Legal Definitions - Reg. FD

Reg. FD stands for Regulation Fair Disclosure. This SEC rule prohibits public companies from selectively disclosing material nonpublic information to certain individuals or groups, such as analysts or institutional investors. Instead, companies must make such information public simultaneously or promptly to ensure all investors have equal access.

Reg. FD stands for Regulation Fair Disclosure.

Regulation Fair Disclosure (Reg. FD) is a rule established by the U.S. Securities and Exchange Commission (SEC) designed to prevent public companies from selectively disclosing important, nonpublic information to certain individuals or groups before making it available to the general investing public. Its primary goal is to ensure that all investors have equal access to material information about a company at the same time, preventing a privileged few from gaining an unfair trading advantage.

Specifically, Reg. FD prohibits a public company (or anyone acting on its behalf) from sharing "material nonpublic information" with specific individuals, such as securities market professionals (like stock analysts or brokers) or certain shareholders, without simultaneously (or very promptly, if the disclosure was unintentional) making that same information public to everyone. "Material nonpublic information" refers to any information that a reasonable investor would consider important in making an investment decision, and which has not yet been widely disseminated to the public.

Here are a few examples to illustrate how Reg. FD works:

• Example 1: Accidental Earnings Hint

  The CEO of "InnovateTech Inc.," a publicly traded software company, is on a private conference call with a prominent financial analyst. During the conversation, the CEO inadvertently mentions that the company's internal projections for next quarter's revenue are slightly below previous public guidance, due to an unexpected component shortage. This information has not yet been released to the public.

  How it illustrates Reg. FD: The revised revenue projection is "material nonpublic information" because it could significantly impact investor decisions. The CEO disclosed it to a "securities market professional" (the analyst). Since this was an unintentional disclosure, InnovateTech Inc. would be required to "promptly" (typically within 24 hours) make this information public to all investors, perhaps by filing a Form 8-K with the SEC or issuing a press release. This prevents the analyst from having an unfair advantage by trading on or disseminating this information before the general public.

• Example 2: Pre-Announcement Product Delay

  The Head of Investor Relations for "BioPharma Corp." has a pre-scheduled private meeting with a large institutional investor. BioPharma Corp. is about to announce a significant delay in the clinical trial results for its highly anticipated new drug. During the meeting, the IR head, wanting to maintain a good relationship, confirms the upcoming delay to the institutional investor before the official press release is issued.

  How it illustrates Reg. FD: The delay of a major drug trial is "material nonpublic information." Disclosing it to an institutional investor (who might trade on this information) before the public announcement constitutes "selective disclosure." Because this was an intentional disclosure, BioPharma Corp. would be required to make the information public *simultaneously* with the disclosure to the institutional investor. This ensures that all investors learn about the delay at the same time, preventing the institutional investor from potentially selling shares based on privileged information.

• Example 3: Private Merger Confirmation

  At an exclusive industry dinner, the Chief Financial Officer (CFO) of "Global Logistics Solutions" is approached by a major shareholder who is also a significant institutional fund manager. The shareholder asks about persistent rumors of Global Logistics Solutions acquiring a smaller competitor. The CFO, in an attempt to be transparent with a key investor, confirms that the company is indeed in advanced discussions for the acquisition, an event that has not yet been publicly announced.

  How it illustrates Reg. FD: Information about an impending acquisition is highly "material nonpublic information." The CFO selectively disclosed this to a "major shareholder/institutional investor." Since this was an intentional disclosure of material nonpublic information to a covered person, Global Logistics Solutions would be obligated to make this information public *at the same time* it was disclosed to the shareholder. This prevents the shareholder from potentially buying shares of the target company or Global Logistics Solutions based on privileged, nonpublic information.