WASHINGTON -- Publicly traded companies would be barred from selectively disclosing information to Wall Street analysts before making it public under a new rule proposed by federal regulators.
The Securities and Exchange Commission voted recently to seek public comment on a proposed new regulation requiring companies to disclose significant information publicly rather than limiting initial access to selected people.In the event a company discovers that it has unintentionally disclosed information selectively, it would have to make the information public promptly.
The proposal, open to public comment through mid-March, is aimed at the practice of publicly traded companies leaking information to financial analysts before making it public through press releases, corporate filings with the SEC or other means.
"Quality information is the lifeblood of strong, vibrant markets. It is at the very core of investor confidence," SEC Chairman Arthur Levitt said before the vote. "The all-too-common practice of selectively disseminating material (company) information is a disservice to investors and undermines the fundamental principle of fairness."
Levitt also said the practice creates potential conflicts of interest for analysts who get information in advance and undermines investors' confidence in the markets.
The analysts' clients, such as big institutional investors, can gain an unfair advantage because companies' financial data and forecasts often push stock prices up or down and their clients can trade ahead of others.
The Securities Industry Association, Wall Street's major trade group, said it shared the SEC's goal of promoting full disclosure but expressed concern that the new proposal could have a chilling effect on the ability of companies and analysts to share information.
"We are concerned the proposal will end up restricting the flow of information rather than encouraging it," said Stuart Kaswell, general counsel and senior vice president of the association.
Several companies have come under fire recently for selectively releasing information about themselves. Retailer Abercrombie & Fitch has been accused in two lawsuits of warning a Wall Street analyst of disappointing third-quarter growth before disclosing the information to the public. The SEC is formally investigating the allegations.
Other companies are pushing for greater disclosure. Dow Jones & Co., publisher of The Wall Street Journal, recently pulled out of a conference for media analysts after organizers banned reporters from attending the presentation by the big brokerage firm, Donaldson, Lufkin & Jenrette.
In a speech in October, Levitt appealed to Corporate America to open to everyone its quarterly conference calls with analysts by posting them on the Internet and inviting the press.
About 13 percent of big, publicly traded companies already transmit their conference calls publicly over the Internet, according to Lou Thompson, president and chief executive officer of the National Investor Relations Institute, a group representing company officials who deal with shareholders.
Thompson says most discussions between companies and analysts are above board and legal and do not constitute selective disclosure.
SEC officials have stepped up criticism in recent weeks of what they see as efforts by some company executives to curry favor with analysts by giving them data in advance of officially announcing quarterly earnings or other financial news.
Levitt also has been pushing companies to improve their financial reporting and avoid manipulating their earnings to meet analysts' projections.