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Regulation Fair Disclosure Gets Airing


LOS ANGELES - Regulation Fair Disclosure, which the SEC put into effect last October, generated the most attention at the annual conference of the Association for Investment Management and Research here late last month.

Patricia Doran Walters, senior vice-president of professional standards and advocacy for AIMR questioned the efficacy of Reg FD and said that evidence already exists demonstrating that Reg FD, rather than providing more information to investors, has actually achieved the opposite.

"Companies are not enthusiastic about increasing disclosure," she said. "One of their main arguments against public disclosure is that there will be information overload and investors will become confused if [the companies] are required to disclose more information. Now we certainly don't believe this to be true. Regulation Fair Disclosure actually plays right into companies' hands. Now they have an excuse not to make additional voluntary disclosures."

A majority of the 6,000 analysts and portfolio managers AIMR polled in February after the rule took effect believe that both the quantity and quality of information released by publicly-traded corporations has decreased since the Reg FD rule took effect, said Walters.

Regulation Fair Disclosure prohibits publicly-traded businesses from selectively giving information to financial professionals unless such information is made available to the general public. The SEC approved the regulation in order to reduce the possibility of insider trading and to promote open disclosure of a business's financial records.

As a result of companies minimizing the outflow of information, financial professionals learn little about a corporation's financials beyond quarterly earnings estimates and reports, said Walters.

"What [analysts and portfolio managers] are really looking for is insight into how the companies are being managed and what things look like for the future. Without the ability to get this insight, they have a more difficult time doing the kind of comprehensive research [needed for] forming the underpinning for sound investment recommendations," she said.