Regulation FD and selective disclosure

THE SECURITIES and Exchange Commission, US, has, with effect from October 23, implemented Regulation Fair Disclosure (FD), to tackle the malaise of selective disclosure of price sensitive information by companies. It has issued a guidance note on the implementation.

Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule's public reporting requirements?

Yes. In assessing the materiality of an issuer's confirmation of its own forecast, the issuer should consider whether the confirmation conveys any information above and beyond the original forecast and whether that additional information is itself material.

That may depend on, among other things, the amount of time elapsed between the original forecast and the confirmation (or the amount of time elapsed since the last public confirmation, if applicable).

For example, a confirmation of expected quarterly earnings made near the end of a quarter might convey information about how the issuer actually performed. In that respect, the inference a reasonable investor may draw from such a confirmation may differ significantly from the inference he/she may have drawn from the original forecast early in the quarter.

The materiality of a confirmation also may depend on, among other things, intervening events. For example, if it is clear that the issuer's forecast is highly dependent on a particular customer and the customer subsequently announces that it is ceasing operations, a confirmation by the issuer of a prior forecast may be material.

We note that a statement by an issuer that it has ``not changed'', or that it is ``still comfortable with'', a prior forecast is no different than a confirmation of a prior forecast. Moreover, under certain circumstances, an issuer's reference to a prior forecast may imply that the issuer is confirming the forecast.

If, when asked about a prior forecast, the issuer does not want to confirm it, the issuer may simply wish to say ``no comment''. If an issuer wishes to refer back to the prior estimate without implicitly confirming it, the issuer should make clear that the prior estimate was as of the date it was given and is not being updated as of the time of the subsequent statement.

Does Regulation FD create a duty to update?

No. Regulation FD does not change existing law with respect to any duty to update.

If an issuer wants to make public disclosure of material non-public information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

An adequate advance notice under Regulation FD must include the date, time, and call-in information for the conference call.

Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

*Timing: Public notice should be provided a reasonable period of time ahead of the conference call. For example, for a quarterly earnings announcement the issuer makes on a regular basis, notice of several days would be reasonable. We recognise, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time-sensitive.

*Availability: If a transcript or re-play of the conference call will be available after it has occurred, for instance, via the issuer's website, issuers are encouraged to indicate in the notice how, and for how long, such a record will be available to the public.

Can an issuer satisfy Regulation FD's public disclosure requirement by disclosing material non-public information at a shareholder meeting open to all shareholders, but not to the public?

No. If a shareholder meeting is not accessible by the public, an issuer's selective disclosure of material non-public information at the meeting would not satisfy Regulation FD's public disclosure requirement.

Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piece-meal fashion throughout the filing.

For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information to a select audience?

Prior to making disclosure to a select audience, the issuer need only confirm that the filing or furnished report has received a filing date (as determined in accordance with Rules 12 and 13 of Regulation S-T) that is no later than the date of the selective disclosure.

Can an issuer ever review and comment on an analyst's model privately without triggering Regulation FD's disclosure requirements?

Yes. It depends on whether, in so doing, the issuer communicates material non-public information. For example, an issuer ordinarily would not be conveying material non-public information if it corrected historical facts that were a matter of public record. An issuer also would not be conveying such information if it shared seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material nonpublic information. It would not violate Regulation FD to reveal this type of data even if, when added to the analyst's own fund of knowledge, it is used to construct his or her ultimate judgments about the issuer.

An issuer may not, however, use the discussion of an analyst's model as a vehicle for selectively communicating -- either expressly or in code -- material nonpublic information.

(Source: Securities and Exchange Commission, US -- http://www.sec.gov/offices/corpfin/phonits4.htm)

(This is the first of a two-part series on the nitty-gritties expected of companies in implementing Regulation FD.)