Regulation Fair Disclosure, or RegFD, went into effect last October as part of the SEC's efforts to level the Wall Street playing field. Essentially, RegFD prevents companies from dishing out information to Wall Street analysts without making it known to the wider public.
Under RegFD, a company must deliver information via wide distribution points--wire services, Webcasts and corporate Web pages--when it has information that could move a stock.
Now that analysts and investor-relations executives have had six months to get used to the new guidelines, acting SEC Chair Laura Unger will host a discussion in New York on April 24 featuring executives from companies such as Micron Technology, Intel and EMC, and analysts from Wall Street companies including Morgan Stanley and Thomas Weisel Partners. The reviews are likely to be mixed.
Breaking the rules
One concern going in was that companies would be so afraid to break the rules that they would stop giving out any information at all. And at least some analysts believe that has proven to be the case: 57 percent of analysts and portfolio managers said the "volume of substantive information" put out by companies has fallen since RegFD took effect, according to a survey released in March by the Association for Investment Management and Research (AIMR).
Of course, not everyone agrees. In a study conducted by the National Investor Relations Institute in February, 48 percent of companies said they were providing the same amount of data to analysts, 28 percent said they were handing out more information and 24 percent said they were giving out less information.
Wall Street is searching for a happy medium. Giving too much information can be an issue. Some analysts have worried that RegFD has prompted the recent rash of preannouncements as companies make sure they meet the guidelines. Companies that would quietly tell analysts to lower their estimates now feel compelled to issue press releases. Some say this nonstop flow of company information may have made the markets more volatile.
"Many respondents commented that this increased volatility is due to a lessening of earnings guidance and consequently more earnings surprises," the AIMR said in a statement.
The number of preannouncements from companies has skyrocketed over the past two quarters. According to data from earnings tracker First Call, 1,474 companies issued preannouncements in the fourth quarter of 2000, which set a record. That number has already been surpassed in the first quarter, said First Call director of research Chuck Hill, who will be speaking at the SEC event next week.
But Hill said those figures probably have more to do with the sluggish economy than with the new regulation.
"I don't think FD's the reason," he said. "Most of the major companies that warned in the fourth quarter had done preannouncements in past. The assumption was that they probably would have done that with or without FD."
It's the details
What may be the case is that companies are giving out more detail about certain kinds of data and less about others.
For instance, companies recently have been more up front during conference calls regarding guidance for future quarters, outlining where they see earnings and revenue data heading.
"In the past that's been more disclosed in one-on-one analyst calls as opposed to conference calls," said Dave Spille, director of investor relations at WebMethods. "It provides a lot more information to the individual investor on a timely basis."
Getting that data to everyone at the same time does level the playing field for analysts, something Hill says is a good thing for investors because it forces analysts to do more work to back up their reports. Before RegFD, "the game was to take company guidance, parrot that back and then try to distinguish themselves by being first to get the news that (the company) would beat or preannounce their quarter," he said.
Now analysts are forced to do their own research and rely less on the company's spin to differentiate their analysis from that of others.
"In general, I rely more on industry sources that I've developed over the years than what a CEO or CFO might tell me," said Jim Liang, an analyst at WR Hambrecht. "To me, RegFD is relatively a nonissue. As an analyst, if you're relying solely on the CFO for information, it's probably too late to do anything with the information because the stock has already moved one direction or the other."
And at least some analysts are going out there and doing their homework. According to the AIMR study, 28 percent of respondents said they are doing more fundamental research, defined as reviewing public documents and filings, while only 4 percent report doing less.
"It makes discussion with management more productive. We're no longer trying to guess what numbers are," said Abhi Gami, new media analyst at William Blair. "If management says, 'This number will grow by 10 percent,' we no longer have to spend time trying to figure out what that number is; but we spend the time discussing what that means."
Staff reporter Larry Barrett contributed to this report.