Bloomberg News
WASHINGTON - The Securities and Exchange Commission's nine-month-old rule forbidding selective disclosure of important company news has not, as critics predicted, hampered information flow in securities markets, according a new study of almost 1,600 companies.
Three researchers, from the University of Southern California and Purdue University, said they found "no evidence to support dire predictions that have come from Wall Street during the past year" about the impact of Regulation Fair Disclosure.
The researchers called their report the "first large-scale and formal empirical study" of Regulation FD's impact on stock price volatility.
Harvey Pitt, President Bush's nominee for SEC chairman, may consider changing Regulation FD, according to his testimony before a Senate panel on July 19. "I am concerned when a broad array of groups have raised in some cases very serious concerns. The SEC has an obligation to listen, to have a dialogue, to understand the criticism and to do a review," he said.
Regulation FD, which took effect in October, bars companies from releasing market-sensitive information on profits, new products, or other developments to analysts before announcing it to the public. The Securities Industry Association, a brokerage trade group, opposed the rule, saying it would inhibit the flow of information from companies to analysts and therefore to the public.
The researchers said a sample of 1,595 companies showed "no evidence of increased volatility after Regulation FD became effective," according to a press statement. The evidence revealed a slight reduction in stock price volatility around earnings announcements, the researchers said.
Frank Fernandez, chief economist for the Securities Industry Association, said he was surprised by the findings because "the majority of people we surveyed felt that Regulation FD contributed to volatility." He also questioned the study's validity, noting that it contained data from only one quarter. "That's too short. It's not significant," he said.
By the time Mr. Pitt's nomination is confirmed by the Senate and the new chairman is ready to review the rule, Mr. Fernandez said, the market may provide enough data to make a comprehensive assessment. "We'll probably have pretty close to a full year" of data, he said.
"There are too many other things going on contributing to volatility in the wake of the introduction of Regulation FD that just swamp any attribution of causation," Mr. Fernandez added. He pointed to the market decline of the last year or so, decimalization, and other changes in the industry.
