What Regulation FD Fixed

Regulation Fair Disclosure was adopted in 2000 for an understandable reason. Companies were privately briefing favored analysts and institutional investors before telling the rest of the market. Selective disclosure was unfair and ripe for abuse.

The SEC addressed that abuse by making the conversational channel itself dangerous. If a company shares material information with one analyst, it must disclose that information publicly at the same time. Faced with that obligation, companies have learned to say only what their lawyers and communications departments are prepared to broadcast to everyone.

We solved selective disclosure by making useful disclosure harder.

What It Broke

Markets learn through interrogation. Before Regulation FD, a research analyst could return repeatedly to the assumptions behind a forecast, challenge an operating claim, or press management when the numbers did not fit the story. No single answer had to be revolutionary. The value came from dozens of small corrections made by people who understood the company and its industry.

Compare that with a modern earnings call. An analyst gets a question, perhaps a follow-up, and management can retreat to prepared guidance whenever the discussion approaches uncomfortable detail. The safest answer is the one already written into the slide deck.

Regulation FD does not prohibit questions, but it raises the cost of answering the useful ones. A candid answer may create an immediate disclosure obligation, invite litigation, or draw regulatory attention. A vague answer creates none of those risks. The predictable corporate response is a scripted call, a sanitized presentation, and pages of legal boilerplate.

That is how a rule intended to expand information ended up thinning it out.

The Retail Fairness Argument

The standard defense of Regulation FD is that retail investors deserve the same information at the same time as institutions. Of course they do. The problem is that simultaneous access to a press release is not the same thing as access to useful research.

Retail investors do not perform price discovery alone, and they did not before 2000. They benefit when specialists test management’s claims, compare them with industry data, and put a price on what they find. Weakening that work does not eliminate institutional advantage. It leaves everyone with less substance and gives polished corporate messaging more influence.

The playing field may look level because everyone receives the same release. It is still a poor field if the release avoids the questions that matter.

Who Controls the Story

Regulation FD gives the issuer enormous control over what enters the formal record. The company decides what is material, when it will speak, how much context it will provide, and which details are too risky to discuss. Minimal disclosure is the rational choice.

This helps explain why short sellers and independent researchers can produce more useful factual work than the companies they cover. They are still willing to ask questions that an issuer would rather route through investor relations. Markets then rely on rumor, leaks, and outside research to fill gaps that ordinary analyst access once helped expose.

A Better Disclosure Rule

We should permit public companies to discuss material information with properly registered research representatives, but require both sides to leave a public factual record.

The process would be straightforward:

  • The issuer and registered analyst conduct a material-information session.
  • The date and time of the session are filed publicly.
  • The issuer is required to retain records regarding which material facts or topics were discussed during the session.
  • Before publishing or distributing research, the analyst files the raw material facts on which the analysis relies.
  • The analyst’s interpretation remains proprietary.

Anything not disclosed through that process remains material non-public information. Existing trading restrictions and information barriers remain in place.

This disclosure requirement would also give regulators a clean enforcement trail. A fact shared outside the permitted process is easier to identify, and an insider who selectively tips someone is easier to prosecute. At the same time, companies regain room for serious technical conversations without turning every exchange into a lowest-common-denominator presentation.

The public record would become more useful as well. Rumors and manipulative claims are harder to sustain when analysts and issuers must put the underlying facts on file. Prices should depend less on leaks and guesswork, reducing uncertainty-driven volatility and improving the allocation of capital.

The Point

Regulation FD standardized the timing of disclosure while degrading its substance. It confused receiving the same statement with having access to the same facts.

Capital markets depend on specialization, adversarial inquiry, and people willing to keep asking when an answer does not make sense. Press releases and scripted calls cannot do that work. They are company statements, not research.

Returning to a private whisper network would repeat the abuse that prompted Regulation FD. The better answer is a channel where expert questioning is permitted, the underlying facts become public, and the analysis remains the product of the analyst who did the work.