April 27, 2000
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: Selective Disclosure (File No. S7-31-99)
Dear Mr. Katz:
American Century appreciates the chance to share its views on proposed Regulation FD and to contribute to the dialogue on this important subject. We actively support steps aimed at helping individuals achieve their financial objectives by becoming more informed investors.
The spirit in which the Commission is undertaking this initiative is based on a sound principle-full and fair disclosure of information by issuers in order to provide more effective markets for all investors. We applaud the Commission's efforts in this regard. For years, American Century has fought for shareholder rights. Our efforts on behalf of market structure reforms, decimalization of share prices and greater transparency in trading practice are well documented. We were honored to be cited by Commissioner Levitt in a 1998 speech as a mutual fund manager (along with Scudder) "looking out for the interests of its investors."
That said, we think that Regulation FD, while well intentioned, is impractical and, ultimately, an impediment to important dialogue that does not constitute selective disclosure of material nonpublic information. We believe that the problem Regulation FD is intended to address is serious, but not so pervasive to justify the very real risk of impeding the lawful flow of information.
We believe Regulation FD is impractical for most issuers, If enacted, less meaningful information will be available to investors, either directly or indirectly through institutional analysts and fiduciaries. We predict that any positive result will be limited to more frequent or more widely distributed, yet more bland and sanitized, information, with a parallel decrease in the ability of an analyst to engage in meaningful dialogue about issues that, of themselves, are immaterial, yet are important to the analyst's "mosaic". Few individual investors have the need or the interest or the time to develop these complex mosaics, particularly in comparison to the millions of investors represented by analysts. We believe there will be a chilling effect for two reasons: (1) Regulation FD does not clarify, in any practical sense, the meaning of "material nonpublic information." Regulation FD only heightens the risks to the issuer of interpreting that concept; and (2) Regulation FD places an incredible compliance burden on issuers to monitor conversations, interpret materiality in the context of anticipated hindsight review by regulators (and possibly private litigants) and disseminate individual conversations massively and immediately. We believe that issuers will simply avoid that burden. In fact, we think Regulation FD would drive a "wedge" between businesses and many of their largest owners.
At a time when most companies are opening up their communication practices, new regulation that would be difficult to define, and therefore enforce, is counter-productive. There is little confusion around existing disclosure obligations. To the extent confusion exists, proposed Regulation FD does not clarify (for example, the definition of materiality is certainly not clarified, but rather it is merely repeated). The problem, it seems, is not with ambiguity, but rather with intentional circumvention of current regulations. If additional regulatory oversight is necessary, the Commission should more effectively enforce laws that are already on the books.
We are not certain the problem, as currently defined, even exits. We are aware of a few cases that have been well publicized, like Abercrombie & Fitch and Pixar, where allegations of "selective disclosure" arose. However, we have never experienced this situation and do not believe it is pervasive. We have yet to see hard data that indicates that a significant and pervasive problem exists.
In our opinion, the "market" as it often does, is already addressing the issue. Individual investors are getting better access to more information. The laws of supply and demand are working. Investors are demanding more information and companies are supplying it. Technology is playing a huge role in facilitating this change.
As an example, new businesses are forming to service the individual investor's information needs. Businesses like BestCalls.com, now in its second year of operation, are listing conference call schedules and providing links to web broadcasts or replays thereof. StreetFusion.com is another web broadcasting company now hosting more than 1,000 corporate conference calls each quarter. In addition, a growing number of companies are opening up their conference calls to all investors. AT&T and ConAgra are among this group.1
The internet is accelerating the momentum toward greater access to information. It is pervasive and cost efficient to the issuer and investor. The percentage of companies allowing small shareholders on their conference calls surpassed 50% in 1999 versus less than 30% in 1998.1 A CNBC special on March 8, 2000 broadcast a conference where the leaders of 12 high tech companies, from John Chambers of Cisco to Ted Waitt of Gateway, participated. The msnbc.com website fielded, then aired selected questions from investors. The program was extremely informative...and available to everyone with cable television.
The U.S. capital markets are the envy of the world. Our markets are the richest, deepest, and most trusted of any country on earth. This is due in large measure to both enlightened regulation and the markets' invisible hands. Both forces actively and effectively work in dealing with issues raised regarding the release of information to investors. We think the Commission should stand aside now and resist the temptation to over-regulate a process that is working.
We thank the Commission for this opportunity to comment and would welcome opportunities to discuss it further.
Robert C. Puff, Jr.
Chief Investment Officer
1 Levy, Adam, Access Denied, Bloomberg magazine, December 1999, pgs. 32-38