COMMENTARY--RegFD doesn't seem to be amounting to much.
Almost nine months have passed since the U.S. Securities and Exchange Commission passed Regulation Fair Disclosure, and other than company-analyst relationships, not much has changed. One of the most insightful comments to come out of last week's panel discussion on Regulation Fair Disclosure came from Perry Boyle, deputy director of research for Thomas Weisel Partners:
"Clearly the winners include lawyers, the media, storage companies and good analysts. In general, I think Wall Street wins with RegFD because volatility is good for people who make markets and securities. It's bad for people who buy and sell securities as investors. The losers are the issuers, bad analysts and some investors."
This week's J.P. Morgan H&Q technology conference in San Francisco provided ample support for Boyle's view.
RegFD forced at least two changes to investment shows. Companies' staged presentations are now Webcast openly. And reporters are now allowed into the more intimate "breakout" meetings that follow the formal speeches.
So journalists' jobs become a bit easier. We can get a few more quotes, an extra story idea or two, and a better read on the concerns of fund managers simply by noting the questions they ask during the breakouts.
But that's incidental because a good reporter could find interesting stories in pre-FD days anyway. The level and type of coverage this week seemed the same as before: a few stories and columns, a lot of interviews.
We used to think companies were disclosing all sorts of market-moving information in the closed sessions. That was a foolish suspicion in hindsight, because if that were the case, you would have seen loads of stocks moving furiously minutes after their executives were done talking. Instead, that was a rare occasion, and usually came after a very public disclosure.
No, these conferences were never about finding new information so much as giving investment bank clients (and their wallets) a chance to get up close and personal with companies.
Many of the people attending these shows go largely for reassurance. At a luncheon table the other day, everyone agreed that they hadn't heard anything unexpected after three days of the conference, and they seemed satisfied. Peace of mind is worth a lot of money.
Analysts hate RegFD because companies have clamped down on their one-on-one talks. Information is being distributed more widely, but it's not as deep as the data formerly spread around privately.
Fortunately, resourceful analysts have always talked to suppliers, distributors, sellers, independent researchers and contacts at many levels of a company. RegFD won't change that.
"Our job is to analyze information, and frankly, stocks don't move up and down based on RegFD," Boyle noted.
For the most part, the people organizing these shows don't really care. One of J.P. Morgan H&Q's marketing folks pointed out that RegFD actually makes their job easier, because now they don't have to police the breakout meetings. But the banks do whine about the cost of Webcasting."
"We're trying to create an environment that will be a RegFD-friendly environment...but it's a pretty significant compliance burden for all the investment banks," said Bill Haraf, business manager in equity securities for Banc of America Securities, which runs one of the bigger tech-oriented investment conferences every year.
Somehow, I don't think the average investor (or mutual fund for that matter) will have much sympathy. Besides, Banc of America can always pass on the cost.
It's a worthy trade-off not just for individual investors, but for the companies that are the stars of these conferences. Webcasts provide what amounts to a free infomercial for every company, with thousands of investors. For its tech conference a few months ago, Banc of America ran up to eight Webcasts simultaneously, and ultimately served more than 27,000 individual streams. More than half of those went to people who were not clients, Haraf said.
Companies may start viewing investment conferences as a preferred way to disseminate news, precisely because investment banks are making them RegFD-compliant, Haraf suggested.
Palm (Nasdaq: PALM) earlier this week told a J.P. Morgan H&Q audience that sales are slowing in the current quarter. It was an easy way to pre-empt analysts who probably would have discovered that information anyway, by checking with retailers. And cost-cutting assertions from Dell (Nasdaq: DELL) at a Merrill Lynch conference in New York found a broader audience.
But those companies could just as easily put out press releases. The difference is minor.
Which is about what you could say for RegFD as a whole. Analysts will continue to complain they get less information than before, but Wall Street research isn't about to dry up. Brokerages will find ways to get their clients an edge; even something as simple as face time with executives at investment conferences is an advantage, because it lets clients evaluate management for themselves. At the same time, the SEC can say it's doing something for individuals.
The effect is minimal. Boyle is right: "I think ultimately, RegFD is going to prove irrelevant...We can live with anything." 22GO