Risk & Compliance

Changes to Regulation Fair Disclosure: Why Bother?

SEC readies recommendations on Reg FD, but poll shows most CFOs like it the way it is.
Stephen TaubOctober 18, 2001

Securities and Exchange Commissioner Laura Unger says she plans to release a report on Regulation Fair Disclosure (FD) within a month, according to Reuters.

The SEC rule, which requires publicly traded companies to disclose material information simultaneously to the general public and the financial community, has been criticized since its inception a year ago. Some shareholder groups claim Reg FD has led to a reduction of information communicated by companies, and thus has increased–not lessened–volatility on U.S. stock markets.

Unger appears to be in that camp as well. She began spearheading efforts to modify the provisions after she was named acting chairman of the SEC. Harvey Pitt officially took over that position in August.”I continue to be as skeptical, if not more skeptical, about the efficacy of Regulation FD,” Unger told Reuters.

Unger also said the report would include recommendations on the controversial regulation. “The whole point of FD was to give investors the same information as analysts, and I think it accomplished that objective,” she added. “The only problem is, it’s not much information. It’s a lot less than it was before.”

If regulators at the SEC are indeed preparing to modify–or scrap– Reg FD, they might first want to consider the results of a poll released yesterday. According to a survey of over 200 investor relations executives, CFOs, controllers, and finance managers conducted by PricewaterhouseCoopers, 90 percent of respondents say Reg FD is fulfilling its promise of ensuring fair and equal disclosure of financial information to the general public and industry analysts. However, 68 percent of the respondents say the SEC should issue specific guidelines about what information is material to companies and requires disclosure, and what is not material. A little over a quarter of the executives argue such guidelines are not needed.

Overall, 75 percent of those surveyed report no impact on their company’s stock share price from Regulation FD; 18 percent are uncertain, while 7 percent note some change.

Interestingly, more than 90 percent of those surveyed say Regulation FD increased fairness or provided about the same level of fairness as before to all analysts and investors (45 percent). Only 7 percent admit it led to less fairness.

“It appears Reg FD is increasing fairness for analysts and investors. On balance, the key aspects of corporate disclosure are being improved,” said Frank Brown, global leader for Assurance and Business Advisory Services for PricewaterhouseCoopers, in a press release.

Other findings in the survey:

  • 86 percent of executives say they have a good understanding of what can and cannot be done under Regulation FD.
  • 71 percent of executives note Reg FD had a neutral affect on their company, while 17 percent believe it had a positive affect. Only 10 percent report a negative impact.
  • Almost nine out of ten respondents say Regulation FD should be continued; while just 10 percent say it should be repealed.
  • However, 42 percent of those in favor of continuance feel some changes are needed. Among the changes mentioned: clarifying the rules for disclosure, relaxing the rules, and limiting penalties for violations.