Regulation FD and Rule 10b5.
The release of company information through message board posters who
seem to have insider information usually gets close attention by the
SEC, especially where it breaches Regulation FD and Rule 10b5.
I. Executive Summary
We are adopting new rules and amendments to address the selective
disclosure of material nonpublic information by issuers and to clarify
two issues under the law of insider trading. In response to the
comments we received on the proposal, we have made several
modifications, as discussed below, in the final rules.
Regulation FD (Fair Disclosure) is a new issuer disclosure rule that
addresses selective disclosure. The regulation provides that when an
issuer, or person acting on its behalf, discloses material nonpublic
information to certain enumerated persons (in general, securities
market professionals and holders of the issuer's securities who may
well trade on the basis of the information), it must make public
disclosure of that information. The timing of the required public
disclosure depends on whether the selective disclosure was intentional
or non-intentional; for an intentional selective disclosure, the
issuer must make public disclosure simultaneously; for a
non-intentional disclosure, the issuer must make public disclosure
promptly. Under the regulation, the required public disclosure may be
made by filing or furnishing a Form 8-K, or by another method or
combination of methods that is reasonably designed to effect broad,
non-exclusionary distribution of the information to the public.
Rule 10b5-1 addresses the issue of when insider trading liability
arises in connection with a trader's "use" or "knowing possession" of
material nonpublic information. This rule provides that a person
trades "on the basis of" material nonpublic information when the
person purchases or sells securities while aware of the information.
However, the rule also sets forth several affirmative defenses, which
we have modified in response to comments, to permit persons to trade
in certain circumstances where it is clear that the information was
not a factor in the decision to trade.
Rule 10b5-2 addresses the issue of when a breach of a family or other
non-business relationship may give rise to liability under the
misappropriation theory of insider trading. The rule sets forth three
non-exclusive bases for determining that a duty of trust or confidence
was owed by a person receiving information, and will provide greater
certainty and clarity on this unsettled issue.
Final Rule:
Selective Disclosure and Insider Trading
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240, 243, and 249
Release Nos. 33-7881, 34-43154, IC-24599, File No. S7-31-99
RIN 3235-AH82
Selective Disclosure and Insider Trading
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
SUMMARY: The Securities and Exchange Commission is adopting new rules
to address three issues: the selective disclosure by issuers of
material nonpublic information; when insider trading liability arises
in connection with a trader's "use" or "knowing possession" of
material nonpublic information; and when the breach of a family or
other non-business relationship may give rise to liability under the
misappropriation theory of insider trading. The rules are designed to
promote the full and fair disclosure of information by issuers, and to
clarify and enhance existing prohibitions against insider trading.
EFFECTIVE DATE: The new rules and amendments will take effect October 23, 2000.
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