African Investor Relations

I have written about the inefficient information dissemination practices of African stock exchanges in the past.

The issue of stock exchanges not doing enough for its listed companies should be an agenda item for any listed company in most smaller African markets. The core of the problem as it relates to information dissemination relates to African stock exchange rules permitting hardcopy publication of corporate news / actions as the only dissemination medium.

In this modern day and age, hardcopy only dissemination is just not acceptable given the pervasiveness of the Internet as a communications tool. The absence of awareness at regulatory levels (and governance levels)  of the key issues surrounding information dissemination practices is also inexplicable.

There is some good news however. News that we expect to grow in significance.

I am pleased to announce the launch of www.africansens.com, a portal to promote the 100% online dissemination of corporate actions and news for listed companies in Africa. Initially our focus is on providing 100% coverage of listed companies’ corporate announcements in Zimbabwe and this will be extended to Zambia, Botswana, Kenya and Malawi.

Access to the portal is free and is RSS enabled. Users of the site can receive corporate action alerts in their email as soon as they are published online on www.africansens.com. We are currently unable to publish all the content we receive online because we are doing this for free. Users will notice however that African Is Cool clients’ corporate action material will appear online in Africansens in full or at least a link thereto will be available.

We expect www.africansens.com to grow into our largest portal and hope to offer sponsorship / advertising to organisations that want to present their brand to the investment communities interested in African listed equities. Sponsorship funds raised will be re-invested into providing information for free through www.africansens.com.

From an online investor relations perspective, this www.africansens.com initiative complements the many others that we have to get our clients’ message out to the broader investment community. We have two twitter accounts: www.Africanfinancials.com and www.africaniscool.com to complement this and our portal www.africanfinancials.com has over 22,000 annual reports viewed online every month.

We look forward to your feedback.

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Directors have an obligation to ensure that “material” information is made available to their shareholders. Determination of material information is clearly an area where judgment and experience are of great value. The US Supreme Court in TSC Industries Inc. v Northway Inc. the standard for materiality was stated as follows:-

“There must be a substantial likelihood that the disclosure of an omitted fact would have been viewed by the reasonable investor as having significantly altered the “total” mix of information made available”

The court further developed the following definition of materiality:

“Information is material if there is substantial likelihood that a reasonable investor would consider it important in making an investment decision.”

If the materiality decision is borderline the information should probably considered to be borderline and released using a broad means of dissemination. Decisions to release material information may be qualified by confidentiality and information may be withheld for legitimate business reasons, such as the benefit of the company or the shareholders, as long as no insider trades on that  information. Of course this does not mean a company can withhold “bad news” indefinitely because such information many not be beneficial to the company or its shareholders due to its effect on the share price!

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My business partner just spoke to a bloke in the online sales and marketing game – very different to our business but he said some meaningful things – he said the secret to making sales online was trust, likability and knowledge (knowledge in the sense that people believe you know what you are doing).  He has been struggling a little in the online health industry (a massively competitive market).  Anyway he said his experience over the last few years this was the most important thing he ever learnt – “width in inches, depth in miles”!  I thought that said it all!!!

The same thing applies to an online IR programme. Exchange the likability for transparency and you have the same principles that should form the foundation of a communication platform.  Specialise in building an online community from every aspect of your business’s interaction with investors, employees and stakeholders. Width in inches, depth in miles.

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Well run banks are profitable and may enjoy a very strong investment story given their critical role in the economy. Banks are a favourite amongst investors of all types: they are easy to understand (theoretically) brand awareness is high and they are profitable. They are also highly regulated which adds confidence to the general investing populous.

Conversely commercial banks are in a particularly strong position to benefit from an online investor and stakeholder relations function for a number of reasons:-

• Brand outreach is key because of the competitive nature of the banking industry
• Customer / stakeholder communities are large and widely spread around the World
• Communications corporate governance and reporting complements prudential governance compliance
• Market confidence is critical – a good website adds to corporate reputation. For banks “Online Corporate Reputation” or OCR is a growth area enabling differentiation from peers
• The diverse nature of banking operations provides opportunity to cross sell products and services

View BancABC’s new investor relations website here

View African banking sector annual reports here

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“New Reporting Requirements of SEC – Implications and Imperatives

www.proshareng.com Page 1

INTRODUCTION

On 24th March 2010, the Securities & Exchange Commission (SEC) issued new rules and regulations containing additional reporting and compliance requirements for public companies in Nigeria. The rules became effective immediately. Although this development was in furtherance of SEC’s powers to make subsidiary legislation, the basis for the rules are contained in an Act of the National Assembly – the Investment and Securities Act, 2007 (ISA) The basis of SEC’s rules making powers is Section 313 of the ISA which provides that the SEC may make rules and regulations for the purpose of giving effect to the provisions of the Act and reserves the powers to prescribe penalties for non-compliance with the rules. These new rules are therefore binding on all persons and authorities to whom they are stated to apply and have the force of law.

CHIEF COMPLIANCE OFFICER

Under Rule B4, every public company shall appoint a compliance officer, who, in conjunction with the Chief Financial Officer shall ensure compliance with all regulatory requirements of the SEC. Although there is no requirement to notify the SEC of the appointment of this officer, it would be prudent to do so first to provide a point of contact for the SEC on regulatory matters and second to avoid the cost and expenses that may be required in responding to summons from the SEC aimed at confirming compliance with this requirement.

There is also no provision about the qualification and background of the Compliance Officer but it would seem sensible to appoint someone already familiar with the rules and the operations of the SEC to manage this interface. This for self governing companies could be someone from the Legal Department.

Many companies especially those in the financial services sector have already publicly announced their Chief Compliance Officers and notified the SEC of these appointments.

ANNUAL REPORTS

Rules B4(1) & B4(2) stipulate that every public company shall file with the SEC annually or on other periodic basis, its audited financial statements and other returns prescribed from time to time. The SEC requires that the Annual Report Annual Report shall comply with the provisions of SAS 2 and contain disclosures on its unclaimed dividend fund covering bank balances, investments and earned income by way of notes to the audited accounts. The annual report is required to be filed no later than 90 days after the financial year end must be certified by the CEO and the CFO or anyone exercising similar functions in the company.

The auditor is also required to, in his audit report to the company, issue a statement as to the existence, adequacy and effectiveness or otherwise of the internal control system of the company.

CEO AND CFO CERTIFICATION

In a provision lifted directly from rules made pursuant to the US Sarbanes- Oxley Act, the SEC ISA in Section 60(2) now requires public companies to have its annual or other periodic reports to be filed with the SEC to be certified by the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). The provision stipulates what these officers must certify.

At a meeting between Company Secretaries of listed entities and the SEC to introduce the new rules last week, the SEC provided a template of the type of CEO/CFO certification it would like to see. These are basically drawn from the provisions of Section 60(2) of the ISA.

EARNINGS FORECAST

Section 64 of the ISA provides that a listed public company, shall within 20 working days prior to the commencement of the quarter disclose to the relevant stock exchange its quarterly earnings forecast. In addition to this requirement, the SEC has now made rules regarding the release of the quarterly earnings forecast to the stock exchange, the SEC and the investing public.

The SEC now requires that the forecast shall be in line with the company’s policy, the stock exchange listing requirement and the rules of the SEC. The stock exchange other than requiring that earnings forecasts be submitted quarterly in line with the provisions of Section 64 of the ISA has not issued a format for the forecast; neither has the SEC. This therefore provides an opportunity for a well regulated company to comply by issuing what it feels comfortable with (at least until one of the regulators issues a standard format for everyone to adopt). The forecast is now required to be certified by the CEO and the CFO or any other officer performing similar functions.

All public companies are also required to notify the stock exchange, the SEC and the investing public as soon as it is known that the forecast will not be realised.

QUARTERLY REPORT

Public companies are required under Rule B4(4) to file with the SEC and simultaneously with the stock exchange and the investing public a quarterly report prepared in accordance with SAS 30. The challenge this poses is the requirement of simultaneous filing with the stock exchange and the investing public using different fora. The most popular way of informing the investing public is through newspapers publications (and/or the internet). Ideally, one needs to give the newspapers 1 or 2 days’ notice for the publication. This therefore makes compliance with this requirement somewhat challenging when dealing with the mass market. This was pointed to the SEC at its meeting with Company Secretaries last and the body promised to review this requirement. The requirement however has an upside and it could help companies focus much more on the Investor Relations responsibilities and associated/credible platforms for disseminating such. A company can and should consider the use of the internet platforms as a bridge to delivering on this requirement.

The quarterly report is expected to contain the following: accounting policy changes, seasonality or cyclicality of operations, unusual items, changes in estimates, issuance, repurchase and repayment of debts and equity securities, dividends, business combinations, etc. This report is also subject to the CEO/CFO certification requirement.

PUBLICATION OF INTERIM FINANCIAL STATEMENTS

All public companies are now required to publish their “signed” quarterly balance sheet, income statement and cash flow statement in at least one National daily newspaper (and by definition extension the web). The accounting policies need not be published in the newspaper if they can be placed on the company’s website to which reference must be made in the newspaper publication. The publication must be signed by the CEO and the CFO as with the other periodic reports.

HALF YEARLY RETURNS

All public companies are expected to file half-yearly returns in the prescribed format with the SEC containing the following information:

· General Information

· Corporate Governance Issues

· Financial Reporting

· Unclaimed Dividends

· Audit Committee

· Undertakings by the Company Secretary, Chief Internal Auditor, Financial Controller, Managing Director, Board Chairman and the Chairman of the Audit Committee certify the reliability of the information provided.

The returns must be made to the SEC within 30 days from the end of the half-year period either in hard copy or electronic copy.

UNCLAIMED DIVIDEND

All public companies shall file with the SEC in the prescribed form a report of unclaimed dividends on a half a yearly basis.

The company shall maintain segregated accounts for unclaimed dividend funds. The unclaimed dividends must be separated from cash balances and explanatory notes must be provided in the annual reports. The names of the managers and signatories to the segregated accounts must be furnished to the SEC in the prescribed form. Particulars of the qualification and experience of the managers of the fund must also be stated.

The SEC has powers to inspect the fund on a quarterly basis.

For further information and assistance on implementing these changes, kindly contact info@proshareng.com

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We believe that listed companies have now been required by the ZSE to prepare hard copy annual reports for all shareholders. The question of cost now comes to the fore given that there are thousands of shareholders whose shareholdings are of insignificant value (penny stocks). The practical focus should be how listed companies can reduce their shareholder bases significantly to avoid the costs of preparing annual reports. There has to be some form of share buy back solution specifically to make shareholders meaningful again.

Is it all really about cost? Isn’t the annual report a marketing document too? Isn’t business tough in Zimbabwe at the moment? The fact is that no-one has information on how much it costs to prepare annual reports in  hardcopy. If you want to share this information with us we will aggregate all the data we have, without disclosing names and let you know whether this is the issue that everyone thinks it is. Tell us how many shareholders you have and the total cost of your annual report per annum here .

Zimbabwe is at a crossroads in its securities legislation and corporate governance – a new code will be released by the end of the year. Now is the time to start looking at using electronic shareholder communications within a framework of corporate governance and the law. The solution is to provide investor choice and there is ample evidence elsewhere on how to slowly wean ourselves off hardcopy communications.

Click here to track internet use in Zimbabwe and other countries (you will need an internet connection). Or just read the document attached herein see below.

Remember all shareholders have to be treated equally. Companies can’t only have 10 institutional shareholders and still be listed.  If companies view them as an asset then the question is how to use the relationship to better advantage. This advantage may be in corporate reputation, commercial return, brand enhancement. Each listed company will have its own story. Every company has a story. You may not think it does, but it does.

When the obligation to send hard copy communications is dropped, an alternative communications governance model has to be adopted. The Internet can be an important cog in this wheel. The fact is no one channel of communications is perfect. Directors should use whatever tools they have available to them. Hardcopy, electronic and the Internet. You can’t ask shareholders to vote on a proxy card without giving him the information to make a decision on which he is voting. The issues are complex.

In Zimbabwe, the regulatory environment has been unclear and its up to companies to adopt a new communications governance model in consultation with legislators and regulators. Fat chance. There needs to be a culture of co-operation and like minded concern. This does not exist because everyone is so apathetic.

The attached paper outlines what an alternative communications governance model might look like. Read it here online here or download it here and send me your feedback. Zimbabwe is formulating a new corporate governance code and its precisely these issues that need to be addressed.

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“Meanwhile back at the coal face where we prefer to reside, we have had some good news coming out of the companies who are taking advantage of the new and improved economic environment. Impala Platinum in SA gave an upbeat presentation on Zimplats and their forthcoming capex plans. Zimplats will be key to Impala going forwards. Angloplats also announced that they would be pressing the button on their further expansion plans suggesting that both companies are satisfied with the soon to be announced Minerals and Mining Act. Also from SA Tongaat Hullet, the sugar group, spoke of their Zim operations which they are currently rejuvenating and working with government to assist indigenous out growers (this also counts as “points” toward the Indigenisation Act). Locally Delta is investing in another new bottling line, ramping up production and expanding margins. Their year end is March and our forecast for March 2011 based on volume and margin growth puts them on 5x, which could be conservative. Innscor also reported upbeat earnings and announced an interim dividend. They too have seen an excellent few months as consumer demand has increased. Truworths, the clothes retailer, reported an excellent set of figures that puts the company on 6x June 2010 earnings. All of these businesses are coming from a low base; only one year ago the formal sector was all but finished.

Agriculturally, the tobacco floors have opened early with good prices achieved so far. The crop is expected to nearly double this year as more commercial farmers return to utilize the lands. The seed maize crop is expected to triple. With rural farmers now being paid in US dollars for their cotton, maize and tobacco, we suspect that disposable incomes in these areas could be significant, especially as the cost of living is negligible relative to the cities where rents, transport and utilities eats away discretionary spending power.

We therefore urge investors to talk to company management and the farmers to find out what they are thinking and doing and to downplay the media and the politicians. This makes the market a great buying opportunity in our view and one of the more exciting in Africa, even if the ride can occasionally be a bumpy one.”

Investors need to speak to managements? Good luck trying to get through on the phone. Even if they do they executives are BUSY. Try getting meaningful information from their websites (which have been linked below) and you will fail. Whatever your view on Zimbabwe is, as an investor, listed company directors etc. information should be readily available on websites and its not. Here are the companies mentioned:-

Zimplats - OK website up to date with the basics because its regulated by the Australian Stock Exchange. Zimbabwean’s can’t trade the share locally.

Delta Corporation – no 2008 annual report, two undated media and press release articles, no share price. A subsidiary of SAB whose website has to be one of the best I’ve seen. I believe there is information on the beer market in Zimbabwe in the SAB website

Innscor - website goes to Innscor snacks. There is no Group website. As a leader in earnings and a dividend paying company one would expect more resources applied to looking after the info needs of investors. Their subsidiary Colcom has the 2007 audited financials as the latest and what’s new from  July 2008. Colcom is also dividend paying.

Hippo Valley – has no website. A significant large employer and asset of a South African conglomerate.

Truworths - a basic website whose IR section is out of date BUT they are about to sort this out…………

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Dear African Chief Executives, your quote for the week follows:-

A 2007 quote from the SEC USA “Shareholder Choice Regarding Proxy Materials” release

“Information in electronic documents is often more easily searchable than information in paper documents. Shareholders will be better able to go directly to any section of the document that they are particularly interested in. The amendments also will permit shareholders to more easily evaluate data and transfer data using analytical tools such as spreadsheet programs. Such tools enable users to compare relevant data about several companies more easily.”

“We believe that the Internet has helped to transform the trading markets by enabling many retail investors to have ready access to company information.”

Using the Internet to communicate is common sense. Africa is far behind and it’s only up to about 1,400 CEOs to change this.

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On Dec. 16, 2009, the Securities and Exchange Commission approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.

Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.

“Good corporate governance is a system in which those who manage a company – that is, officers and directors – are effectively held accountable for their decisions and performance. But accountability is impossible without transparency,” said SEC Chairman Mary L. Schapiro. “By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors.”

In particular, the new rules require disclosures in proxy and information statements about:

• The relationship of a company’s compensation policies and practices to risk management.
• The background and qualifications of directors and nominees.
• Legal actions involving a company’s executive officers, directors and nominees.
• The consideration of diversity in the process by which candidates for director are considered for nomination.
• Board leadership structure and the board’s role in risk oversight.
• Stock and option awards to company executives and directors.
• Potential conflicts of interests of compensation consultants.

The new rules, which will be effective Feb. 28, 2010, also require quicker reporting of shareholder voting results.

Specifically, the Commission’s approved rules will:

Require Disclosure of a Company’s Compensation Policies and Practices as They Relate to the Company’s Risk Management:

The SEC approved a rule that would help investors determine whether a company has incentivized excessive or inappropriate risk-taking by employees. Among other things, it would require a narrative disclosure about the company’s compensation policies and practices for all employees, not just executive officers, if the compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company. Smaller reporting companies will not be required to provide the new disclosure.

Enhance Information About Directors and Nominees:

The SEC approved new rules to improve information about directors and nominees for director. The new requirements include for each director and director nominee, disclosure of:

• The particular experience, qualifications, attributes or skills that led the company’s board to conclude that the person should serve as a director of the company.
• Any directorships at public companies and registered investment companies that each director and director nominee held at any time during the past five years.
• Legal proceedings, such as SEC securities fraud enforcement actions against the director or nominee, going back 10 years, instead of the current 5 years, as well as an expanded list of legal proceedings covered by the rule.

Disclose How Diversity Is Considered in the Director Nomination Process:

The SEC approved a rule that would require disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director.

If the nominating committee or the board has a policy with regard to the consideration of diversity in identifying director nominees, the final rules require disclosure of how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy.

Provide Information About Board Leadership Structure and the Board’s Role in Risk Oversight:

The SEC approved rules relating to board leadership structure and the board’s role in risk oversight. The rules require disclosure about:

• A company’s board leadership structure, including whether the company has combined or separated the chief executive officer and chairman position, and why the company believes its structure is the most appropriate for the company at the time of the filing.
• In certain circumstances, whether and why a company has a lead independent director and the specific role of such director.
• The extent of the board’s role in the risk oversight of the company.

Require Quicker Reporting of Voting Results:

The SEC approved amendments to Form 8-K that would require companies to disclose the results of a shareholder vote within four business days after the end of the meeting at which the vote was held. This replaces the requirement to disclose voting results in Forms 10-K and 10-Q, which often are filed months after the relevant meeting.

Revise the Summary Compensation Table:

The SEC approved revisions to the reporting of stock and option awards in the Summary Compensation Table and the Director Compensation Table to better reflect the compensation committees’ decisions with regard to these awards.

• The amended rule requires companies to report the value of options when they are awarded to executives (the aggregate grant date fair value), instead of the current requirement to report the annual accounting charge.
• A special instruction addresses performance based awards to address concerns that the new rule might discourage use of these awards.

Enhance Disclosure About Compensation Consultants:

The SEC approved rules requiring disclosure about the fees paid to compensation consultants and their affiliates in certain circumstances. This is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. The final rules are consistent with the rule proposal, but include exceptions for circumstances that should not raise the potential conflicts of interest. (Press Rel. 2009-268)

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During 2009 the SEC released Compliance and Disclosure Interpretations regarding Regulation Fair Disclosure (Reg.FD). The following post is a direct lift from the SEC website but we have deleted some immaterial narrative.

Whilst the stringent laws of Sarbanes Oxley may not apply to African markets insights into US best practice are a useful way of growing awareness of regulatory and governance standards within your company. Our philosophy as an online IR consultancy is to promote excellence in disclosure and communication and this will be rewarded in many ways.

Excellence cannot be pursued unless CEO’s and Chairpersons are well informed and this article should provide some insight into the good and the bad about how the law and regulation in the USA affects the life of senior managements of listed companies.

Question: Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule’s public reporting requirements?

Answer: Yes. In assessing the materiality of an issuer’s confirmation of its own forecast, the issuer should consider whether the confirmation conveys any information above and beyond the original forecast and whether that additional information is itself material. That may depend on, among other things, the amount of time that has elapsed between the original forecast and the confirmation (or the amount of time elapsed since the last public confirmation, if applicable). For example, a confirmation of expected quarterly earnings made near the end of a quarter might convey information about how the issuer actually performed. In that respect, the inference a reasonable investor may draw from such a confirmation may differ significantly from the inference he or she may have drawn from the original forecast early in the quarter. The materiality of a confirmation also may depend on, among other things, intervening events. For example, if it is clear that the issuer’s forecast is highly dependent on a particular customer and the customer subsequently announces that it is ceasing operations, a confirmation by the issuer of a prior forecast may be material.

We note that a statement by an issuer that it has “not changed,” or that it is “still comfortable with,” a prior forecast is no different than a confirmation of a prior forecast. Moreover, under certain circumstances, an issuer’s reference to a prior forecast may imply that the issuer is confirming the forecast. If, when asked about a prior forecast, the issuer does not want to confirm it, the issuer may simply wish to say “no comment.” If an issuer wishes to refer back to the prior estimate without implicitly confirming it, the issuer should make clear that the prior estimate was as of the date it was given and is not being updated as of the time of the subsequent statement. [Aug. 14, 2009]

Question: Does Regulation FD create a duty to update?

Answer: No. Regulation FD does not change existing law with respect to any duty to update. [Aug. 14, 2009]

Question: Can an issuer ever review and comment on an analyst’s model privately without triggering Regulation FD’s disclosure requirements?

Answer: Yes. It depends on whether, in so doing, the issuer communicates material nonpublic information. For example, an issuer ordinarily would not be conveying material nonpublic information if it corrected historical facts that were a matter of public record. An issuer also would not be conveying such information if it shared seemingly inconsequential data which, pieced together with public information by a skilled analyst with knowledge of the issuer and the industry, helps form a mosaic that reveals material nonpublic information. It would not violate Regulation FD to reveal this type of data even if, when added to the analyst’s own fund of knowledge, it is used to construct his or her ultimate judgments about the issuer. An issuer may not, however, use the discussion of an analyst’s model as a vehicle for selectively communicating — either expressly or in code — material nonpublic information. [Aug. 14, 2009]

Question: May an issuer provide material nonpublic information to analysts as long as the analysts expressly agree to maintain confidentiality until the information is public?

Answer: Yes. [Aug. 14, 2009]

Question: If an issuer gets an agreement to maintain material nonpublic information in confidence, must it also get the additional statement that the recipient agrees not to trade on the information in order to rely on the exclusion in Rule 100(b)(2)(ii) of Regulation FD?

Answer: No. An express agreement to maintain the information in confidence is sufficient. If a recipient of material nonpublic information subject to such a confidentiality agreement trades or advises others to trade, he or she could face insider trading liability. [Aug. 14, 2009]

Question: If an issuer wishes to rely on the confidentiality agreement exclusion of Regulation FD, is it sufficient to get an acknowledgment that the recipient of the material nonpublic information will not use the information in violation of the federal securities laws?

Answer: No. The recipient must expressly agree to keep the information confidential. [Aug. 14, 2009]

Question: Must road show materials in connection with a registered public offering be disclosed under Regulation FD?

Answer: Any disclosure made “in connection with” a registered public offering of the type excluded from Regulation FD is not subject to Regulation FD. That includes road shows in those offerings. All other road shows are subject to Regulation FD in the absence of another applicable exclusion from Regulation FD. For example, a disclosure in a road show in an unregistered offering is subject to Regulation FD. Also, a disclosure in a road show made while the issuer is not in registration and is not otherwise engaged in a securities offering is subject to Regulation FD. If, however, those who receive road show information expressly agree to keep the material nonpublic information confidential, disclosure to them is not subject to Regulation FD. [Aug. 14, 2009]

Question: A publicly traded company has decided to conduct a private placement of shares and then subsequently register the resale by those shareholders on a Form S-3 registration statement. The company and its investment bankers conduct mini-road shows over a three-day period during the private placement. Does the resale registration statement filed after completion of the private placement affect whether disclosure at the road shows is covered by Regulation FD?

Answer: No. The road shows are made in connection with an offering by the issuer that is not registered (i.e., the private placement), regardless of whether a registration statement is later filed for an offering by those who purchased in the private placement. [Aug. 14, 2009]

Question: Can an issuer disclose material nonpublic information to its employees (who may also be shareholders) without making public disclosure of the information?

Answer: Yes. Rule 100(b)(1) states that Regulation FD applies to disclosures made to “any person outside the issuer.” Regulation FD does not apply to communications of confidential information to employees of the issuer. An issuer’s officers, directors, and other employees are subject to duties of trust and confidence and face insider trading liability if they trade or tip. [Aug. 14, 2009]

Question: If an issuer has a policy that limits which senior officials are authorized to speak to persons enumerated in Rule 100(b)(1)(i) – (b)(1)(iv), will disclosures by senior officials not authorized to speak under the policy be subject to Regulation FD?

Answer: No. Selective disclosures of material nonpublic information by senior officials not authorized to speak to enumerated persons are made in breach of a duty of trust or confidence to the issuer and are not covered by Regulation FD. Such disclosures may, however, trigger liability under existing insider trading law. [Aug. 14, 2009]

Question: If an issuer wants to make public disclosure of material nonpublic information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

Answer: An adequate advance notice under Regulation FD must include the date, time, subject matter and call-in information for the conference call. Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

Timing: Public notice should be provided a reasonable period of time ahead of the  conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive.

Availability: If a transcript or re-play of the conference call will be available after it has       occurred, for instance via the issuer’s website, we encourage issuers to indicate in the         notice how, and for how long, such a record will be available to the public. [Aug. 14, 2009]

Question: Could an Exchange Act filing other than a Form 8-K, such as a Form 10-Q or proxy statement, constitute public disclosure?

Answer: Yes. In general, including information in a document publicly filed on EDGAR with the SEC within the time frames that Regulation FD requires would satisfy the rule. In considering whether that disclosure is sufficient, however, companies must take care to bring the disclosure to the attention of readers of the document, must not bury the information, and must not make the disclosure in a piecemeal fashion throughout the filing. [Aug. 14, 2009]

Question: For purposes of Regulation FD, must an issuer wait some period of time after making a filing or furnishing a report on EDGAR that complies with the Exchange Act before making disclosure of the same information in a non-public meeting?

Answer: Prior to making disclosure of this information in a non-public meeting, the issuer need only confirm that the filing or furnished report has been accepted for filing on EDGAR and is publicly available on EDGAR. [Aug. 14, 2009]

Question: During a nonpublic meeting with analysts, an issuer’s CEO provides material nonpublic information on a subject she had not planned to cover. Although the CEO had not planned to disclose this information when she entered the meeting, after hearing the direction of the discussion, she decided to provide it, knowing that the information was material and nonpublic. Would this be considered an intentional disclosure that violated Regulation FD because no simultaneous public disclosure was made?

Answer: Yes. A disclosure is “intentional” under Rule 101(a) when the person making it either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic. In this example, the CEO knew that the information was material and nonpublic, so the disclosure was intentional, even though she did not originally plan to make it. [Aug. 14, 2009]

Question: Can an issuer satisfy Regulation FD’s public disclosure requirement by disclosing material nonpublic information in a speech at a shareholder meeting open to the public? The meeting will not be covered by the press, or webcast or broadcast by any electronic means.

Answer: No. Under Rule 101(e), public disclosure of information required to be disclosed by Rule 100(a) can be made either by furnishing or filing with the Commission a Form 8-K disclosing that information, or by disseminating the information through another method or combination of methods of disclosure “that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” A meeting that is open to the public but not otherwise webcast or broadcast by any electronic means is not a method of disclosure “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” [Aug. 14, 2009]

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