Big money managers are unhappy even as smaller shops applaud a new SEC rule requiring broader disclosure from public companies.
The rule requires that publicly held companies that intentionally disclose "material" information do so publicly, not selectively to analysts. It also requires any company that makes a disclosure to a single analyst to either file the information with the Securities and Exchange Commission or use another method to reach the public on "a broad, non-exclusionary basis."
SEC Chairman Arthur Levitt's goal of leveling the playing field, said Banc One Investment Advisors Corp.'s Michael Weiner, "came from the non-Janus and non-Fidelity folks, that there was a perception of an unfair advantage."
The managing director of balanced equity at the Columbus, Ohio-based firm, which has $131 billion under management, predicts an extreme "loss of intimacy" between analysts and public companies. "I think it is a casualty, honestly," he said.
At the beginning of Mr. Weiner's career, a money manager could sit down and close the office door in full expectation of a meaningful discussion with a company's executives.
Losing the opportunity to know something unique about a company will make it hard for Banc One and other investment management firms to differentiate themselves, he added. And although Banc One has 20 analysts, Mr. Weiner said, some managers with 12 or so analysts might find themselves questioning whether they even need them.
He believes many managers will compensate by attending trade shows and calling customers of the company for surveys, but such efforts will not come cheap for managers trying to gauge what a company is worth without relying on data from the company itself.
The new disclosure rules will also prove taxing on the stock market, increasing volatility as stocks are bought and sold quickly as larger quantities of information are made public at once, according to Mr. Weiner and others who oppose the new regulation.
In a comment letter to the SEC, John B. Hoffman, director of global equity research at Salomon Smith Barney, New York, expressed his concern that the market would become more volatile.
"If one limits the number of meetings with investors and research analysts and relegates them to large and less frequent public forums, they will take on an event status. Moreover, eliminating the ability to guide street estimates will, without a doubt, lead to more surprises and price volatility," he wrote.
The regulation's opponents' primary concern is a decreased flow of information, because public companies will fear releasing material information inadvertently.
Lewis A. Sanders, chairman of Sanford C. Bernstein & Co., New York, wrote about a new type of company announcement in his comment letter to the SEC.
"These are likely to take on the orchestrated character of a presidential news conference in which members of the audience are authorized to ask one question . . . but not a series of questions in dogged pursuit of the facts," wrote Mr. Sanders, whose firm has $80 billion in assets under management.
AIMR efforts
Officials at the Association for Investment Management and Research, Charlottesville, Va., also oppose the new regulation and have sent two comment letters.
"Companies' natural inclination is to be closed-mouthed. We really don't think what will happen is that they will tell everyone everything," said Patricia Doran Walters, vice president, advocacy, at the AIMR.
The AIMR has asked that the SEC better define "material" information.
Ms. Walters cites the numerous letters the SEC received from individual investors as the reason Mr. Levitt moved forward with the proposed rule.
She said the AIMR plans to survey its members in six months to determine the impact of the new rule.
"Hopefully, over time they will reconsider it," she said.
But one manager's loss may be another's cause for celebration.
Roy Papp, managing partner of L. Roy Papp & Associates, Phoenix, said the SEC's stance is "morally responsible."
"Conceptually, I don't see how anyone can argue with it," said Mr. Papp, whose firm has $1 billion in assets under management.
He believes those who oppose the new rule work for firms that often receive privileged information. His money management firm declines any insider information from companies in which it invests as a matter of policy, he said.
Thomas White, chairman of Chicago-based Thomas White International Ltd., which has $400 million under management, called the new rule "very helpful to us."
He believes the new rule will drive companies to post more information on the Internet and said he has long been "an advocate that anything said to one analyst should be transcribed on the Internet."
No more punishment
Along with creating a free flow of information, the rule will end the days of companies being able to punish analysts who downgrade their stock, he predicted.
Mr. White is not the only manager banking on the Internet to help demystify dissemination of corporate information.
On the fixed-income side, Lois Pasquale, portfolio manager at Chicago Capital Management, is looking for the Internet to make the controversy over use of non-public information a moot point.
Most fixed-income managers gather new-issue data via the web, often through Bloomberg LP, said Ms. Pasquale, whose company has $9 billion under management. The only other pertinent data they gather, such as balance sheet and income statement information, also are openly announced and available to all.
Managers not supportive of the rule "feel that sometimes going into the company's office and seeing their facial expressions is going to give some kind of an edge. Is that a material, non-public issue? I don't think so," she said.
Overall, Ms. Pasquale views the SEC's new rule as a way to give individual investors more confidence in the way the markets are run.
