What Is Regulation Fair Disclosure (Reg FD)?

Regulation Fair Disclosure (Reg FD) is a rule passed by the Securities and Exchange Commission in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders.

Reg FD states that when a publicly traded company or issuer of stock discloses any material nonpublic information regarding that issuer or its securities to a limited group of individuals, the issuer must also make public disclosure of that information. Such disclosures must be made simultaneously if it is an intentional release of information. Non-intentional sharing of such information must be promptly followed with public disclosures.

Key Takeaways

  • Regulation Fair Disclosure (Reg FD) was implemented in October 2000 to stop companies from selectively disclosing important information to market professionals and certain shareholders.
  • The goal of Reg FD was to level the playing field for all investors and prevent a loss of confidence in the markets.
  • Under Reg FD, companies that conduct earnings and forecast calls to update stock analysts must simultaneously issue a press release to make that information available to the general public.

Understanding Regulation Fair Disclosure (Reg FD)

Many companies in the past released important information in meetings and conference calls where shareholders and the general public were excluded. The goal of Reg FD is to level the playing field between individual investors and institutional investors.

Reg FD was created in response to instances when issuers of stock gave advance warnings of earnings results and other nonpublic information to selected institutional investors and analysts. This created circumstances that allowed those with the information to make a profit or avoid losses at the expense of the rest of the investing community. Concerns arose about loss of confidence in the integrity of market because of such unfair disclosure practices. The sharing of nonpublic information with select groups could also border on illegal insider trading. The new rules became effective in October 2000.

Companies must also make recordings of their conference calls with analysts available to the public after those sessions end.

Reg FD is limited in how it may be applied. The rule does not cover all communications made with individuals outside the issuer. The regulation applies specifically to communications and interactions with securities market professionals. It also applies to holders of the issuer's securities in situations where it is likely or reasonably possible that the information will influence their trading activity.

The individuals who fall under the authority of Reg FD include senior officials with an issuer and others who engage in regular communication with securities holders and securities market professionals. This allows companies to continue to make disclosures to the media or issue standard business communications, such as press releases.

Publicly traded companies may conduct earnings and forecast calls to inform analysts who follow their stock about recent developments and plans. Those conference calls are matched with simultaneously issued press releases of the statements made by the company during those calls. Recordings of the calls are also made available after the sessions end to give anyone in the public the chance to hear the comments that were made. The company may also file a Form 8-K with the SEC to provide public disclosure of the information that was shared.