The heart of disclosure – and investor relations – lies in providing investors with the information they need to make informed decisions about the value of a company. While laws mandate the way in which companies release information, the provision of fast and equal access to material news for all investors, large and small, wherever they may seek it, is the spirit of disclosure.
The information companies share, to whom they tell it, and how they tell it, varies widely around the world, despite regulators’ efforts to create a common standard. What is emerging as a standard across various disclosure regimes, however, is the use of the news release as a way to communicate to all audiences simultaneously.
In the US, disclosure regulation originated in the aftermath of the 1929 stock market crash. The Securities Act of 1933/4 created the SEC and laid the framework for disclosure practices. US disclosure incorporates structured filings like 10Ks and unstructured filings such as the news release.
Disclosure requirements were tightened in the US six years ago with the controversial Regulation Fair Disclosure (Reg FD), which forbids selective disclosure. The main motivation behind the rule was to even the disclosure playing field for retail investors who were not party to private meetings with companies wherein new material information was sometimes shared. Under Reg FD, individual investors should receive the same information, and at the same time, as fund managers, analysts, brokers and traders do.
The more stringent Sarbanes-Oxley Act of 2002 added significantly to the number of material events a US-listed company is required to disclose on a rapid and current basis.
All US stock markets accept a news release sent over a commercial newswire as the means for meeting disclosure requirements. For IROs this is also an effective way to reach a vast network of millions of investors, both individual and retail, thousands of media contacts including Dow Jones and Reuters, and web sites and financial databases like Yahoo! Finance and Thomson Financial’s FirstCall Network.
In Europe, regulators have been working toward a common standard for disclosure of material news. Under the Transparency Obligation Directive, which will come into effect in January 2007, issuers will be obligated to distribute news releases across the European Union in a manner that is fast, simultaneous and secure.
Our studies show that 97 percent of listed companies in the US use a commercial newswire to meet their disclosure obligations. By embracing this method, European companies and regulators will ensure investors benefit from the full spirit of disclosure.
Disclosure regulations exist to create a level playing field for investors and issuers by ensuring material news is released to all audiences simultaneously. Understanding the fundamental aspects of disclosure is as important as knowing how to comply.
