What Is Regulation FD? Core Principles and Compliance

Regulation FD (Fair Disclosure) is a rule established by the U.S. Securities and Exchange Commission (SEC) to create a level playing field in the financial markets. It prohibits public companies from selectively disclosing important, nonpublic information to certain individuals or groups before making it available to the general investing public. The rule’s purpose is to ensure that all investors have simultaneous access to material company information, promoting fairness and helping to maintain confidence in the integrity of capital markets.

Core Principles of Regulation FD

Regulation FD applies to public companies, known as issuers, and individuals acting on their behalf. This includes senior management, investor relations personnel, and other employees or agents.

The regulation centers on the concept of “material nonpublic information.” Information is considered “material” if there is a substantial likelihood that a reasonable investor would consider it important when making a decision to buy, hold, or sell a company’s securities. This means the information would significantly alter the “total mix” of available information about the company. Examples of material information can include details about earnings, mergers or acquisitions, new product developments, significant management changes, or even sales performance data.

Information is “nonpublic” if it has not been broadly disseminated through official channels or absorbed by the market. The core prohibition of Regulation FD is against “selective disclosure,” which occurs when an issuer or someone acting on its behalf shares material nonpublic information with specific individuals or groups before it is made public.

If an issuer intentionally discloses material nonpublic information to certain market professionals or shareholders, it must make that information public simultaneously. Intentional disclosure means the person knew, or was reckless in not knowing, that the information was both material and nonpublic. For instance, knowingly sharing nonpublic financial projections during a private meeting with analysts would be an intentional disclosure.

If an unintentional selective disclosure of material nonpublic information occurs, the issuer must make that information public promptly. “Promptly” means as soon as reasonably practicable, but no later than 24 hours or the commencement of the next day’s trading on the New York Stock Exchange, whichever is later, after a senior official learns of the unintentional disclosure.

Methods of Compliant Disclosure

Companies must use methods reasonably designed to achieve broad, non-exclusionary distribution of information to the public to comply with Regulation FD. The most common method is filing a Form 8-K with the SEC, which makes the information immediately accessible to all investors through the SEC’s EDGAR database.

Another widely accepted method involves issuing a press release through a widely disseminated news service. This ensures the information reaches a broad audience simultaneously.

Holding a public conference call or webcast is also a compliant disclosure method, provided adequate public notice and access. This allows the public to hear the information directly.

Posting information on a company’s website is generally not sufficient alone unless it’s a recognized primary channel for investor information and notice is given elsewhere. The key is ensuring that the chosen method, or combination of methods, effectively distributes the information to the entire investing public without favoring specific groups.

Consequences of Non-Compliance

Violations of Regulation FD can lead to significant repercussions for both the public company and the individuals involved. The SEC is the sole enforcer of Regulation FD, meaning individual investors cannot directly sue a company for a violation, as the rule does not create a private right of action. However, the SEC can initiate various enforcement actions.

The SEC may issue cease-and-desist orders, requiring the company or individual to stop the violating conduct. Additionally, civil penalties can be imposed, with monetary fines levied against both the company and individuals found responsible for the violation.

The SEC can also seek injunctive relief through court orders to prevent any future violations. Beyond direct legal penalties, companies suffer substantial reputational damage from Regulation FD violations. This can erode investor trust, negatively impact stock prices, and undermine market confidence in the company’s transparency and integrity.

Companies with strong compliance programs, however, may receive more lenient treatment from the SEC, especially if they self-report and cooperate with investigations.

Permitted Disclosures

Regulation FD provides specific exceptions where selective disclosure of material nonpublic information is not considered a violation. One such exception applies to disclosures made to individuals who owe a duty of trust or confidence to the issuer.

This includes professionals like attorneys, investment bankers, or accountants who are acting on behalf of the company. Such disclosures are permitted because these individuals are legally bound to maintain confidentiality and use the information only for specified purposes.

Another permitted disclosure involves sharing information with a person who expressly agrees to maintain its confidentiality. This typically occurs through a formal non-disclosure agreement (NDA). This exception allows companies to share material nonpublic information with potential partners or investors under controlled conditions.

Disclosures to credit rating agencies are also exempt, provided the information is used solely for the purpose of developing a credit rating. This allows companies to provide detailed financial and operational data necessary for a thorough credit assessment without triggering a Regulation FD violation.

Finally, information disclosed in connection with a securities offering registered under the Securities Act of 1933 is generally exempt from Regulation FD. This is because registered offerings are subject to their own extensive disclosure requirements, which ensure broad public dissemination of material information through other regulatory frameworks.