Thursday, May 17, 2001 Lawmakers Worried About Affects of New Wall Street Rule By MARCY GORDON
WASHINGTON (AP) _ Lawmakers are voicing concern that a new rule prohibiting companies from disclosing information to Wall Street insiders ahead of the public may have added to wild swings in the market and made executives afraid to say anything.
Congress doesn't have authority to change the rule, known as Regulation Fair Disclosure, but there is speculation that President Bush's nominee to head the Securities and Exchange Commission could preside over a re-examination of it.
People should have the same access to corporate information ``whether you're a $200 investor or a $200,000 investor,'' Rep. Richard Baker, R-La., chairman of the House Financial Services subcommittee on capital markets, said at a hearing Thursday. However, he added, some company executives may have decided that ``the safest approach is to say nothing,'' and a lack of information benefits no one.
The issue brought a record outpouring of 6,000 or so comment letters and e-mails, many of them from individual investors, when the SEC considered drafting the rule last year to end a longstanding Wall Street tradition.
The comments were overwhelmingly in support, lauding the agency for seeking to put ordinary investors on the same footing with big market players such as financial analysts, mutual funds and pension funds.
Now, critics say, the Fair Disclosure rule _ which took effect in October _ has hurt both the quantity and quality of information flowing from companies to the market.
The Securities Industry Association, Wall Street's biggest trade group, says the rule has boosted investors' confidence in the markets but also reduced the flow of important information to investors and its quality.
In addition, the industry says, open disclosure may be a significant factor in the market's recent volatility, since market players now are taken by surprise when, for example, a big high-tech company announces weak earnings.
``I am concerned about claims that (Regulation Fair Disclosure) may contribute to market volatility,'' Rep. John LaFalce, D-N.Y., said at Thursday's hearing.
He suggested the SEC consider some specific guidance on what constitutes significant information that companies must disclose universally.
Laura Unger, the agency's acting chairwoman, and Isaac Hunt, a commissioner, said it is too soon to fully assess the impact of the rule on companies and the market.
Bush named Unger, the only Republican SEC commissioner, as acting chairwoman, in February when Clinton nominee Arthur Levitt left the government. Unger was the only commissioner who voted against the fair disclosure rule, while Levitt had actively pushed for it.
Many observers expect securities lawyer Harvey L. Pitt, a former SEC general counsel whom Bush is nominating as SEC chairman, to take up a study of the rule after he is confirmed by the Senate. Pitt has not taken a public position on the issue.
Tom Gardner, co-founder of the Motley Fool investment Web site, pleaded in testimony at the hearing: ``Don't take Regulation FD away.''
``In a public market, ... information must be available to all investors at the same time,'' he said.