Regulation FD Will Result in Poorer Disclosure and Increased Market Volatility

Abstract

On April 27, 1999, a group of investors and an analyst from Credit Suisse First Boston ("CSFB") toured Compaq's headquarters. One investor asked if it was true that sales for the quarter were weaker than expected A company representative affirmed the rumor. The CSFB analyst telephoned his key clients to give them the hot information about Compaq's expected quarterly earnings. The following morning, before most of Compaq's shareholders and analysts at other prestigious Wall Street firms received the projected earnings information, Compaq's share price fell sixteen percent. The Compaq share price drop led to an industry-wide drop in share price. In an effort to end this kind of selective disclosure and resultant unfair insider advantage, the Securities and Exchange Commission ("SEC") enacted Regulation FD (the "Regulation"), for "fair disclosure."

The following Section briefly discusses securities regulation leading to the enactment of the Regulation The Regulation is outlined and analyzed in Section III. Section IV discusses the impact of the Regulation. Finally, Section V concludes this article.