SEC Likely to Change Fair Disclosure Rules - No Need for Press Releases Through Wire Services?
Hat tip to Adam Zand: Utterz - AdamZand's Discussion
The Securities and Exchange Commission (SEC) posted a transcript of a speech in which it recommended "that the Commission issue an interpretive release to provide additional guidance and greater certainty on how companies can use their web sites to provide information to investors in compliance with the federal securities laws..."
Four main topics will be addressed:
- When information posted on a company web site is “public” for purposes of the applicability of Regulation FD;
- Company liability for information on company web sites – including previously posted information, third-party hyperlinks, summary information and the content of interactive web sites;
- The types of controls and procedures advisable with respect to such information; and
- The format of information presented on a company web site, with the focus on readability, not printability.
Please see the full text of the SEC speech at the end of this post.
If a company's web site is RSS enabled and it releases financial information and any other material information through that web site, that should satisfy FD requirements. This is because financial analysts and investors can opt-in and subscribe to that information through RSS news readers, or choose to have that information emailed as soon as it is published.
This form of distribution is much broader than through a wire service such as BusinessWire or PRNewswire. Distribution through RSS and email takes advantage of the full breadth of the Internet and does not require an intermediary such as a wire service. Yahoo Finance and Google News would provide additional free distribution services in those cases where investors are not subscribed to a company's financial information.
Companies will be able to save considerable amounts of money in bypassing those wire services, where a single release can cost at least $1200 and often more.
The SEC might mandate a transition period in which RSS and email distribution runs in parallel with wire service distribution.
For many years wire services have made considerable revenues from carrying FD information because companies were scared that they might face SEC penalties if they didn't disclose material information in the right manner. FD has suffered from not having clear rules around what is considered best practices.
The SEC appears ready to change or more clearly define those rules to reflect the broad distribution offered by the Internet and a company's web sites.
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It's interesting that the SEC wants company web sites to focus on "readability, not printability." This speech is anything but readable:
Speech by SEC Staff:
Commission Guidance on the Use of Company Web Sites
Opening Remarks at the SEC Open Meeting
Special Counsel, Division of Corporation Finance
U.S. Securities and Exchange Commission
July 30, 2008
Good morning. Today we are recommending that the Commission issue an interpretive release to provide additional guidance and greater certainty on how companies can use their web sites to provide information to investors in compliance with the federal securities laws, particularly with respect to the Securities Exchange Act of 1934. The interpretive guidance addresses four main topics:
When information posted on a company web site is “public” for purposes of the applicability of Regulation FD;
Company liability for information on company web sites – including previously posted information, third-party hyperlinks, summary information and the content of interactive web sites;
The types of controls and procedures advisable with respect to such information; and
The format of information presented on a company web site, with the focus on readability, not printability.
Whether information posted on a company web site is “public” for purposes of Regulation FD impacts both the analysis of the applicability of Regulation FD to subsequent discussions or disclosure of the posted information with an enumerated person in Regulation FD and satisfaction of Regulation FD’s “public disclosure” requirement. In evaluating whether information is “public” for purposes of the applicability of Regulation FD to subsequent discussions or disclosure, companies must consider whether and when:
a company web site is a recognized channel of distribution;
posting of information on a company web site disseminates the information in a manner making it available to the securities marketplace in general; and
there has been a reasonable waiting period for investors and the market to react to the posted information.
The release provides non-exclusive factors for companies to consider in evaluating the satisfaction of these conditions, including the manner in which information is posted on a company web site and the timely and ready accessibility of such information to investors and the markets.
The guidance also addresses circumstances in which, for certain companies under certain circumstances, posting non-public material information on a company’s web site, in and of itself, may be a sufficient method of “public disclosure” for purposes of satisfying the alternative public disclosure provision of Regulation FD. In evaluating whether and when postings on their web sites are “reasonably designed to provide broad, non-exclusionary distribution of the information to the public,” the guidance provides that companies would need to consider whether the company web site is a recognized channel of distribution and whether the information is “posted and accessible” and, therefore, “disseminated.” As part of that evaluation, companies also would need to consider their web sites’ capability to meet the simultaneous or prompt timing requirements for public disclosure under Regulation FD.
The release addresses certain issues that continue to arise under the antifraud provisions regarding the use of company web sites.
First, the release updates current guidance regarding the effect of accessing previously posted materials or statements on company web sites so that such previously posted materials or statements would not, without more, be considered reissued or republished for purposes of the antifraud provisions of the federal securities laws, including any duty to update such information.
Second, the release provides further guidance on how companies can hyperlink to third-party web sites without “adopting” the third-party information for liability purposes. The guidance suggests, among other things, that companies explain the context for the hyperlink to make clear why the hyperlink is being provided, be aware that selective choices to hyperlink to specific third-party information may indicate that the company has a positive view or opinion about that information, and consider using other methods to denote that the hyperlink is to third-party information.
Third, the release provides guidance for companies that provide summaries of information on their web sites in the context of the antifraud provisions including techniques that companies can use to highlight the summary nature of the information provided.
And fourth, the release addresses antifraud issues that may arise when issuers, their officers, and employees speak on company-sponsored blogs or electronic shareholder forums. In particular, it provides guidance for companies hosting or participating in blogs or electronic shareholder forums about the applicability of the antifraud provisions to statements made by the company or by a person acting on behalf of the company. It also highlights the restrictions on a company’s ability to require investors to waive protections under the federal securities laws as a condition to entering or participating in a blog or forum.
The release also provides guidance about the extent to which “disclosure controls and procedures” apply to statements on company web sites and helps to clarify the boundaries of disclosure controls and procedures, since companies must disclose whether their disclosure controls and procedures are effective.
Finally, the release acknowledges that the nature of online information is increasingly interactive, and not static. The release, therefore, makes clear that information appearing on company web sites does not need to satisfy a printer-friendly standard or be in a format comparable to paper-based information, unless the Commission’s rules explicitly require it.
If approved, the interpretive release and guidance will be effective upon publication in the Federal Register.
Thank you. We would be happy to answer any questions that you have.