# 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.