Groups Ask SEC to Delay New Rule on Fair Disclosure
By STACY FORSTER
WSJ.COM
Jay Gould, director of investor relations for Chicago-based Bank One Corp., is used to getting calls from Wall Street analysts as the company prepares to release its earnings.
But this time around, he isn't giving them information he would routinely have disclosed. Mr. Gould has clammed up because of a new rule adopted by the Securities and Exchange Commission barring selective disclosure.
The SEC's fair-disclosure rule, or regulation FD, is intended to level the playing field for small investors by preventing companies from giving Wall Street professionals advance notice of market-moving news.
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Regulation FD, which takes effect Oct. 23, will impact earnings guidance that companies have normally given brokerage analysts, among other things. Bank One is scheduled to release its quarterly earnings the week of Oct. 16.
"Right now, we're not talking," says Mr. Gould.
Many companies are grappling with how to alter their practices before the rule goes into effect, says Louis Thompson, chief executive officer of the National Investor Relations Institute.
That has prompted the institute, a Vienna, Va., trade group for corporate investor-relations representatives, to ask the SEC to delay the rule's implementation until Dec. 29.
The Securities Industry Association, which had earlier raised concerns with the SEC that the new rule would result in less information for analysts to evaluate a company, also has asked regulators for a delay.
"Companies want to comply with this and want to maintain the flow of information, so we need more time," says Mr. Thompson, who has met with more than 1,200 professionals on a national tour to discuss the rule.
The SEC declined to comment on specific proposals for a delay, but David Becker, the agency's general counsel, says it will "take a careful, measured look."
"At the outset, people are going to be cautious," Mr. Becker says. "Some of the concerns that I'm hearing reflect an excessive caution to the point of being unduly alarmist."
Some companies are completely avoiding any discussions with analysts as they study the new rule, seek advice from their lawyers or scramble to develop internal procedures for dealing with it.
The rule requires companies to disclose market-moving information publicly at the same time that it is shared with professionals, including analysts and institutional investors. Having private access to market-moving news can allow some investors to profit before it becomes public.
The investor-relations institute supported the SEC's effort to end selective disclosure, and worked closely with the agency to have its concerns addressed in the rule. But Mr. Thompson says the "dramatic" language in the rule addressing earnings guidance to Wall Street analysts was a surprise.
"When an issuer official engages in a private discussion with an analyst who is seeking guidance about earnings estimates, he or she takes on a high degree of risk under FD," the rule says.
In the past, Mr. Gould says, analysts would call him in the weeks before an earnings release to ask how the quarter was going and say, "My range of estimates is within x to x. Are you still comfortable with that?" he says.
"[Companies are] completely eliminating any 'I'm O.K. with consensus,' statements with respect to earnings," says Jackie Reeves, director of research for Putnam Lovell.
The SEC's Mr. Becker says if companies are pointing analysts to a number, either directly or through comments that hint toward the right figure, that's a potential violation. But if an analyst asks questions about the business and a company spokesperson provides information that is nonmaterial, and the analyst pieces that together with other information to change a stock's outlook, that's all right, Mr. Becker says.
Jane McCahon, vice president of corporate relations for Eastern Enterprises in Weston, Mass., says companies will "have to publicly disclose their guidance in some format."
The National Investor Relations Institute is encouraging companies to include an outlook or forecast section in their earnings releases, which they could then provide to analysts with questions.
Investor-relations professionals say that increased volatility in a stock could be one result of the rule because they will have diminished ability to avoid earnings surprises by pointing analysts in the right direction.
Already the market is feeling the effects. Last week, Morgan Stanley Dean Witter & Co. and Intel Corp. surprised Wall Street with reports that they wouldn't meet earnings estimates, and these announcements sent their stocks reeling.
Write to Stacy Forster at stacy.forster@wsj.com |
