03.

    62 See, e.g., Bina Thompson, Roundtable Transcript at 30 ("Some [investor relation professionals] have stopped meeting one-on-one with investors, even if earnings are notdiscussed.") (citing remarks of others).

    63 Huber, Roundtable Transcript at 33.

    64 Patricia Doran Walters, Association for Investment Management and Research, Roundtable Transcript at 143.

    65 Louis Thompson, Jr., Roundtable Transcript at 88.

    66 George Kim Johnson, Esq., Public Employees' Retirement Association of Colorado, Roundtable Transcript at 215.

    67 Michael Blumstein, Morgan Stanley, Roundtable Transcript at 197.

    68 Hann, Roundtable Transcript at 30.

    69 See Roundtable Transcript at 198-99.

    70 Louis Thompson, Jr., Roundtable Transcript at 88.

    71 Blumstein, Roundtable Transcript at 165.

    72 Eric Roiter, Esq., Fidelity Management & Research, Roundtable Transcript at 224.

    73 Hann, Roundtable Transcript at 43-44.

    74 Boyle, Roundtable Transcript at 167.

    75 Berry, Roundtable Transcript at 155.

    76 Roiter, Roundtable Transcript at 222.

    77 Id.

    79 Louis Thompson, Jr., Roundtable Transcript at 88.

    80 "The Committee intends for its statutory safe harbor provisions to serve as a starting point and fully expects the SEC to continue its rulemaking proceedings in this area. The SEC should, as appropriate, promulgate rules or regulations to expand the statutory safe harbor by providing additional exemptions from liability or extending its coverage to additional types of information." Senate Comm. on Banking, Housing and Urban Affairs, Private Securities Litigation Reform Act, S. Rep. No. 104-98 (1995) at 18.



    Modified: 10/29/2003