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Investors win new access
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August 10, 2000: 6:20 p.m. ET
SEC adopts full disclosure rule giving individuals right to same data as analysts
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NEW YORK (CNNfn) - Individual investors won the right to access corporate financial information at the same time as Wall Street analysts under a new rule adopted by the U.S. Securities and Exchange Commission Thursday.
The rule, Regulation FD, requires companies to disclose profit warnings, earnings reports and any other information it issues to analysts simultaneously to the public via press releases or other notifications, the SEC said.
The SEC approved the measure 3-1 at a public hearing after the initial proposal was revised, in response to concerns by Wall Street and half of the commissioners, one of whom voted for it after the changes.
Regulators honed the rule, which goes into effect in 60 days, to cover only  communications by senior company executives and those employees who usually speak with securities industry professionals or major shareholders.
The rule was also narrowed to exclude communications with the news media or ordinary course-of-business talks with a company's customers or suppliers.
Companies found to have violated the rule would be subject to civil injunction or fines.
The initiative is borne of a drive by the SEC, and Levitt, in particular, to democratize the investment process, to include all investors and avoiding cases where only a select group of Wall Street players wield the power of information.
One glaring example is that of Abercrombie & Fitch Co., which came under fire in October 1999 when the clothier tipped off an analyst at the brokerage firm of Lazard Freres about the company's sluggish third-quarter growth, about a week before the news was revealed to the public.
That early information led to a sell-off in the popular clothier's stock, prompting several shareholder lawsuits and an SEC investigation.
"High-quality and timely information is the lifeblood of strong, vibrant markets. It is at the very core of investor confidence," SEC Chairman Arthur Levitt said.
"But when that information travels only to a privileged few, when that information is used to profit at the expense of the investing public, when that information comes by way of favored access rather than by acumen, insight or diligence, we must ask, 'Whose interest is really being served?'" Levitt stated.
Although the SEC acknowledged the important role analysts play in interpreting financial data, the commission said every investor should have access to the same information at the same time in order to maintain confidence in the markets.
Releasing information only to analysts, Levitt said on Thursday, has created an atmosphere in which corporate management treats that information as a commodity - "a way to gain and maintain favor with particular analysts."
"That also has put pressure on analysts to report favorably on a company in order to maintain access to inside information," Levitt added.
 Many companies already offer such information through live conference calls and Internet Webcasts on earnings and other subjects. That trend has accelerated since the SEC first proposed the rules last December.
But critics argue that companies may now divulge less information, particularly to a wider and potentially uninformed audience, one that could spark volatility in a stocks trading activity.
In fact, on Tuesday the National Investors Relations Institute said that its survey of 462 investor relations professionals revealed that 42 percent would probably limit communication practices if the SEC approved Regulation FD.
Another 12 percent said they would limit their practices "significantly."
"We have great concern that there will be at least a temporary chilling effect on the flow of voluntary information to the investment community until companies see how this rule is enforced," NIRI President and Chief Executive Louis Thompson said in a press release announcing the survey results. 
-- from staff and wire reports
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