9.6.1. Regulation FD
Becoming a reporting company also means becoming subject to Regulation FD. The “FD” stands for “fair disclosure,” but a more descriptive term for the regulation might be “non-selective disclosure.” Before the SEC enacted Regulation FD in 2000, it was common practice for companies to disclose important information to institutional investors or securities industry insiders before the information became publicly available. Under Regulation FD, certain selective disclosures of information trigger a requirement that the same information be publicly disclosed.
This requirement does not apply to every disclosure by anyone affiliated with a public company. To fall under Regulation FD, a communication must involve three basic elements:
• The disclosure must be made by a senior official of the company, or an employee or agent who regularly communicates with investors and securities professionals, such as people employed in an investor relations or public relations capacity. Regulation FD does not cover disclosures by lower-level employees who do not regularly communicate with investors.
• The disclosure must be of material nonpublic information, which is information not known to the public and having a substantial likelihood that a reasonable investor would consider it important in making an investment decision.
• The disclosure must be made (1) to an analyst, broker-dealer, investment adviser, or other specified securities market professional, or (2) to a shareholder, if it is reasonably foreseeable that the shareholder will trade on the basis of the information.
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