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April 27, 2000
Fool on the Hill
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Proposed Regulation FD
[The following is related to the Fool article "Wall Street Opposes Level Playing Field" by By Bill Barker on April 20, 2000. Bill describes how hundreds of people, many of them Fool readers, have written the SEC to comment on a proposed rule to level the playing field regarding company disclosure of information. This is one of those letters.]
In the spirit of sharing, I humbly submit the following for your consideration, my fellow Fools.
I submit this posting in support of proposed Regulation FD.
Let us suppose for a moment that the following four statements, generally the basis of the comments by the SIA opposing promulgation of Regulation FD, are true in all respects.
1. Analysts perform a necessary and valuable function in the U.S. capital markets.
2. The alternative model of millions of individual investors and potential investors poring over prospectuses and periodic reports is highly theoretical and out of sync with the real world.
3. Analysts make the markets less volatile.
4. Analysts spend much of their time ferreting out negative information about companies.
I respectfully submit that any conclusion drawn from these four statements that purports to establish that analysts need better information or more timely information or more private information than other participants in the market -- i.e., conscientious individual investors spending their own money to become owners of companies -- is unsupportable and quite probably incorrect.
In its comments to the SEC, the SIA notes "We believe in the maximum flow of information from issuers, whether directly or through securities analysts and the media, to the marketplace." I suspect there is universal agreement on this overreaching philosophical position. The SIA then quotes the SEC's own materials, "... the federal securities laws do not generally require an issuer to make public disclosure of all important corporate developments when they occur. ... [I]n the absence of a specific duty to disclose, the federal securities laws do not require an issuer to publicly disclose all material events as soon as they occur." It then goes on to note that the SEC proposes changing this long standing policy to "�subject an issuer to a general obligation to make public disclosure of any material fact that it discloses to any person outside the issuer �"
Hear, hear!! I believe that is exactly what is proposed, the crux of the debate. Can anyone, other than those with a vested economic interest in maintaining the status quo, possibly make the case that rules developed and promulgated 65 years ago -- in 1935, for Pete's sake -- to regulate what has become a very different securities industry should not be critically reevaluated and quite probably amended or modified?
Everyone agrees that information is the basis on which objective, critical decisions about investments should be made. What is the advantage in restricting its availability? To have analysts, bankers, brokers, and lawyers protect us from ourselves? Who can realistically contend -- much less prove -- that making information more available will lead to poorer investment decisions? Who can support the position that corporate executives have an obligation to speak to representative of some of its owners -- analysts employed by investment banks and brokerage houses -- and not to the much broader group of its owners -- individual holders of equity stakes? The only potential problem, of course, is if executives are -- as suggested by the SIA -- using private sessions with analysts to spin the facts or shade the truth with a wink or grin or nod or gesture to protect their companies or their personal positions. If that's the case, exposure to a broader base of people with a range of knowledge and perspectives would be revealing and embarrassing.
I cannot recall a comment in support of this proposed regulation that suggests that communication by company executives be curtailed. No one wants to eliminate the role of analysts, who provide a potentially valuable service to a large segment of the investment community. No one wants to put analysts out of work or close down their companies. What a growing number of conscientious, intelligent investors suggest is that everyone should be given the access to the same information at the same time. Broad access to accurate information, as proposed in regulation FD, is the most equitable way to provide all investors, big and small, individual and institutional, the opportunity to make informed investment decisions -- decisions about how they spend their money -- in the most timely manner.
Trying very hard to be informed and, therefore, smarter.
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