What is meant by "full disclosure"?

By Ken Clark AAA
A:

Most likely, the "full disclosure" you're talking about refers to rules put in place by the Securities and Exchange Commission (SEC) through Regulation FD in 2000. Under this SEC rule, companies must make material information available to small, individual investors at the same time they make it available to large, institutional clients like brokerage houses, Wall Street analysts and major shareholders.

The full disclosure requirements set forth in Regulation FD are meant to protect smaller investors in the same manner as the insider trading laws. In essence, the SEC wants to ensure that no person or entity has an unfair trading advantage over other investors. When large institutions and wealthy investors gain early access to a company's earnings reports and news releases, for example, they are able to make well-informed decisions before the rest of us.

The effect of Regulation FD was strengthened with the passage of the Sarbanes-Oxley Act of 2002. The "SOX" Act, which arose out of the Enron and Worldcom meltdowns, requires companies to publicly disclose key accounting issues such as off-balance-sheet transactions. These two rules combined effectively force companies to release need-to-know financial information to all parties simultaneously.

For more on this topic, read Policing the Securities Market: An Overview of the SEC.

This question was answered by Ken Clark.

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