FOOL PLATE SPECIAL: An Investment Opinion
Groups Ask for Delay in Fair Disclosure

The National Investor Relations Institute (NIRI) asked the SEC if it could delay the Fair Disclosure regulation from an October start date to December 29. NIRI's members are still trying to get a grasp on what information they can and cannot give, and as a result many are erring on the side of extreme caution, giving no information to anybody. The Securities Industry Association (SIA) is arguing for a delay as well, but they never wanted the Fair Disclosure regulation to pass in the first place.

By Bill Mann (TMF Otter)
September 27, 2000

Two groups, the National Investor Relations Institute (NIRI) and the Securities Industry Association (SIA) have recently and independently asked the Securities and Exchange Commission (SEC) to delay implementation of regulation FD on fair disclosure so their members can come to grips with proper information flow under the new rule. Last month the SEC passed the fair-disclosure rule with the intention of leveling the playing field for individual investors, limiting advance disclosure of material information to securities analysts.

But now NIRI, the investor relations trade group, is claiming that insufficient time has elapsed for its members to figure out what communication is appropriate and what is not under the new regulation. And with the date of effect for regulation FD now four weeks away, investor relations professionals are quickly running out of time. As a result, NIRI has asked that the date be pushed back to December 29.

NIRI's got a point
NIRI, which was in favor of fair disclosure regulation, is right to be concerned. Its members have to completely change how they communicate with analysts, and many are rightly nervous that they will fall afoul of the new regulations. As a result, several companies' investor relations (IR) departments have completely clammed up, reducing the amount of communications they are giving anybody.

Clearly, given that the onus of penalty rest upon the companies and their IR departments, this does not seem unreasonable. In the past, analyst communications have come not just through one-on-one phone calls, but also at facility tours, analyst conferences, and other meetings -- events that do not lend themselves to simultaneous dissemination of information.

Already we're seeing an effect of FD, as two major companies -- Intel (Nasdaq: INTC) and Morgan Stanley Dean Witter (NYSE: MWD) -- came out with earnings warnings in the last week, without the benefit of being able to guide analysts lower as they would have done in the past. The result was a dramatic shelling of the stocks of both companies.

Amidst the changes, NIRI wants some time to get its bearings in this brave new world. At a glance, it may be beneficial for corporate investor relations to have an earnings cycle in which they can operate under FD rules without having to suffer the weight of sanctions. After all, FD was not passed to lower the amount of information given by companies to all investors.

As for SIA, I'll let NIRI CEO Louis Thompson's words suffice: "Market observers have long talked about the declining role of the sell-side. Is the SEC now driving a stake through its heart? Again, time will tell." Those are some tough words coming from the organization that has had to work most closely with analysts.

Given that fair disclosure is upon us, I am comfortable allowing IR professionals, those to whom the responsibility for open communications will fall, additional time to get their bearings. NIRI has, for example, proposed that companies provide a forecast section in their earnings releases, which could then be provided to any investor or analyst with questions.

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