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SEC narrows divide between analysts, investors

The Securities and Exchange Commission approves a hotly contested rule that could help narrow the information gap between analysts and individual investors.

The Securities and Exchange Commission today approved a hotly contested rule that could help narrow the information gap between analysts and individual investors.

The new rule, Regulation FD for "fair disclosure," requires companies to disclose market-moving information publicly, rather than selectively to influential analysts or institutional investors.

When it goes into effect in approximately 60 days, the rule will bring "all investors, regardless of the size of their holdings, into the information loop--exactly where they belong," SEC Chairman Arthur Levitt said.

The commission voted 3-1 to approve the rule, with commissioners Paul Carey and Isaac Hunt joining Levitt. The lone dissenter was Laura Unger, the only Republican member of the commission.

The new rule requires companies to release potential market-moving information via a Webcast, press release or SEC filing.

For example, if a company wants to warn that it may not make its upcoming earnings estimate, that "same information must be simultaneously disclosed to the public, through a press release or other comparable avenue," Levitt said in a statement. "If investors see a stock's price change dramatically--but are given access to critical market-moving information only much later--we risk nothing less than the public's faith and confidence in America's capital markets."

The rule will help level the playing field, said Richard Rueb, executive director of DayTradersUSA, an organization that provides resources and networking for individual investors. "What the individual investor needs is fair treatment from industry insiders. Wall Street is not the only show in town."

The rule comes as the markets grow increasingly volatile and as individual traders look for better sources of information, even from dubious places such as Web message boards.

"The stock markets can move so rapidly now on rumor and innuendo," said Tim McAdams, president of Pacific Online Trading and Securities in San Jose, Calif. "From a trader's perspective, it seems like (the SEC) is trying to make the markets more fair, and I'm all for that."

Some warned that the rule could have unintended consequences.

Lise Buyer, a former Internet analyst for Credit Suisse First Boston who is now a partner at venture capital firm Technology Partners, said that if the rule is enforced to cover such events as analyst conference calls after a company reports earnings, it could compel the companies to be more tight-lipped, so "there's less information for everyone."

Forty-four percent of investor relations executives surveyed by the National Investor Relations Institute (NIRI) last week said they might divulge less information in response to the SEC's new rule. Twelve percent said they would cut back on communications significantly.

In addition, the survey showed that 61 percent of all companies already Webcast their conference calls, and 22 percent of companies plan to do so by the end of the year. The survey involved approximately 500 members of the institute.

Louis Thompson, president of the NIRI, said this sentiment may have changed given the SEC's wording surrounding selective disclosure.

"The chilling effect is going to be less than what that survey may show primarily because (SEC general counsel) David Becker said the enforcement effort would be concentrated on where they can show information was intentionally withheld," Thompson said.

Thompson added that his organization's main worry is that investor relations executives will be reprimanded for unintentionally releasing information.

"That was the area that concerned us the most, unintentional or inadvertent disclosure," he said.

Thompson said he doesn't expect the new SEC rule to lead to a witch-hunt. "The SEC will find one or two pretty egregious examples and hold them up to the world and say, 'Look, we're serious about this.'"

Credit Suisse First Boston's Buyer also said the rule will not have much of an effect on most companies.

"Much of what they are trying to legislate has already been accomplished," said Buyer, "because companies already release information on their Web site.

"If they're trying to stop the nudge-nudge, wink-wink disclosure to one analyst, then it make sense," Buyer said, noting that instances of selective disclosure are "incredibly rare."'s Cecily Barnes contributed to this report.