Legal Definitions - Regulation Fair Disclosure (FD)

Regulation Fair Disclosure (FD) is a rule established by the U.S. Securities and Exchange Commission (SEC) that governs how public companies share important information with the investment community.

The core purpose of Regulation FD is to ensure that all investors have equal access to significant company information at the same time. It prohibits public companies from selectively disclosing "material non-public information" to certain individuals or groups, such as securities analysts or large institutional investors, without simultaneously making that information available to the broader public.

Here's what those key terms mean:

• Material information: This refers to any information that a reasonable investor would consider important when making a decision to buy, sell, or hold a company's securities. It's information that could reasonably be expected to affect the company's stock price.
• Non-public information: This is information that has not yet been broadly disseminated to the general investing public.

If a public company intentionally shares material non-public information with a select group, Regulation FD requires that the company must simultaneously disclose that same information to the public. If an unintentional selective disclosure occurs (for example, an executive accidentally reveals sensitive information in a private conversation), the company must publicly disclose that information "shortly thereafter." Companies typically fulfill these public disclosure requirements by filing a Form 8-K with the SEC or by issuing a press release.

Here are some examples illustrating Regulation FD:

• Example 1: Intentional Selective Disclosure

  Scenario: A pharmaceutical company is about to announce that its new drug failed a crucial clinical trial, a development that will significantly impact its future revenue and stock price. Before the official press release, the company's CEO privately calls a major hedge fund manager to give them a heads-up about the negative trial results.

  How this illustrates Regulation FD: The drug trial results are "material non-public information." By intentionally sharing this information with the hedge fund manager before the public announcement, the CEO is engaging in selective disclosure. Regulation FD would require the company to make this information public simultaneously with the call to the hedge fund, ensuring all investors learn about the critical trial failure at the same time.

• Example 2: Unintentional Selective Disclosure

  Scenario: During a private, unscripted Q&A session with a small group of industry analysts, the Chief Financial Officer (CFO) of a technology company inadvertently mentions that the company's upcoming quarterly sales figures are trending significantly higher than previously forecast, before the official earnings report has been released.

  How this illustrates Regulation FD: The improved sales trend is "material non-public information" because it could influence investor decisions and the stock price. Although the CFO's disclosure was unintentional, Regulation FD still requires the company to publicly disclose this information "shortly thereafter" – perhaps by issuing an immediate press release or filing an 8-K – to ensure that all investors have access to this important update.

• Example 3: Proactive Compliance

  Scenario: A large retail chain is in the final stages of negotiating a major merger with a competitor, a deal that would reshape the industry. Before the public announcement, the company's investor relations team schedules a series of one-on-one calls with key institutional investors. During these calls, the team carefully discusses only information that is already publicly available, such as general market conditions, past performance, and previously announced strategic initiatives, meticulously avoiding any mention of the pending merger discussions.

  How this illustrates Regulation FD: The pending merger is "material non-public information." This example demonstrates how companies proactively comply with Regulation FD by ensuring that even in private communications with investors, they do not selectively disclose any information that could be considered material and non-public. If the investor relations team had inadvertently or intentionally revealed details about the merger, it would trigger the requirements of Regulation FD for immediate public disclosure.