SAN FRANCISCO --

The Securities and Exchange Commission

, at its surprisingly useful

Web site, quotes from its one-time chairman and longtime Supreme Court Justice William O. Douglas: "We are the investor's advocate." With that historic mission in mind, the statutory guardian of the public's right to trade financial securities is proposing this week to finalize a rule that will make it tougher for corporate America to play its wink-wink-nudge-nudge game of selectively leaking information to friendly Wall Street analysts who follow their stocks.

The rule -- known in the arcane SEC nomenclature as "FD," for Fair Disclosure -- has angered the securities industry, split the commission and titillated the daytrading masses. Seeing as the rulemaking is primarily a political event, it will completely satisfy no one, of course. But it should be passed because it will level the playing field for individual investors at least a little. And that, as public-company CEO

Martha Stewart

would say, is a good thing.

Having said that, FD is a half measure. It will clamp down on one slimy practice: The ability of companies to make selective disclosures to one or several investors without bothering to clue in the public. But investors who think the rule suddenly will put them on an equal footing with the brokerage biggies and hedge-fund heavies are kidding themselves.

Here's why. Under the rule, if it is approved by the full commission Thursday, companies that, intentionally or unintentionally, disclose to an individual or a small group of people nonpublic material information about a company would be required "promptly" to disclose that information to the rest of us. For example, with apologies to

James J. Cramer

, say the CEO of

National Gift Wrap

has a dinner with two fund managers and three brokerage-house analysts and lets slip that the publicly traded company is eschewing wrapping paper this year and therefore NGW will miss Wall Street's expectations for the current quarter.

Under terms of the new rule, NGW should issue a press release right quick -- before the markets open the next morning, if possible -- to disclose these facts to all other investors. It doesn't matter, by the way, if NGW meant to make the disclosure or if the information came in an off-the-cuff remark. The public has a right to know. Ditto for information disclosed in a conference call with analysts after the markets are closed: Disclose sensitive information there and you have a duty to issue a news release or allow the public to listen to the call over the Web.

The securities industry opposes the rule because it thinks it will make it tougher for analysts to do their jobs. Poor babies. That's a bunch of hokum. Good analysts, in the true sense of the word, don't get their information from the company. They make their calls by studying markets, talking to suppliers and customers, and by paying attention to competitors.

The public, in turn, is whipped into a frenzy in support of the measure. Take "John C. Burke, Day Trader, Bull Moose Market Marauder," who is among the hundreds who have posted comments to the SEC site: "Thank goodness for all the negative information these analysts ferret out about these companies with their positive regard for fellow average investors, and amazingly, without any personal motivation to enhance their own portfolios as far as timing and self-aggrandizement is concerned." (Hey, that guy can write. He even understands sarcasm. Sign him up!) Or consider Earl R. Coombs, who offers, "I think that analysts for the most part are biased, working for their own best interests and have little concern for the rest of us."

Clearly, the public understands this issue.

The problem is that by passing this cosmetic measure, the SEC merely will encourage companies to be more circumspect without forcing them truly to think of their public shareholders' interests.

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"The practices that have evolved for providing guidance have ranged from Byzantine to baroque," argues Boris Feldman, a lawyer with the Palo Alto, Calif., firm of Wilson Sonsini Goodrich & Rosati and one of the most prominent defenders of Silicon Valley corporations sued by shareholder groups. "Many companies that previously provided guidance one-on-one to analysts have moved that process onto their conference calls, with the entire buy-side and sell-side communities participating. While the SEC may view this as selective disclosure to 'favored analysts,' the reality is that such calls often are The Market; when trading in the company's stock opens the next morning, the price will reflect the widespread dissemination of information from the call that typically occurs."

He's right about this. I once wrote a column at the

San Jose Mercury News

about how adapter card maker

Adaptec

(ADPT) - Get Report

(cute name, huh?) disclosed only in a postmarket conference call that it was lowering guidance for the quarter that already had begun. The stock plunged the next morning. Should the public have had access to that information? Yes. Would it have helped the public get out at a better price, and, indeed, did it help the pros on the call get out at a better price? No. The stock gapped down, and no investor was spared.

Feldman points out that while the new SEC rule obviously would make it impossible for a chief financial officer to disclose selectively that a company is going to miss expectations, it does nothing to curb the widespread practice of confirming that it

won't

miss. To wit, it is standard operating procedure for companies to acknowledge that they are "comfortable" with Wall Street's expectations, shorthand for "We've got the quarter in the bag."

Open-to-the-public conference calls have become the norm rather than the exception in the span of three short years. And though it is still unusual, more and more companies are inviting the media to their "analyst days," where the companies unload a treasure trove of valuable, albeit not necessarily material, information. (After I raised a stink earlier this year about

Yahoo!'s

(YHOO)

closed-door policy at its annual analyst gathering, Yahoo! President Jeff Mallett strongly hinted that a handful of ink- and bit-stained wretches would be allowed in next year. Jeff, this is your reminder of that conversation.)

Left untouched by the SEC is a golden opportunity to force companies to follow Intel's example of posting detailed financial projections in each quarterly earnings release and then simply not commenting again on forecasts until the following quarter. More, in this rulemaking at least, the protector of the public is doing nothing to ensure that the public has access to the financial projections of newly public companies that any fund manager can get at an IPO road show but that the companies never file in public documents.

This rule will level the playing field a little. It will not all of a sudden give the individual investor the same power as a manager of billions of dollars. That goal may well be unattainable, but rather than engaging in political posturing, the SEC should try harder to live up to its charter: advocating for the investor.

In keeping with TSC's editorial policy, Adam Lashinsky doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

Adam Lashinsky.