Executive Summary, SEC Proposed Rule, "Selective Disclosure and Insider Trading"

For some time, Chairman Arthur Levitt of the U.S. Securities and Exchange Commission (SEC) has warned companies and analysts against the practice of "selective disclosure," which is the release of material information to selected individuals--generally analysts and large investors--before release to the general public and the media. The SEC is concerned that the selective release of such information puts individual investors at a disadvantage, since once the individual investor learns the news, the information has already moved the markets.


Proposed Regulation FD (for Fair Disclosure) would require the following:

  • intentional disclosure of material information must be made through public disclosure; and
  • once an issuer learns that it has made a non-intentional material selective disclosure, the issuer must make prompt public disclosure of that information.


    The SEC proposes that public disclosure include the following methods:
  • filing the information with the Commission;
  • issuing a press release; or
  • providing public access (e.g., via phone or Internet) to the conference call or meeting.


    There is no private civil liability for failure to file or make public disclosure.


    Companies would still be able to provide material, nonpublic information to the following:
  • Those who have a need-to-know for business reasons,
  • Persons covered under a confidentiality agreement that prohibits that person from using the information for trading purposes or disclosing it to persons who may in turn do so.


    The proposed regulations also seek to clarify insider trading issues:
  • Insider trading liability arises when a person trades while "aware" of material nonpublic information, except when a trade resulted from a "pre-existing plan, contract, or instruction that was made in good faith" and it is clear that the person did not use the inside information.
  • Those who misappropriate confidential information in the context of a family or other personal relationship would owe a duty of trust or confidence, and be liable for insider trading, under the following circumstances:
  • when the person agreed to keep information confidential; or
  • when the persons involved in the communication had a history, pattern, or practice of sharing confidences that resulted in a reasonable expectation of confidentiality; or
  • when the person who provided the information was a spouse, parent, child, or sibling of the person who received the information.
  • Unless, however, based on the facts and circumstances of that family relationship, it is affirmatively shown that there was no reasonable expectation of confidentiality.


    The entire release is available at http://www.sec.gov/rules/proposed/34-42259.htm. Comments on the proposal are due on March 29, 2000. NAREIT has formed a task force to comment in the proposal, and we solicit your involvement. For more information, please contact Anna Chason, NAREIT's Public Affairs Counsel, at (202) 739-9415 or achason@nareit.com.