Regulation Fair Disclosure (Reg FD): Definition, Transparency

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What Is Regulation Fair Disclosure (Reg FD)?

Regulation Fair Disclosure (Reg FD) is a Securities and Exchange Commission (SEC) rule designed to prevent selective disclosure by public companies to market professionals and certain shareholders.

Reg FD states that when a publicly-traded company or issuer of stock discloses any material nonpublic information regarding that issuer or its securities to a limited group of individuals, the issuer must also make public disclosure of that information. Such disclosures must be made simultaneously if it is an intentional release of information or promptly if the information shared was non-intentional.

Key Takeaways

Understanding Regulation Fair Disclosure (Reg FD)

Many companies in the past released important information in meetings and conference calls that weren't accessible to all shareholders and the general public. The goal of Reg FD is to increase transparency and accountability and basically level the playing field between individual investors and institutional investors.

Reg FD was created in response to instances when issuers of stock gave advance warnings of earnings results and other nonpublic information to selected institutional investors and analysts. This created circumstances that allowed those with the information to make a profit or avoid losses at the expense of the rest of the investing community.

Concerns arose about a loss of investor confidence in the integrity of corporate data because of such unfair disclosure practices. The sharing of nonpublic information with select groups could also border on illegal insider trading. The new rules became effective in October 2000.

Companies must also make recordings of their conference calls with analysts available to the public after those sessions end.

Special Considerations

Reg FD is limited in how it may be applied. The rule does not cover all communications made with individuals other than the issuer. It applies specifically to communications and interactions with securities market professionals. It also applies to holders of the issuer's securities in situations where it is likely or reasonably possible that the information will influence their trading activity.

The individuals who fall under the authority of Reg FD include senior officials with an issuer and others who engage in regular communication with securities holders and securities market professionals. This allows companies to continue to make disclosures to the media or issue standard business communications, such as press releases.

Publicly traded companies may conduct earnings and forecast calls to inform analysts about recent developments and plans. However, those conference calls must be matched with simultaneously issued press releases detailing the statements made by the company during those calls.

Recordings of the calls are also made available after the sessions end to give anyone in the public the chance to hear what was said. The company may also file a Form 8-K with the SEC to provide public disclosure of the information that was shared.