You Have the Duty to Remain Silent…

Jay Hancock describes an unintended effect of the Security and Exchange Commission's "fair disclosure" regulation. It was meant to "cut down on leaks of corporate tidbits to Wall Street analysts, big shareholders and other people likely to trade on the information." But it has also left executives frightened to talk to ordinary reporters -- or just given them an excuse to clam up. The SEC, Hancock writes,

should revisit the matter of whether Regulation FD is properly understood. When the rules came out, the agency worried about a "chilling effect" on the flow of information, with a "cost to overall market efficiency and capital formation."

The chill is here. Let's turn up the thermostat and open up the conversation.

Comments

[TF]

I thought the main problem was that executives can now be found criminally liable if they accidently say something wrong that negatively affects somebody's decision to buy or sell stock. I'd shut the f up too. Correct me if I'm wrong.

Also, the article states:

Regulation FD allows corporations to talk to anybody about anything pertaining to their affairs, as long as it's not "material" .....

In other words, you can't talk about anything "material"? Why say something if it is not material?

[Eric II]

This analyst can corroborate that. I've had plenty of instances where highly innocuous questions posed to executives and IR guys (i.e. nothing that would remotely cause a swing in the markets, if fully answered and subsequently made public) were met with a boilerplate "We haven't disclosed that yet" response.

That said, Reg-FD hasn't been a complete waste. I don't have a problem with the parts that require firms to make recordings of conference calls and conference presentations, along with related slides, available online. It doesn't cost them much to do, and the benefits to regular investors (or even, in some cases, investment professionals) are considerable. But the proverbial climate of fear that FD has created with regards to company interactions with anyone looking to get a little additional detail about said company's operations needs to go.

[KipEsquire]

If an automobile driver, for fear of violating a seatbelt law, insists on donning a motorcycle helmet, do you conclude that the seatbelt law is dumb, or that the driver is dumb?

The problem isn't with Reg FD, but with the idiot IR staff who overinterpret it.

Side note to Eric II: Since you are an analyst and not a journalist, your comment is somewhat besides the point.

[Eric II]

The problem isn't with Reg FD, but with the idiot IR staff who overinterpret it.

And in this environment, situations like that becomes inevitable. If you're dealing with one idiot wearing a helmet while behind the wheel, you can chalk it up to his paranoia/stupidity. But when you find dozens, it's a different story. Also, it's not just IR guys who overinterpret.

Side note to Eric II: Since you are an analyst and not a journalist, your comment is somewhat besides the point.

The impression that I've gotten from journalists is that their experiences in this area often aren't a lot different from mine.

[R C Dean]

I thought the main problem was that executives can now be found criminally liable if they accidently say something wrong that negatively affects somebody's decision to buy or sell stock.

They can also be found criminally liable if they say something right that affects someone's decision to buy and sell stock, under the new and expanded definition of "insider trading" brought to us in the Martha Stewart trial.

[TF]

If an automobile driver, for fear of violating a seatbelt law, insists on donning a motorcycle helmet, do you conclude that the seatbelt law is dumb, or that the driver is dumb?

Come on now, that analogy isn't apt. It would be more like the law saying you can't get in trouble if you aren't wearing your seatbelt when it doesn't matter, then wearing your seat belt all the time because you never know when it matters or not. It's not overly cautious....it's efficient.

[TF]

RCDean....good point. The fear of being accused of hyping.