Legal Definitions - Regulation Fair Disclosure

Regulation Fair Disclosure, often referred to as Regulation FD, is a rule established by the U.S. Securities and Exchange Commission (SEC) in October 2000. Its primary purpose is to ensure that all investors receive important company information at the same time. This regulation prohibits publicly traded companies from selectively sharing "material" information—that is, any information a reasonable investor would consider significant when making investment decisions—with a select group of individuals (like financial analysts or large institutional investors) before making it public to everyone. The goal is to create a level playing field, preventing certain investors from gaining an unfair advantage by trading on non-public information.

Here are some examples illustrating Regulation FD:

• Example 1: Significant Legal Judgment

  Imagine "Tech Innovations Inc." is involved in a major patent infringement lawsuit. The company receives a court ruling that requires it to pay a substantial fine, which could significantly impact its upcoming quarterly earnings. If Tech Innovations Inc.'s investor relations department were to privately inform a few key institutional investors about this negative judgment before issuing a public press release, it would violate Regulation FD. The rule requires that all investors learn about such a critical financial development simultaneously, preventing a select few from selling their shares before the news becomes public and potentially drives down the stock price.

• Example 2: Major Cybersecurity Incident

  "Global Data Solutions," a company specializing in cloud storage, discovers a severe cybersecurity breach that has compromised the personal data of millions of its clients. This information is highly material, as it could lead to significant financial penalties, reputational damage, and a loss of customer trust. If Global Data Solutions were to privately brief a few favored financial analysts about the breach before making a general public announcement, those analysts and their clients could potentially sell off their shares, anticipating a negative market reaction. Regulation FD mandates that Global Data Solutions must announce this critical information to the entire investing public at the same time, ensuring no single group has an early opportunity to act on the news.

• Example 3: Pivotal Regulatory Decision

  "BioPharma Solutions," a pharmaceutical company, is awaiting a final decision from a major regulatory body regarding the approval of its flagship new drug. This drug represents a significant portion of the company's future revenue projections. Should BioPharma Solutions privately inform a few large hedge funds about the drug's approval (or rejection) before making a general public announcement, those funds would possess material non-public information. This would allow them to make highly profitable (or loss-avoiding) trades ahead of other investors. Regulation FD requires BioPharma Solutions to disseminate this crucial regulatory decision to all investors simultaneously, typically through an official press release and an SEC filing, ensuring fair access to information for everyone.