Regulation FD – Off-the-Shelf Guide

Regulation Fair Disclosure (“Regulation FD”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), prohibits a public company from selectively disclosing material non-public information (“MNPI”) to securities market professionals and certain securityholders without making that information available to the public. Regulation FD is not intended to restrict ordinary course business communications with persons who are not covered recipients. Where the selective disclosure is intentional, public disclosure must be simultaneous. Where it is non-intentional, public disclosure must be prompt.

Regulation FD applies to companies that have a class of securities registered under Section 12 of the Exchange Act or that are required to file reports under Section 15(d) of the Exchange Act. It does not apply to foreign private issuers, foreign governments, or investment companies other than closed-end investment companies.

Who is Subject to Regulation FD?

Regulation FD reaches disclosures made by the company itself and disclosures made by persons acting on its behalf. Persons acting on the company’s behalf include:

• Any senior official of the company, meaning any director, executive officer, investor relations or public relations officer, or other person performing similar functions.
• Any other officer, employee or agent of the company who regularly communicates with securities market professionals or with holders of the company’s securities.

A covered person cannot avoid Regulation FD by directing a non-covered person to make the selective disclosure. Conversely, an officer, director, employee or agent who discloses MNPI in breach of a duty of trust or confidence owed to the company is not treated as acting on the company’s behalf.

Covered Recipients — and Who is Not Covered

Regulation FD is triggered only when MNPI is disclosed to an enumerated recipient. Covered recipients are generally persons who are active participants in the securities markets or who are reasonably likely to trade on the information, and include:

• broker-dealers and persons associated with a broker-dealer;
• investment advisers, institutional investment managers that filed a Form 13F for the most recent quarter ended before the disclosure, and persons associated with either;
• investment companies, including mutual funds, and funds that would be investment companies but for Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, such as hedge funds and other private funds; and
• holders of the company’s securities, where it is reasonably foreseeable that the holder will purchase or sell the company’s securities on the basis of the information.

By contrast, Regulation FD does not apply to disclosures made to a person who owes the company a duty of trust or confidence, such as an attorney, investment banker or accountant, or to a person who expressly agrees to maintain the information in confidence. Reliance on the express confidentiality exclusion requires an actual agreement to keep the information confidential; an implied or assumed obligation is not sufficient. As a matter of practice, confidentiality agreements should also address trading in the company's securities.

Regulation FD also does not reach persons who are not enumerated recipients, including the news media, government and regulatory authorities, and ordinary course business counterparties such as customers, suppliers and independent contractors. Employees are not enumerated recipients in their capacity as employees, but an employee who holds company securities may be covered as a holder where it is reasonably foreseeable that the employee will trade on the information.

Regulation FD also excludes specified communications, such as the registration statement and prospectus, made during a registered offering; its availability depends on the type of offering and how the disclosure is made, and Regulation FD applies fully outside it, including to private placements and test-the-waters communications.

What is MNPI?

Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision, or if it would be viewed as significantly altering the total mix of information available about the company. As a practical matter, material information is information that could reasonably be expected to affect the market price of the company’s securities if disclosed publicly.

Information is non-public if it has not been disseminated broadly to the investing public through recognized channels of distribution, such as a press release, an SEC filing or a publicly accessible conference call or webcast, and sufficient time has not elapsed for the market to absorb it. Information does not become public merely because it has been shared internally, disclosed to a limited group of investors or analysts, or discussed in private meetings.

MNPI is information that is both material and non-public. It commonly includes quarterly or annual results before they are publicly released, changes in senior management that have not been announced, proposed or pending mergers or acquisitions, plans to undertake a securities offering, and significant business developments such as major contracts, regulatory actions, or product or clinical milestones that have not yet been disclosed.

Whether information constitutes MNPI depends on the particular facts and circumstances and often requires the exercise of judgment. Information may be MNPI even if it is preliminary, qualitative or subject to change, and even if it confirms or refines market expectations. Materiality determinations are frequently assessed by regulators in hindsight, informed by the market reaction to the eventual public disclosure. Regulation FD does not itself create a duty to disclose or a duty to update, and mere possession of MNPI does not obligate a company to make it public.

Timing: Simultaneous or Prompt

The timing of the required public disclosure depends on whether the selective disclosure was intentional.

• Intentional disclosure. A selective disclosure is intentional when the person making it knows, or is reckless in not knowing, that the information is both material and non-public. Public disclosure must be made simultaneously. An unplanned or spontaneous remark can still be intentional.
• Non-intentional disclosure. Public disclosure must be made promptly, meaning as soon as reasonably practicable and in no event later than the later of 24 hours or the commencement of the next day’s trading on the New York Stock Exchange. That period runs from the time a senior official learns that a non-intentional disclosure occurred and knows, or is reckless in not knowing, that the information disclosed was both material and non-public.

What Constitutes “Public” Disclosure?

To satisfy Regulation FD, the company’s disclosure must be reasonably designed to provide broad, non-exclusionary access to the information. Public disclosure may be accomplished by:

• filing or furnishing the information in a Current Report on Form 8-K, generally viewed as the most reliable method, typically furnished under Item 7.01, or, in the case of results of operations, under Item 2.02; or
• any other method, or combination of methods, reasonably designed to achieve broad public dissemination, such as a press release issued through a widely circulated news or wire service, a publicly accessible conference call or investor presentation for which the public has been given reasonable advance notice, or a simultaneous webcast of that call or presentation.

Where a conference call or webcast is used, the advance notice should identify the date, time and subject matter of the call and the means of public access, and should be given far enough in advance and through a channel broad enough for interested investors to make arrangements to participate.

A company may also satisfy Regulation FD by posting information on its website or distributing it through designated social media channels, but only where the channel has been established as a recognized means of broadly and non-exclusively distributing material information and investors have been alerted to that practice in advance. Announcing material information through a channel investors have not been told to follow, including through an executive’s personal social media account, does not, by itself, constitute public disclosure. Companies relying on these channels should identify them expressly in periodic reports, press releases and the investor relations section of the company website, and keep that identification current.

The adequacy of any particular method depends on the facts and circumstances, including the nature of the information, the company’s prior disclosure practices, and the extent to which the method chosen ensures timely and broad access. Companies should ask whether the mechanism used is reasonably likely to reach the market as a whole rather than a limited or self-selected audience.

High-Risk Situations Under Regulation FD

Certain interactions present an elevated risk of selective disclosure even where all participants are acting in good faith. The following situations warrant particular care and advance coordination with legal or investor relations personnel.

• One-on-One or Small-Group Meetings. Private meetings and calls with investors, analysts or shareholders, particularly following an earnings release or during a quiet period, present heightened risk, as even qualitative comments may convey MNPI.
• Analyst Follow-Up Calls and Model Discussions. Requests to confirm, clarify or comment on analyst estimates, assumptions or draft research may result in selective disclosure, even where management believes it is merely correcting an inaccuracy. Selectively reaffirming or walking back guidance is among the most common fact patterns in Regulation FD enforcement.
• Industry Conferences and Investor Days. Informal conversations at conferences, site visits and investor events may lead to unscripted remarks about performance, outlook or strategic developments that have not been publicly disclosed.
• Communications by Non-IR Personnel. Executives and employees outside the investor relations function may inadvertently trigger Regulation FD when interacting with market participants.
• Shareholder and Activist Engagement. One-on-one discussions with shareholders, including long-standing or strategic investors and activists, can trigger Regulation FD where it is reasonably foreseeable that the holder may trade on the information. Off-cycle engagement meetings often involve directors who are less accustomed to these constraints.

Practical Steps to Reduce Regulation FD Risk

• Designate Authorized Spokespersons. Limit external communications regarding financial performance, outlook, strategy and other potentially material matters to a small group of trained individuals, typically the CEO, CFO and investor relations personnel. All other directors, officers and employees should refer investor and analyst inquiries to a designated spokesperson.
• Implement Clear Disclosure Policies. Adopt and maintain a written Regulation FD and external communications policy that explains the rule, identifies covered persons and recipients, addresses quiet periods, analyst communications, social media and director engagement, and sets expectations for interactions with investors, analysts and the media.
• Provide Periodic Training. Train directors, executive officers, investor relations personnel and employees who may interact with market participants, including business development, sales and research and development leaders. Training should emphasize real-world scenarios.
• Prepare for High-Risk Communications. For earnings calls, investor days, conferences and other high-visibility events, pre-clear materials, prepare talking points and rehearse responses to anticipated questions. Avoid unscripted commentary on performance trends, outlook or strategic developments that have not been publicly disclosed.
• Use Recognized Public Disclosure Channels. Identify the channels through which the company disseminates material information, inform investors of the disclosure channels, and keep the list current.
• Establish Escalation Procedures. Implement a clear, fast process for escalating a potential Regulation FD issue to legal and investor relations, including outside of business hours, and document the materiality determination and any remediation steps taken at the time they are made.
• Coordinate Social Media Use. Require pre-clearance of executive and employee social media posts that could relate to company performance, strategy or material developments. Social media should be treated as a regulated disclosure channel, not an informal outlet.