The SEC issued an order amending Rule 100 of Regulation FD to remove the exemption for disclosures of material non-public information disclosed to rating agencies. This amendment, which implements section 939B of the Dodd-Frank Wall Street Reform and Consumer Protection Act, became effective without a public comment period on October 4, 2010. In the view of the SEC, publication for comment was not required by the Administrative Procedure Act because the change was required by Congress and notice and a comment period would be unnecessary, impracticable and contrary to the public interest.
Rule 100 of Regulation FD provides that if an issuer or a person acting on its behalf discloses material nonpublic information regarding that issuer or its securities to any person listed in paragraph (b)(1) of the rule, the issuer must make public disclosure of the information as required by Rule 101(e). Public disclosure must be made by furnishing or filing a Form 8-K with the SEC, unless the issuer instead disseminates the information through another method or combination of methods of disclosure reasonably designed to provide broad, non-exclusionary distribution of the information to the public. The persons described in paragraph (b)(1) include broker-dealers, investment advisers and investment companies, and certain persons associated or affiliated with them, and any person “who is a holder of the issuer’s securities, under circumstances in which it is reasonably foreseeable that the person will purchase or sell the issuer’s securities on the basis of the information.”
Paragraph (b)(2) of Rule 100 contains exemptions for disclosures to certain persons. Paragraph (b)(2)(i) exempts disclosure to a person that owes a duty of trust or confidence to the issuer, while paragraph (b)(2)(ii) exempts disclosures to a person who expressly agrees to maintain the disclosed information in confidence. Paragraph (b)(2)(iii), which has been removed by the SEC’s order, exempted disclosures made solely for the purpose of determining or monitoring a credit rating to (A) any nationally recognized statistical rating organization (“NRSRO”) or (B) any credit rating agency that makes its credit ratings publicly available.
Issuers that wish to disclose material non-public information to credit rating agencies must now determine whether the credit rating agency is a person listed in paragraph (b)(1). Some credit rating agencies have been registered as investment advisers; indeed, Rule 203A-2(a) under the Investment Advisers Act of 1940 specifically permits any NRSRO to be registered federally (rather than by the states) notwithstanding the amount of its assets under management. If the credit rating agency is a person listed in paragraph (b)(1), the issuer must either determine whether the agency owes them a duty of trust or confidence or obtain a confidentiality agreement before disclosing material nonpublic information to the agency. (Credit rating agencies may not agree that they have a duty of trust and confidence sufficient to satisfy the requirements of the exemption. In its comment letter to the SEC at the time Regulation FD was originally proposed, Moody’s Investors Service, Inc. expressly denied having such a duty, requesting instead a separate exemption under Regulation FD for disclosures to credit rating agencies.)