Be Careful What You Tell the Rating Agencies – Regulation FD Revised
This SEC revised Regulation FD to implement Section 939B of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires that the SEC amend Regulation FD to remove the specific exemption from the rule for disclosures made to nationally recognized statistical rating organizations and credit rating agencies for the purpose of determining or monitoring credit ratings. The most widely known statistical rating agencies are Moody’s and Standard & Poor’s. The change to Regulation FD will be effective upon publication in the Federal Register.
Regulation FD provides that when an issuer, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the issuer’s securities who may trade on the basis of the information), it must make public disclosure of that information. As required by the Dodd-Frank Act, the SEC amended Regulation FD to remove the specific exemption provided to nationally recognized statistical rating organizations and credit rating agencies for disclosure made to them for the purpose of determining or monitoring a credit rating. To effectuate this change, the SEC removed Rule 100(b)(2)(iii) of Regulation FD. Due to the removal of Rule 100(b)(2)(iii), the SEC re-designated Rule 100(b)(2)(iv) as Rule 100(b)(2)(iii).
Regulation FD is designed to address the problem of selective disclosure made to those who would reasonably be expected to trade securities on the basis of the information or provide others with advice about securities trading. Under Regulation FD, the timing of the required public disclosure of material nonpublic information that is provided by an issuer, or persons acting on its behalf, to certain enumerated persons depends on whether the selective disclosure was intentional. For an intentional selective disclosure, the issuer must make public disclosure simultaneously. In other circumstances, the issuer must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.
Under the pre-amendment version of Rule 100(b)(2)(iii) of Regulation FD, the issuer or person acting on the issuer’s behalf need not make the public disclosure if the disclosure of material nonpublic information is made to a credit rating agency that makes its credit ratings publicly available, or is made pursuant to Rule 17g-5(a)(3) 8 to a nationally recognized statistical rating organization. As required by Section 939B of the Act, the SEC removed the exemption specifically available to these entities under Regulation FD.
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