Only issuers with securities registered pursuant to Section 12 of the
Exchange Act, and those issuers required to file reports under Section 15(d) of
the Exchange Act, including closed-end investment companies, but not other
investment companies, will be subject to Regulation FD. Regulation FD would
apply to any disclosure made by "any person acting on behalf of the
issuer." Regulation FD defines this term as any officer, director, employee
or agent of the issuer who discloses material nonpublic information while acting
within the scope of his or her authority.
Regulation FD does not define the term "material," but instead
relies on the same definition as is generally applicable under federal
securities laws. Information is material if there is a substantial likelihood
that a reasonable shareholder would consider it important in making an
investment decision, or if the information would have significantly altered the
total mix of information made available. The SEC acknowledges that, particularly
in the context of responding to unrehearsed questions from analysts and
investors, corporate officials may be placed in the position of having to make
instant judgments as to the materiality of information to be disclosed. The SEC
believes that this situation can be mitigated if issuers adhere to the following
practices:
- designate a limited
number of persons who are authorized to make disclosures
- record the substance of
private communications with analysts or selected investors
- decline to answer
questions that raise issues of materiality until they have an opportunity to
consult with others
- secure agreement of
analysts not to make use of certain information for a limited time until they
have had an opportunity to assess materiality
Regulation FD applies to disclosures made to any other person outside the
issuer. In addition to not applying to communications of confidential
information between employees and officials of the issuer, Regulation FD would
not apply to any person who has expressly agreed to maintain the information in
confidence; or to temporary insiders of an issuer, such as outside consultants,
attorneys, investment bankers or accountants. For example, issuers could share
material nonpublic information with other parties to a business combination
transaction or with a purchaser in a private placement without having to make
public disclosures if the party receiving the information agrees to hold the
information in confidence.
Regulation FD also distinguishes between intentional and nonintentional
disclosures. An intentional disclosure occurs when the individual making the
disclosure either knew prior to making the disclosure, or was reckless in not
knowing, that he or she would be communicating information that was material and
nonpublic. For example, an intentional disclosure occurs where an
issuer-official holds a conference call or meeting that excludes the public or
selectively contacts a particular analyst or investor to disclose material
nonpublic information, and the official making the disclosure knows, or is
reckless in not knowing, that the information he or she is going to disclose is
both material and nonpublic. On the other hand, a communication would not be
intentional if it is disclosed inadvertently through an honest slip of the
tongue, or because the individual mistakenly (but not in reckless disregard of
the truth) believed that the information had already been made public.
In the case of an intentional disclosure, the rule requires the issuer to
publicly disclose the same information simultaneously. In the case of an
unintentional disclosure, the rule requires "prompt" disclosure, which
means as soon as reasonably practicable (but not later than 24 hours) after a
senior official of the issuer knows, or is reckless in not knowing, of the
nonintentional disclosure. A senior official would include an executive officer,
director, investor relations officer, public relations officer or any employee
of the issuer possessing equivalent functions.
Once an issuer has made a selective disclosure, intentional or not, it must
make public disclosure in one of the following ways:
- filing a form 8-K with
the SEC
- disseminating a press
release
- disseminating
information through any other method of disclosure that is reasonably designed
to provide broad public access with reasonable notice
Regulation FD is an issuer disclosure rule that is designed to create duties
solely under Sections 13(a) and 15(d) of the Exchange Act and Section 30 of the
Investment Company Act. Regulation FD is not intended to create liability under
Section 10(b) of the Exchange Act or any other provision of the federal
securities law. Thus, no private liability will arise from an issuer's failure
to file or make public disclosure. The SEC, however, may bring an administrative
action seeking a cease and desist order or a civil action seeking an injunction
or monetary penalties.
To view a copy of Regulation FD, see www.sec.gov/rules/proposed/34-42259.htm.