An SEC Proposal with Promise
Should a big investor receive information about a company that might move its stock price before a little investor gets it? Of course not. Should Wall Street analysts get data about a company at meetings or in conference calls that exclude average investors? No. In an era of e-trading by millions and instant communication via the Net or TV, selective disclosure of information that moves stocks is anathema to a level playing field for all players.
So why is there such an uproar against a recent Securities & Exchange Commission proposal to let the sun shine in on meetings and conferences, especially for companies on road shows pitching their stock to investors? The fear of unintended consequences. Analysts, journalists, and some CEOs worry that requiring the immediate release of any information that might be material could result in corporate officials clamming up for fear of breaking the new SEC rules. Instead of more information, less would be disseminated.
We think these fears are unfounded. Putting cameras in corporate analysts' meetings and opening closed conference calls to all investors strikes us pretty much as a no-brainer. More and more companies are doing both. Analysts no longer function as objective information providers but as stock promoters. They often act in concert with companies to manage expectations for quarterly earnings. Their lamentations are lousy with self-interest.
For the proposal to work, the SEC must define clearly what is "material" so CEOs can comfortably talk about their companies. The SEC is also proposing exceptions for some "persons bound by duties of trust or confidence not to disclose or use the information for trading." This should apply not only to outside attorneys and accountants but to credit agencies and financial journalists, who have long-established rules that restrict trading stock of companies they cover. Standard & Poor's, a division of The McGraw-Hill Companies, which owns Business Week, is asking for an explicit exemption to the SEC rule, as is Dow Jones. If the SEC acts prudently, the proposed Regulation FD (Fair Disclosure) can better the lot of all individual investors without stifling the flow of information.