SEC Backs Fuller Disclosure
Updated from 12:01 p.m. EDT
For once, the Man lost.
The Securities and Exchange Commission on Thursday approved a rule to push companies to more widely disclose information, which could give individual investors, a.k.a. the people, faster access to news that moves stocks.
The rule aims to level the playing field regarding who receives "material" information companies reveal about their finances or their strategies and when. Companies will have to "reasonably provide broad nonexclusive distribution of information to the public," the agency said.For investors, the rule could mean that there will be fewer cases when analysts and institutional investors find out about important information first, a common occurrence now. The rule has had widespread support among individual investors measured by the hundreds of comments forwarded to the SEC Web site and on Internet message boards. But old-line Wall Street, from the Securities Industry Association trade group to retail securities firm Merrill Lynch (MER), opposed the rule because of what it sees as a chilling effect on all information disclosure. It says that the rule will hinder conversations between analysts or investors and the companies and that in the end, companies will end up giving out less financial information than before the rule was enacted. The SEC didn't agree in a 3-1 vote. If the job of an analyst is to analyze, the rule shouldn't affect analysts, Stephen Cutler, deputy director of the SEC's Division of Enforcement, said during a press conference after the vote. "If you thought it was the analyst's job to be favored with material information that others weren't favored with, it does change their jobs," Cutler said. He added, "I don't think at the end of the day that issuers will stop talking to analysts and I don't think at the end of the day that issuers will stop talking to shareholders." It'll be at least a few months before it goes into place since it first must appear in the Federal Register and then go through a 60-day waiting period. It's often tough to determine what's considered material information. But David Becker, the agency's general counsel, pointed to information regarding earnings, mergers and acquisitions, tender offers, significant new products and changes in upper management ranks as examples. The rule has two goals. It requires companies to disclose information simultaneously, so that if executives are making material announcements at an industry conference the company should also be sending out a press release. And it makes companies that have accidentally or mistakenly disclosed material information release that news publicly within 24 hours. The SEC's Becker warned against companies taking advantage of this part of the rule by not disclosing properly the first time around. "Folks should be aware that you get away with it only once. There is only so much homework that can be eaten by the dog," Becker said. Punishment for breaking the rule won't include writing, "I won't selectively disclose" 10 times on the chalkboard either. The SEC has a couple of choices when it comes to sanctions, Cutler said, that could include monetary penalties if it goes to Federal court and the judge wishes to impose a penalty. In addition, the courts could impose an injunction against the issuer or the people involved, or the SEC could issue a cease and desist order.
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