Risk & Compliance

SEC to Congress: Verdict Out on Reg FD

But others testifying before Congress were harshly critical of the six-month-old rule.
Ed ZwirnMay 17, 2001

The verdict is still out on Regulation FD, the Securities and Exchange Commission told a Congressional subcommittee on Thursday.

“It is still very early to measure in any objective manner the effects of Regulation FD,” the regulatory body stated in written testimony provided today to Rep. Richard Baker (R-La.) and his Capital Markets subcommittee of the House Financial Services Committee.

The “Fair Disclosure” rule, which was intended to ensure the equitable dissemination of “material” information about firms participating in U.S. securities markets, has been in effect since Oct. 23, 2000.

In the more than six months since it was promulgated, Reg FD has been blamed for everything from imposing a “chilling” effect on the dissemination of information to investors to contributing to the volatility that has been a feature of the stock market during that period.

Thursday’s session, the first major public critique of the regulation since the SEC held a day-long roundtable in New York on April 24, featured testimony not only from members of the regulatory body, but supporters and critics from throughout the industry.

The SEC statement itself promised a “careful examination of the effects of the regulation as we gain greater experience from it” and noted that Acting Chairman Laura Unger will soon be issuing a report that “will provide more detailed observations about the roundtable discussion.”

In addition, the Commission noted that its staff has “provided oral and written interpretive guidance” and has so far avoided enforcement action for the regulation.

“There was also a sense among many roundtable participants that more ‘best practices’ regarding compliance with the regulation might be helpful in the future,” the SEC statement said.

On the other hand, critics of the regulation contended that it has actually impacted the “quality” of information as opposed to the “quantity” and imposed significant costs on issuers.

“Unlike most SEC rules that apply to some companies some of the time, Regulation FD applies 24 hours every day of the year to 13,000 public companies,” Staurt J. Kaswell, senior vice president and general counsel of the Securities Industry Association, stated in the written testimony he provided to the subcommittee.

“SIA estimates that the costs will range from $250 million to $400 million for the rule’s first year of effectiveness,” he said. “This contrasts with the SEC’s economic analysis accompanying its adoption of the rule, in which it estimated costs of $49.5 million per year.”

Click here for more on the SIA attorney’s testimony.In other testimony, H. Perry Boyle, Jr., deputy director of research at Thomas Weisel Partners LLC, said that he didn’t “believe there was much of a need for the regulation.”

“I have not seen any study used by the SEC that measured the public’s lack of confidence in the market prior to the rule,” he said, adding that as a “‘good’ analyst” the rule is good for him, “from a selfish perspective.”

Representative of a divergent point of view was the testimony of Thomas M. Gartner, co-founder of The Motley Fool, an investor website that claims some 30 million readers per month.

“As an individual investor, I am insulted by the implication that individual investors are not smart enough to flesh out the information they need without the help of an analyst,” he said.

“Selective disclosure compromises the integrity and efficiency of our markets and turns them from public markets, where everyone has the same access and opportunities, to private markets, where who you know and how much money you have are more important,” he added.

Click here for a link to the complete Congressional testimony

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Related Articles On CFO.com:

Reg FD Under Congressional Scrutiny (May 16)

SEC to Analysts: Beware of ‘Reg LT’ (May 4)

Press to CFOs: Lighten Up on Reg FD! (April 25)

BREAKING NEWS: SEC Will Go Easy On Reg FD (April 24)

What’s in Store for Reg FD if It’s Not ‘In Play?’ (April 23)

Reg FD Memo: Don’t Talk to Reporters (April 10)

Reg FD and The Big Chll (Nov. 27, 2000)

The Sounds of Silence (Oct. 23, 2000)

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