Regulation FD Adopted and became effective on 23 October 2000

RULE Whenever an issuer, or any person acting on its behalf, discloses any material, nonpublic information regarding that issuer or its securities to [market professionals or holders of the issuer’s securities] the issuer shall make public disclosure of that information

Regulation FD To address the systemic problem of companies selectively disclosing material, nonpublic information to analysts at the expense of individual investors Leads to a “loss of investor confidence in the integrity of our capital markets”

Issuer or any person acting on its behalf Senior officials Does not include foreign issuers

Discloses Material, Nonpublic Information Material “is there a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision, or if the fact would have “significantly altered the ‘total mix’ of information made available”

Discloses Material, Nonpublic Information Nonpublic “not been disseminated in a manner making it available to investors generally”

Discloses to market professionals or security holders Broker-dealers, analysts investment advisors holder’s of the issuer’s securities if it would be reasonably foreseeable that holders would trade on the information exempt communications: agents (lawyers, accountants),

The Issuer must make public disclosure Item 5 of Form 8-K “Furnish” a report under Item 9 of Form 8K OR Any other method reasonably designed to provide broad, non-exclusionary distribution of the information

Simultaneous Disclosure of Intentional Disclosures Intentional disclosure - individual must either know or be reckless in not knowing that the information is both material and nonpublic

Promptly for Unintentional Disclosures Usually within 24 hours

Potential Liability Not an anti-fraud rule (but anti-fraud rules still apply) Subject to enforcement action Administrative proceeding Cease-and-desist order Civil action seeking injunction/monetary damages

Potential Liability The Commission will bring an enforcement action only for knowing or reckless conduct, and not for mistaken materiality determinations that were not reckless

Impact of Regulation FD FD will cause issuer’s not to say anything FD will hurt individual investors - big earnings surprises will lead to greater volatility in the market place

Practice Tips Develop a written disclosure policy Limit the number of authorized spokesmen Issue earnings guidance in quarterly news release and in calls or web- casts which are fully accessible and non-exclusionary

Costs/Benefits of Reg FD Costs: professional fees/administrative costs make firms less willing to make disclosures Rule will limit competition among the well- developed analysts’ market which could reduce the efficiency and liquidity of financial markets

Costs/Benefits of Reg FD 1. Full and fair disclosure may reduce unusual trading and volatility which has caused market makers to suffer losses; 2. With less undisclosed material information in market, transaction costs will be lower and investors may commit more capital to market

Costs/Benefits of Reg FD Indirect costs on capital formation due to less liquidity, missed opportunities and introduction of inefficiencies (eg., confidentiality agreements) Smaller investors may be suffer systematically reduced returns as trade against informed traders Finally, higher costs may result from firms developing new or enhanced systems and procedures for disclosure practices

Enforcement Actions SEC looking at less than 10 situations involving possible FD violations Secure Computing Co. Raytheon Co., Motorola Inc., Siebel Systems Inc, Each of the enforcement actions resulted in the issuance of a cease and desist order by the SEC.

Conclusion Regulation FD should cause public companies to revisit their communications policies and practices regarding the disclosure of material information. Regulation FD in particular does not require issuers to adopt specific policies and procedures but issuers should review their policies in compliance with Regulation FD.