Go right to GLOSSARY OF TERMS
DEFINITION
Standards of materiality under SEC Rule 10b-5 (anti-fraud provisions) .. .
"There must be a substantial likelihood that the disclosure of an omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total' mix of information made available."
-- US Supreme Court.
But it can also be defined as . . .
"Information is 'material' if its disclosure would be likely to have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision. In other words, information is material if it would significantly alter the total mix of information currently available regarding the security."
-- Association for Investment Management and Research (AIM).
Disclosure is the dissemination of material information to the marketplace. And "material" information can be most simply defined as anything that can influence an investor to make a buy, hold or sell decision. The types of news most often disclosed includes:Quarterly and annual earnings. Changes in earnings expectations. Merger, acquisition or joint venture. Stock split or stock dividend announcement. Significant stock repurchase intent. Major borrowings or sales of additional securities. Decision to take a major write-off. Significant legal action taken for or against the company. Significant new product or discovery. Change in control or significant change in management. Acquisition or loss of a significant contract.
DISTRIBUTION AND TIMING
To reach both large and small investors, material information about your company must be broadly distributed. Normal disclosure points are defined as:
Associated Press (AP) UPI Dow Jones Newswire Reuters Economic Services News wire service (PR Newswire)
This means that your news release must be made available to all these news providers simultaneously. Using a wire service (like PRN) is an accepted method to meet disclosure. While reaching these media points is required by SEC 10b-5, there are many additional means of reaching investors, both institutional and retail:
News releases distributed via broadcast fax, fax-on-demand, e-mail, Internet (through company or vendor Web site). Mailing of annual and quarterly reports, letters to stockholders, proxy statements, dividend statements to investors Speeches by top management distributed by audio or mail. Conference call for investors, analysts and the media (available later as tape or transcript). Press conference. Presentations, demonstrations at industry association trade shows and conferences. Meetings with analysts, investors and media.
Always keep in mind your audience when delivering the message. As an IR professional, you must meet the information needs of sell-side and buy-side analysts, fund managers and other institutional investors and even individual investors. Remember to match the message and the delivery mechanism to the audience.
Once you have decided that information is material, you have a duty to broadly disclose that information. But information can be withheld for legitimate business reasons, as long as no insider trades on that information.
Buy-side analyst - stock analyst employed by a bank, insurance fund, pension fund, or money management firm who analyzes many companies covering multiple industries. Public Disclosure - the dissemination of material information that could have an impact on stock price. Selective Disclosure - disclosure of material information to individuals or groups prior to public disclosure.
Soft Disclosure - non-material information provided as guidance to securities analysts in developing reports and earnings models. The SEC encourages the dissemination of soft disclosure. Structured Disclosure - reports filed with the SEC under specific rules and regulations of the Securities Acts.
Timely Disclosure - companies are expected to make prompt or "timely" disclosure of material information.
Fax-on-demand - providing access to information for individuals/institutions via a fax number they can dial directly.
Broadcast fax - disseminating news to a large targeted audience via the fax.
Insider - one who has access to material nonpublic information, directly or indirectly, by virtue of his/her title, responsibilities or position.
Insider trading - corporate insiders are prohibited from engaging in short selling, buying and selling puts, calls, and other options, or making short-term trading profits in their own company's stock.
Materiality - any fact that a reasonable shareholder would consider important in deciding whether to buy, sell or hold a company's stock.
Quiet Period - the period between the issuance of the Red Herring (preliminary prospectus) in a proposed public stock offering and the completion of the distribution of the offering.
Safe Harbor - Private Securities Litigation Reform Law of 1995 ruling provides for "safe harbor" from civil litigation for companies that make prospective statements as long as they are identified as "forward looking statements" and are accompanied by "meaningful cautionary language" identifying the important factors that could cause a change in the projections.
Sell-side analyst - stock analyst employed by a broker/dealer that makes buy and sell recommendations for outside money management firms. Typically covers a single industry, although at smaller firms, may be more of a generalist. Can be influential in raising awareness for your company's stock.
Street estimate - securities analyst estimates of company's earnings, on a per share basis.
Trading Window - the restricted period during which insiders are allowed to buy or sell company stock or exercise stock options.
For additional information and networking opportunities, contact NIRI.
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