Palace Fund

Regulation FD — Fair Disclosure

What It Is

Regulation FD (17 CFR 243.100-103) requires public companies to disclose material information to all investors simultaneously. When a public company selectively discloses material nonpublic information to certain market participants (analysts, fund managers, institutional investors), it must promptly make the same information public.

Key point: Regulation FD is an obligation on public companies (issuers), not directly on fund managers. However, it directly affects how fund managers interact with public companies.

How It Works

  • If a public company officer, director, or IR person intentionally discloses MNPI to a fund manager, the company must simultaneously file or furnish a Form 8-K or press release making the information public.
  • If the disclosure was unintentional, the company must publicly disclose the information promptly (within 24 hours or before the next trading session opens).
  • If the company fails to make public disclosure, the fund manager who received the information faces potential insider trading liability under Rule 10b-5 if they trade on it.

Who Is Covered

Regulation FD applies to disclosures by public companies to:

  • Broker-dealers and their associated persons
  • Investment advisers and their associated persons (this includes fund managers)
  • Investment company managers
  • Holders of the company’s securities who may reasonably be expected to trade

Exemptions (Reg FD does NOT apply to disclosures to):

  • Persons who owe a duty of trust or confidence (lawyers, accountants, underwriters under written confidentiality agreements)
  • Credit rating agencies
  • Anyone who expressly agrees to maintain the information in confidence

How It Applies to a Small Fund

  • Earnings calls and investor days: Public companies often conduct one-on-one meetings with fund managers. If a company executive inadvertently shares MNPI in such a meeting, you may not be able to trade.
  • Confidentiality agreements: If a company asks you to sign a confidentiality or non-disclosure agreement before sharing information, this takes you outside Reg FD — but it also means you cannot trade on the information until it is public. This is called being “brought over the wall.”
  • Small-cap companies: Smaller public companies are more likely to inadvertently violate Reg FD because they have less sophisticated IR processes. Be cautious.

Action Items for Palace Fund

  1. Be aware of the wall-crossing risk. If a company wants to share confidential information (e.g., before a capital raise or M&A), understand that accepting the information may restrict your ability to trade.
  2. Do not sign NDAs or confidentiality agreements casually. Signing a “wall-crossing” agreement means you cannot trade in that security until the information is public. Evaluate whether the information is worth the trading restriction.
  3. If you receive MNPI unexpectedly (e.g., a company CEO mentions upcoming earnings in a casual conversation), do not trade. Document the incident and restrict trading in that security.
  4. Record keeping: Document your interactions with public company management. Notes from meetings and calls help establish what information you had and when.
  5. No obligation to police the company: You do not have a duty to ensure the company complies with Reg FD. But you DO have a duty not to trade on MNPI regardless of whose fault the selective disclosure was.