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Road To
Comfort With Regulation FD
Remains Bumpy
By Amy Braunschweiger
March 6, 2001 Dow Jones Newswires
NEW YORK -(Dow Jones)- The rocky adjustment to Regulation FD, or fair disclosure,
continues four months after the rule was implemented, leaving many market professionals
and company managers frustrated with the new rules and individual investors still
feeling powerless, a survey found.
Though the Securities and Exchange Commission passed the rule to benefit the
individual investor, a survey by Stapleton Communications Inc., a Palo
Alto, Calif., investor and public relations firm, found almost 70% of
individual investors don't listen to conference calls or seek out information
on companies' Web sites. In fact, the majority of the individual investors surveyed
didn't even know the regulation existed.
Nevertheless, the survey found 62% of investors feel they still don't have the
same access to information as market professionals, ironic considering that the
whole idea behind fair disclosure was to level the playing field between individual
investors and analysts and money managers.
Before Regulation FD went into effect last October, companies would whisper sweet
information about expected earnings and market conditions into professional investors'
ears. But as the rule prohibits companies from disclosing material non-public
information to select audiences, every investor and analyst now receives the
information simultaneously.
Naturally enough, the survey revealed that 75% of buy-side analysts and 60% of
sell-side analysts find operating under the new rule cumbersome. Analysts have
traditionally leaned on closed-door chats with management to gain inside information
on a company's operations.
Regulation FD makes analysts' jobs harder, forcing them to rely on their own
skills and market savvy rather than nudges from a chief executive or chief financial
officer.
Of the analysts surveyed, 61% believe that they receive less material information
from companies than before the regulation passed, and that companies are overcautious
about releasing information.
Meanwhile, the companies surveyed acknowledged uncertainty about what they can
say in conversations with analysts, and their managers called for more guidance
from the SEC about what constitutes "material" news.
However, the companies believe they communicate more today than they did before
the regulation, holding more conference calls and releasing more prepared statements.
Indeed, in a separate survey released last week, the National Investor Relations
Institute found that 79% of the 577 member companies surveyed are providing some
form of earnings guidance, and 56% of the companies are updating the guidance
if circumstances change during the quarter.
About 61% of the analysts surveyed by Stapleton believe the new rule has increased
stock market volatility, and 45% of the companies surveyed agreed. But another
32% of the companies say Regulation FD has definitely not affected market volatility.
The Stapleton survey gathered information from a total of 110 market professionals,
individual investors, chief executives and chief financial officers. It only
surveyed technology companies, nearly all of which were based in Silicon Valley.
Most of the analysts surveyed work for big investment houses in various U.S.
locations.
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