All you need to know about Regulation FD

THE SECURITIES and Exchange Commission, US has, with effect from October 23, 2000, implemented Regulation Fair Disclosure (FD) aimed to tackle the malaise of selective disclosure of price sensitive information by companies.

It has issued a guidance note on the implementation. During a non-public meeting with analysts, an issuer's CEO provides material non-public information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and non-public. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?

Yes. A disclosure is ``intentional'' under Regulation FD when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and non-public. In this example, the CEO knew that the information was material and non-public, so the disclosure was ``intentional'' under Regulation FD, even though she did not originally plan to make it.

May an issuer provide material non-public information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public?

Yes.

If an issuer gets an agreement to maintain material non-public information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?

No. An express agreement to maintain the information in confidence is sufficient. If a recipient of material non-public information subject to such a confidentiality agreement trades or advises others to trade, he or she could face insider trading liability.

If an issuer wishes to rely on the confidentiality agreement exclusion of Regulation FD, is it sufficient to get an acknowledgment that the recipient of the material non-public information will not use the information in violation of the federal securities laws?

No. The recipient must agree to keep the information confidential.

Must road show materials in connection with a registered public offering be disclosed under Regulation FD?

Any disclosure made ``in connection with'' a registered public offering of the type excluded from Regulation FD is not subject to Regulation FD. That includes road shows in those offerings. All other road shows are subject to Regulation FD in the absence of another applicable exclusion from Regulation FD.

For example, a disclosure in a road show in an unregistered offering is subject to Regulation FD. Also, a disclosure in a road show made while the issuer is not in registration and is not otherwise engaged in a securities offering is subject to Regulation FD. If, however, those who receive road show information expressly agree to keep the material non-public information confidential, disclosure to them is not subject to Regulation FD.

Can an issuer disclose material non-public information to its employees (who may also be shareholders) without making public disclosure of the information?

Yes. Rule 100(b)(1) states that Regulation FD applies to disclosures made to ``any person outside the issuer.'' Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer's officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip.

If an issuer has a policy that limits which senior officials are authorised to speak to persons enumerated in Rule 100(b)(1)(i)-(b)(1)(iv), will disclosures by senior officials not authorised to speak under the policy be subject to Regulation FD?

No. Selective disclosures of material non-public information by senior officials not authorised to speak to enumerated persons are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may trigger liability under existing insider trading law.

A publicly traded company has decided to conduct a private placement of shares and then subsequently register the resale by those shareholders. The company and its investment bankers conduct mini-road shows over a three-day period during the private placement. Does the resale registration statement filed after completion of the private placement affect whether disclosure at the road shows is covered by Regulation FD?

No. The road shows are made in connection with an offering by the issuer that is not registered (that is, the private placement), regardless of whether a registration statement is later filed for an offering by those who purchased in the private placement.

(Source: http://www.sec.gov/offices/corpfin/phonits4.htm)

This is the second of a two-part series on the nitty-gritty expected of companies in implementing Regulation FD. The first part was published on November 5, 2000.