A few years ago, your friends at the Fool were instrumental in getting the Securities and Exchange Commission (SEC) to crack down on selective disclosure. Here's the scoop on what it is and why it matters.

Widely practiced in the past, selective disclosure involves companies telling a few favored people some critical information. You read that right -- unbeknownst to many investors, stock prices have often moved based on information given to some people but not to all.

Here's how it's worked. Several times a year, at major conferences often sponsored by brokerages, invited company executives would discuss their businesses with big-money investors. This might sound innocent enough, but if very bullish comments were made or caution advised, shares on the market would soon be spiking sharply up or down, with individual investors left in the dark as to why.

A similar scenario often played out with analyst conference calls. Each quarter, publicly traded companies would report earnings and issue press releases. Within a few hours (and sometimes even before the release), executives of these companies would be on the horn with Wall Street analysts, answering questions and offering additional information in private conference calls.

Fools never liked this situation, which left individual investors out of an important information loop. Neither did former SEC Chairman Arthur Levitt, who worked hard to level the playing field for the individual investor. In a speech to a gathering of lawyers a few years ago, he stated, "The proverbial 'little guy' on Main Street should have the same fair chance as the 'big guys.' . Everyone deserves a fair shot at success in our nation's securities markets."

He and the SEC did more than just talk, though. The SEC instituted a new "Fair Disclosure" (FD) rule that prohibited public companies from alerting analysts and major investors to important changes before disclosing that information to the general public. The proposal to ban selective disclosure received more than 6,000 comments, most of them from individual investors in favor of the ban. Perhaps not too surprisingly, many (and possibly most) of these comments came from Fools like you.

So what has happened since the rule went into effect? Well, some companies surely decided to share less information with everyone. Many companies, though, are simply disclosing information more fairly to all. It's now common to see a company publish a phone number that anyone can use to hear a replay of the conference call. Some companies use their websites to offer transcripts, recordings of calls, and speeches and presentations from company executives.

Hooray for Reg. FD!

Read more about how this change came about in:

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