Regulation FD

Regulation FD (Fair Disclosure) is the SEC rule, adopted in 2000, that prohibits public companies from disclosing material nonpublic information to securities market professionals or shareholders likely to trade on it, unless the same information is made public. It was designed to end the practice of companies tipping favored analysts and institutions ahead of everyone else.

How it works

The rule applies to communications by the company and its senior officials, investor relations staff and others who regularly talk with investors. Covered recipients include broker-dealers, investment advisers, funds, and shareholders who could reasonably be expected to trade on the information. Communications with the press, ratings agencies or parties bound by confidentiality are not covered.

• Intentional disclosure: the information must be made public at the same time.
• Unintentional disclosure: it must be made public promptly, meaning within 24 hours or before the next day's trading begins, whichever is later.

Public disclosure can be made through an 8-K under Item 7.01 or 8.01, a widely disseminated press release, or a publicly accessible webcast or call announced in advance. The SEC has said company websites and social media can work if investors have been told those channels will be used for disclosures. Foreign private issuers are not subject to the rule.

Why it matters for traders

Regulation FD is why companies hold public earnings calls, issue guidance by press release, and file investor decks on 8-Ks. It also explains why management meetings at broker conferences tend to be scripted: executives avoid revealing anything new. When a stock moves sharply after a private meeting, a company may quickly file an Item 7.01 8-K to confirm or restate guidance, which is itself worth reading.

Example

During a private meeting with a fund manager, the CFO of a hypothetical retailer, Harbor Goods (HRBG), says the quarter is "tracking below guidance." Realizing the disclosure was selective, HRBG furnishes an 8-K under Item 7.01 before the next morning's open, lowering quarterly sales guidance from $2.0 billion to $1.9 billion, a 5% cut.

FAQ

Does Regulation FD apply to private conversations with analysts?

Yes, if material nonpublic information is shared. The company must then disclose it publicly.

Is posting on social media enough to comply with Reg FD?

It can be, if the company has told investors in advance which channels it will use for material announcements.