New SEC disclosure rules show it understands the social web

The Securities and Exchange Commission helps set and implement the rules that govern the behavior of publicly traded companies. As part of that role, it has developed rules that govern what and how companies disclose financial information to the public, with the intention of minimizing insiders' advantages. In a recognition that the Internet is radically changing how communications are handled, the SEC is now in the process of issuing guidance for the release of company information on websites, rules that seem to recognize some of the practical issues involved in meshing SEC rules and interactive web sites. HangZhou Night Net

SEC Chairman Christopher Cox introduced the new guidance by stating, "Ongoing technological advances in electronic communications have increased both the markets and investor's demands for more timely company disclosure and the ability of companies to capture, process, and disseminate this information to market participants." The formal body of the rules have not yet been published on the SEC site, but various documents and press releases from the Commission provide a rough outline of their scope.

Many of the changes focus on the SEC's Regulation FD, which governs the disclosure of financial information to the public (the SEC site provides a sense of its scope). In essence, the rule demands that any relevant financial information that's released by the company has to be released to the public, and cannot be selectively disclosed to provide anyone with a trading advantage. To meet this responsibility, companies have been relying on wire services, which charge a fee for disseminating it in a way that meets SEC requirements.

Clearly, company websites can now provide the company an equivalent public outlet, and have the potential to save companies the cost of the wire services; the new guidance will help companies ensure that their web sites meet the SEC disclosure requirements. As Chairman Cox noted, this isn't necessarily as simple as it might seem, as interactive web sites can allow investors to filter information so that they only see the information they feel is relevant. "The formats dictated by our forms," Cox said, "may not be appropriate."

Other aspects of the guidance focus on precisely what information is considered part of a company's disclosure. As companies consider posting historic information, they run the risk of running afoul of rules that govern the reissuing of financial data. The SEC would apparently rather see that information made available without having the companies incur liability for republishing it.

Similarly, financial statements may be more informative if they contain links to third-party data, but companies that included these links in their statements ran the risk of "adopting" the content and assuming liability for it. Clearly, this could create a nightmare, especially if the company had no control over the content on the other end of the link. The SEC will provide guidance for how to inform the public when links will take them to information controlled by a third party.

Similarly, the rules will absolve companies from liability for private comments posted to any company blogs, while providing guidance for what company representatives can disclose via comments on others' blogs or investors' message boards.

These rules, as Chairman Cox noted when introducing them, are long overdue; the last SEC guidance on the issue dates from 2000. As Cox put it, back then, social networking was nascent, RSS and Atom feeds were still in development, and "blogs hadn't entered the public lexicon." It's hard to evaluate the new rules without seeing an actual copy of them, but it appears that the Commission has at least a reasonable grasp of the issues at hand, and Cox spoke about social networking and RSS feeds as if he actually understood them. That alone appears to be cause for some optimism.

Further reading:The Investor Relations Web Report has detailed coverage of the new guidance.