Regulation Fair Disclosure (Reg FD)
What it is:
Regulation Fair Disclosure (Reg FD) requires all publicly traded companies to disclose material information to all investors simultaneously.
How it works/Example:
The Securities and Exchange Commission (SEC) issued a ruling in 2000 requiring publicly traded companies to disclose important information pertaining to the business finances, market, competition, and principals (i.e. material information) to shareholders at the same time. The regulation, known as Reg FD, or Regulation Fair Disclosure, was intended to level the playing field of information between large institutional investors and smaller or individual investors.
During the 1990s, companies instituted conference calls and briefings with market analysts. These calls were intended to offer in-depth information about the company and give people the opportunity to ask questions about particular issues facing the company. Companies would often allow institutional investors to participate in these calls. However, because of and capacity, companies would not allow individual investors on the calls. In the end, the information disclosed on these calls gave unfair advantage to the institutional investors and their clients. By 1999, recognizing the lack of fairness in the available information about specific securities, the SEC ratified Reg FD.
Why it matters:
Reg FD brought about greater transparency and more frequent disclosures about company performance and other factors that might affect the value of the company, all of which is important to potential investors and current shareholders.
At the same time, critics of Reg FD argue that the result is less information being shared about company performance and other material changes that are important to investors.