1

           1      UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
                                   AMENDED TRANSCRIPT
           2      
                  REGULATION FD ROUNDTABLE
           3      
                  PAGES:   1 through 280
           4      
                  PLACE:     Alexander Hamilton U.S. Customs House 
           5                 Auditorium
                             One Bowling Green
           6                 New York, New York 
                  
           7      DATE:      Tuesday, April 24, 2001
                  
           8      PRESENT:
                  
           9      LAURA S. UNGER, ACTING CHAIRMAN
                  Securities and Exchange Commission
          10      
                  ISAAC C. HUNT, Jr., COMMISSIONER
          11      Securities and Exchange Commission
                  
          12      KIPP BEDARD, VP CORPORATE AFFAIRS
                  Micron Technology, Inc.
          13      
                  MARTHA DEMSKI, VP/CFO
          14      Vical Inc.
                  
          15      DANIEL HANN, SENIOR VP/GENERAL COUNSEL
                  Biomet, Inc.
          16      
                  DOUG LUSK, DIRECTOR OF INVESTOR RELATIONS
          17      Intel Corp.
                  
          18      POLLY PEARSON, VP GLOBAL INVESTORS RELATIONS
                  EMC Corp.
          19      
                  DAVID SHEDLARZ, EXECUTIVE VP/CFO
          20      Pfizer Inc.
                  
          21      BINA THOMPSON, VP INVESTOR RELATIONS
                  Colgate-Palmolive Co.
          22      
                  JOHN HUBER, ESQ.
          23      Latham & Watkins
                  
          24      DAVID RUDER, PROFESSOR
                  Northwestern University Law School
          25      
                  

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           1      
                  PRESENT:  (Continued)
           2      
                  DAVID ARMON, PRESIDENT
           3      Americas Division, PR Newsire
                  
           4      MARK COKER, PRESIDENT
                  BestCalls.com
           5      
                  RON INSANA, ANCHOR
           6      CNBC
                  
           7      FLOYD NORRIS, CHIEF FINANCIAL CORRESPONDENT
                  The New York Times
           8      
                  CATHY BARON TAMRAZ, COO
           9      Business Wire
                  
          10      LOUIS THOMPSON, JR., PRESIDENT/CEO
                  National Investor Relations Institute
          11      
                  PATRICIA DORAN WALTERS, SENIOR VP
          12      Professional Standards & Advocacy
                  Association for Investment Management and Research
          13      
                  DAVID BECKER, GENERAL COUNSEL
          14      Securities and Exchange Commission
                  
          15      DAVID BERRY, EXECUTIVE VP/DIRECTOR OF RESEARCH
                  Keefe, Bruyette & Woods
          16      
                  MICHAEL BLUMSTEIN, MANAGING DIRECTOR/DIRECTOR OF
          17      NORTH AMERICA RESEARCH
                  Morgan Stanley
          18      
                  H. PERRY BOYLE, DIRECTOR OF EAST COAST RESEARCH
          19      Thomas Weisel Partners
                  
          20      FRANK FERNANDEZ, SENIOR VP/CHIEF ECONOMIST
                  Securities Industry Association
          21      
                  CHUCK HILL, DIRECTOR OF RESEARCH - QUANTITATIVE DATA
          22      First Call Corp.
                  
          23      STUART KARLE, ASSOCIATE GENERAL COUNSEL
                  Dow Jones & Co.
          24      
                  ADAM LASHINSKY, Silicon Valley Columnist
          25      TheStreet.com
                  

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           1      
                  PRESENT:  (Continued)
           2      
                  DONALD LANGEVOORT, PROFESSOR
           3      Georgetown University Law School
                  
           4      WILLIAM ATKINSON, ACTING CHIEF ECONOMIST
                  Securities and Exchange Commission 
           5      
                  ALAN CLEVELAND, SPECIAL LEGAL COUNSEL
           6      New Hampshire Retirement System
                  
           7      TOM GARDNER, CHAIRMAN
                  The Motley Fool
           8      
                  GREG HYMOWITZ, PRINCIPAL
           9      Entrust Capital
                  
          10      GEORGE KIM JOHNSON, GENERAL COUNSEL
                  Public Employees Retirement Association of Colorado
          11      
                  JOHN MARKESE, PRESIDENT
          12      American Association of Individual Investors
                  
          13      ERIC ROITER, SENIOR VP/GENERAL COUNSEL
                  Fidelity Management & Research
          14      
                  DAVID MARTIN, DIRECTOR
          15      Division of Corporation Finance
                  Securities and Exchange Commission
          16      
                  HERBERT WANDER, ESQ.
          17      Katten Muchen Zavis
                  
          18      
                  
          19      
                  
          20      

          21      

          22      

          23      

          24      

          25      

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           1                 CHAIRMAN UNGER:   Good morning to all of 

           2      you, panelists and the audience.  Welcome to the 

           3      SEC's Roundtable on Regulation Fair Disclosure, 

           4      which we will refer to as FD and Reg FD throughout 

           5      the day. 

           6                 Commissioner Hunt and I would like to 

           7      thank each of the panelists for appearing on this 

           8      panel and on the consecutive panels this morning and 

           9      this afternoon and for making today's important 

          10      event possible. 

          11                 Commissioner Carey regrets not being able 

          12      to be here today but he has promised that he is 

          13      going to listen to a replay of the events today.  In 

          14      the spirit of Regulation Fair Disclosure, we have 

          15      arranged for the first time in the Commission's 

          16      history for the discussion to be broadcast over the 

          17      Internet.  So good morning to everybody listening 

          18      from their home or office.

          19                 As everyone here knows, corporate America 

          20      has certainly seen change in its disclosure 

          21      practices with the adoption and implementation of 

          22      Regulation FD.  As the packed house here this 

          23      morning reflects, there is a keen interest in how FD 

          24      is affecting investors, information disseminators, 

          25      analysts and investors. 

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           1                 My dissent from the Commission vote six 

           2      months ago to adopt Regulation FD was based on my 

           3      concern about how the rule would impact the quantity 

           4      and quality of information available to investors.  

           5      Today Commissioner Hunt and I are interested in 

           6      hearing firsthand from the people in the front lines 

           7      how FD has impacted the flow of information, and 

           8      what the information landscape looks like since 

           9      Regulation FD. 

          10                 Holding this public roundtable is part of 

          11      Commissioner Hunt's and my commitment to monitor 

          12      Regulation FD.  I join today's discussion with no 

          13      preconceived notion about what the outcome will be, 

          14      but will listen carefully to each of the panelists 

          15      and the discussion and will consider all of the 

          16      points raised. 

          17                 I would like to turn the mike over to 

          18      Commissioner Hunt, and then I thought it would be 

          19      helpful for each of the panelists to do a brief 

          20      introduction of themselves and mention the company 

          21      they are from.  Panelists may make preliminary 

          22      remarks, although because we have a pretty tight 

          23      schedule today, you certainly don't have to make a 

          24      lengthy set of remarks. 

          25                 So, Commissioner Hunt? 

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           1                 COMMISSIONER HUNT:   Good morning, ladies 

           2      and gentlemen.  I want to join with Chairman Unger 

           3      in welcoming you all to this session on Regulation 

           4      FD and thank you for taking the time to come to this 

           5      program today. 

           6                 This, in my view, is a part of what we 

           7      promised we would do when we promulgated Regulation 

           8      FD, which is to closely monitor its effects both in 

           9      terms of scientific analysis of what was going on as 

          10      well as what can be done and in any other way we 

          11      can.  So this is one of our important early steps to 

          12      study the consequences intended and unintended of 

          13      Regulation FD on corporate America and the 

          14      securities market. 

          15                 I didn't dissent when we promulgated 

          16      Regulation FD.  I figured half of my life was 

          17      involved in it so there was no point in dissenting 

          18      from it, but I am glad to see so much interest and I 

          19      look forward to hearing from the participants today.  

          20      And, again, thank all of you for coming in and 

          21      participating in this program. 

          22                 CHAIRMAN UNGER:   John, do you want to 

          23      start?

          24                 MR. HUBER:   My name is John Huber, I am 

          25      a partner at the firm of Latham & Watkins.  I 

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           1      practice corporate securities law.  In a former 

           2      life, I was the director of the division of 

           3      corporation finance at the SEC and wrote a lot of 

           4      rules.  Most of the rules that the people here don't 

           5      like or comply with every day, I was involved with. 

           6                 I am a commentator on this panel and so, 

           7      therefore, I will keep my remarks very short.  I 

           8      think that FD is a challenging rule, one that has 

           9      got different impacts on different companies.  And 

          10      in a survey that the American Bar Association did 

          11      surveying its members, one of the most interesting 

          12      results of that survey was that there was a 

          13      conclusion that FD had bigger impacts on small and 

          14      midsize companies rather than large companies.

          15                 I think that that, at least in my 

          16      practice, is true.  And one of the points of 

          17      reference for that is the question of materiality 

          18      and how that affects it.  But, more importantly, I 

          19      think making FD workable in this environment and 

          20      taking some of the pressure points with respect to 

          21      how FD works would make it a more efficient system 

          22      and also take less cost in terms of compliance.

          23                 The critical question from my side is:  

          24      Is FD a rule of fair disclosure or is it a rule that 

          25      is designed to provide equal access to information?  

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           1      The answer to that one question, really, in my mind 

           2      goes a long way in terms of how FD should work in 

           3      the future. 

           4                 MR. HANN:   Good morning, my name is Dan 

           5      Hann, I am senior vice president and general counsel 

           6      of Biomet.  I am also here today representing the 

           7      Association of Publicly Traded Companies, of which 

           8      Biomet is a member, and I thank you for having me 

           9      here.

          10                 In general, I think Regulation FD is 

          11      certainly welcome.  I can certainly say that I love 

          12      my mother, apple pie, and I am certainly against 

          13      selective disclosure.  I also thought that FD stood 

          14      for fewer disclosures, so I am pleased to learn that 

          15      it is fair disclosure that we are talking about.

          16                 In general, I think Regulation FD has 

          17      leveled the playing field.  My principal concern 

          18      would be that we have a lower level playing field.  

          19      I think there are both qualitative and quantitative 

          20      issues, and I will hold my remarks until we get into 

          21      that.

          22                 Thank you.

          23                 MS. THOMPSON:   Good morning, I am Bina 

          24      Thompson, I am vice president of investor relations 

          25      at Colgate-Palmolive Company.  Actually, I am also 

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           1      here as president of The Investor Relations 

           2      Association, which is a group of senior IR 

           3      professionals across the country, from small and 

           4      large cap companies, that I have been chatting with 

           5      and polling over the last few weeks, after Laura 

           6      invited me to speak, to get their views. 

           7                 So as we get into the discussion, I do 

           8      have some thoughts and I think that probably I will 

           9      be able to give you their thoughts as well as my 

          10      own. 

          11                 Mr. SHEDLARZ:   Good morning, I am David 

          12      Shedlarz, I am the executive vice president and 

          13      chief financial officer of Pfizer.  I am also the 

          14      co-chairman and the principal of Financial Officers 

          15      of the Business Roundtable.

          16                 I do have a short statement that I would 

          17      like to make.  I think, most importantly, I would 

          18      like to thank Acting Chairman Laura Unger and 

          19      Commissioner Hunt for having this discussion.  I 

          20      think it is critically important especially when we 

          21      have something as pervasive and as significant as 

          22      Regulation FD that the SEC does take the opportunity 

          23      to see how the regulation is taking hold within the 

          24      industry and what types of things are meeting 

          25      expectations and what types of things may not be 

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           1      meeting expectations and may point to the need for 

           2      some changes. 

           3                 I think everybody is aware of the fact 

           4      that Pfizer is a large company with a long tradition 

           5      of publicly disclosing a great deal of high quality 

           6      information to all investors, both big and small.  I 

           7      am fond of saying we are competing for investors as 

           8      we compete for folks we sell our products to. 

           9                 At Pfizer, we believe in giving timely 

          10      information in an understandable manner to all 

          11      investors.  And it gives us more of an advantage, we 

          12      believe, in attracting investors.  Given that 

          13      philosophy, what I must admit are the resources to 

          14      support broad disclosure, Pfizer has not 

          15      significantly altered its disclosure practices with 

          16      market professionals and investors after the 

          17      institution of Regulation FD, with one exception.  

          18      And that's with respect to direct and indirect 

          19      guidance as it relates to earnings estimates.

          20                 I think it is important to give you some 

          21      background in that regard.  For the most part, it 

          22      hasn't changed the way we practice dealings with 

          23      analysts and investors.  We still have robust 

          24      quarterly earnings releases pertaining to forecasts 

          25      and projections.  The earnings releases also contain 

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           1      an extensive Q&A section which covers our financial 

           2      and operational performance and other topics of 

           3      interest to both analysts and investors.  For 

           4      example, in the first quarter of this year, the Q&A 

           5      section ran to almost 40 questions. 

           6                 We believe this allows all investors to 

           7      become familiar with important issues that affect 

           8      our company.  And, in addition, as we did before 

           9      Regulation FD, we invite analysts and the public to 

          10      an investors conference call that is held the day of 

          11      our earnings release, at least by means of a 

          12      webcast.  

          13                 Also, as we did before Regulation FD, we 

          14      publicly distributed our earnings prior to this 

          15      rule.  So for the most part, Regulation FD has not 

          16      affected our disclosure practices.  One challenge we 

          17      have faced with Regulation FD is in the area of 

          18      earnings guidance.  We have had a great deal of 

          19      discussion and some debate at Pfizer as to what and 

          20      how best we are going to provide ongoing comfort for 

          21      both the operational and financial outlook of the 

          22      company. 

          23                 In particular, it is difficult to know 

          24      exactly when our confirmation of prior publicly made 

          25      earnings expectations by the company to an analyst 

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           1      may be considered material.  There is no bright line 

           2      test, so since it is not clear when our 

           3      reconfirmation of earnings estimates to an analyst 

           4      would be deemed material; Pfizer has erred on the 

           5      side of caution.  We, therefore, issue press 

           6      releases which essentially state that nothing has 

           7      changed during the course of a quarter. 

           8                 We have felt it prudent on a number of 

           9      occasions, before executives have spoken with 

          10      analysts either one-on-one or at conferences, to 

          11      issue a press release which essentially said nothing 

          12      has changed.  So we have not curtailed the 

          13      information to analysts and we have not 

          14      significantly expanded the scope of information 

          15      disclosed to the public.  We are releasing 

          16      additional earnings guidance. 

          17                 While Regulation FD has not affected the 

          18      amount of quality information that Pfizer discloses, 

          19      there has been a fair amount of debate by the 

          20      industry in terms of connection with Regulation FD.  

          21      For example, when the Business Roundtable asked its 

          22      members in September of last year if they thought 

          23      the final rule would reduce the total amount of 

          24      information a company would release, 40 percent said 

          25      they did not expect to reduce the total of 

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           1      information, 36 percent did say it was too early to 

           2      tell. 

           3                 I believe there are three things that 

           4      would help in terms of Regulation FD that the 

           5      Commission might consider.  One, to provide 

           6      additional guidance on how to apply this Regulation, 

           7      particularly more direction on ongoing earnings 

           8      guidance. 

           9                 Secondly, to provide more information to 

          10      public companies on how the SEC will enforce 

          11      Regulation FD, how many cases will you bring, who 

          12      will you go after.  Since there is so much gray area 

          13      on what is material, will the SEC be second-guessing 

          14      good corporate citizens?

          15                 Lastly, I believe companies are looking 

          16      for forums like this one to both analyze the impact, 

          17      both intentional an unintentional, in terms of the 

          18      consequences of Regulation FD.  Again, with regard 

          19      to the last point, I herald the SEC in terms of 

          20      having this session today to give us all an 

          21      opportunity to speak about the consequences of 

          22      Regulation FD, both intentional and desirable, and 

          23      maybe some that are not intentional. 

          24                 Thank you. 

          25                 MS. PEARSON:   Good morning, my name is 

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           1      Polly Pearson, I am the vice president of Global 

           2      Investor Relations, EMC Corporation. 

           3                 EMC is the top performing stock in the 

           4      last ten calendar years, and it has been my pleasure 

           5      to run investor relations over the course of that 

           6      time.  Our philosophy at EMC has always been one of 

           7      inclusive communication with investors of all sizes 

           8      and all locations, rather than exclusive.  So the 

           9      passage of Reg FD was not a big deal to EMC.  

          10                 Our theory, really, with the passage of 

          11      the Safe Harbor legislation, that we were active 

          12      proponents for in the mid '90s, has been to mass 

          13      market the message.  Once we were allowed to make 

          14      forward looking statements, our belief was that in a  

          15      supply and demand dynamic, why would you want to 

          16      diminish the demand for your share?  So, share the 

          17      message with all that would hear it. 

          18                 So our time is spent not so much on if we 

          19      should share or disclose information, but how we 

          20      should do it in a palatable manner to the mass 

          21      market.  As we practitioners know, issuing a news 

          22      release every time somebody smiles or winks or 

          23      something that someone might consider material, it 

          24      could be like dropping a bomb on your stock.  So our 

          25      time has been spent on ways to consider sharing 

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           1      information, doing things like live webcast 

           2      conferences posted on EMC's website in real-time, an 

           3      editorial posted on our website with URL's passed on 

           4      to journalists and investors asking them to look at 

           5      them, rich media videocasts. 

           6                 Last year we did our annual meeting with 

           7      a live interactive rich media videocast to the 

           8      world, and I felt a little bit like Sue Herrera, 

           9      saying, "Now I would like to take the next question 

          10      from John in Bar Harbor," as we very much had an 

          11      interactive dialogue with remote and in-house 

          12      investors.  It was very successful. 

          13                 Also we have called up wire news 

          14      services, such as Dow, Reuters, Bloomberg and CNBC, 

          15      before the market opens, just offering our opinion 

          16      on something that the market might be very concerned 

          17      with or consumed with that day, such as "How is 

          18      business in Europe?  XYZ high-tech company just fell 

          19      off the cliff because their business is bad," where 

          20      normally we would say, "Our business might have been 

          21      on track." 

          22                 Prior to FD, we started thinking about 

          23      "What are better ways we can do this, to mass market 

          24      the message?"  And it has been just a delight as a 

          25      practitioner, because once we mass marketed the 

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           1      message and informed Dow Jones and offered our 

           2      comments, then our call volume diminished rapidly 

           3      coming into the company and all investors had the 

           4      message at very same time. 

           5                 And then, finally, the newest tool that 

           6      we have been exploring is the idea of issuing an 

           7      open statement, a statement that is more 

           8      conversational, and distributing the statement over 

           9      business wire or other mass market media, instead of 

          10      issuing a news release that has some of the baggage 

          11      that goes along with being something that you are 

          12      trying to hype as newsworthy.  Whereas, a statement 

          13      is more of an open communication with investors and 

          14      other interested parties. 

          15                 So with that, I very much am in favor of 

          16      Reg FD, especially the SEC's notice of the word 

          17      "intent."  It is our intent to always have an open, 

          18      honest, fully-disclosed dialogue with investors.  

          19      Now, in the high-tech world, in particular, it is 

          20      very fast-paced, you are moving in real-time.  

          21      People throw questions at you.  Investors or 

          22      executives respond, but it is always our intent to 

          23      do the right thing, so I would vote for less 

          24      regulation and more use of that word "intent."

          25                 And with that, I will close.

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           1                 CHAIRMAN UNGER:   Kipp?  

           2                 MR. BEDARD:   Good morning, everyone.  I 

           3      would like to thank you for allowing my firm to 

           4      participate in this Roundtable today. 

           5                 In my role as vice president of corporate 

           6      affairs of Micron Technology, it is a day-to-day 

           7      responsibility for me to coordinate information that 

           8      goes to various public investors, municipal 

           9      communities, government officials, the media, not 

          10      only on the corporate business side but also the 

          11      product side.  So most of my comments today will 

          12      come from the perspective of practical application 

          13      of Reg FD and what kind of implications it could 

          14      have on all those various components. 

          15                 So, again, I am glad to be here and I 

          16      appreciate the opportunity to speak.

          17                 CHAIRMAN UNGER:   Martha?

          18                 MS. DEMSKI:   Thank you. 

          19                 I am Martha Demski, I am the chief 

          20      financial officer of Vical, which is a San Diego 

          21      based biotech company. 

          22                 Initially my comments today will 

          23      represent many of the publicly traded biotech 

          24      companies in the San Diego area.  I am a member of 

          25      an association called the Association of Bio Science 

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           1      Financial Officers and, prior to today's meeting, I 

           2      have polled several of the public companies in the 

           3      San Diego area in biotech to get their views on Reg 

           4      FD, and I will share those views with you today. 

           5                 MR. LUSK:   I am Doug Lusk, director of 

           6      investor relations at Intel.  I have been with Intel 

           7      for about 13 years, the last six years or so in 

           8      investor relations.

           9                 Just some brief comments.  I think we 

          10      have a somewhat unique perspective in this.  We, 

          11      since 1996, have been giving forward-looking 

          12      statements after the passage of Safe Harbor, and 

          13      pretty explicit forward-looking statements.  We 

          14      really go through the whole P&L, revenue, gross 

          15      margin percentage, spending, depreciation, tax rate, 

          16      et cetera.  Really, our expectation for the next 

          17      quarter and sometimes we will give an expectation 

          18      for the full year for things such as gross margin 

          19      and capital expenditures. 

          20                 Really, in a nutshell, our IR procedures 

          21      and policies have changed very little since the 

          22      passage of Reg FD.  One thing we did grapple with 

          23      was that we still wanted to have one-on-ones with 

          24      investors and analysts, et cetera.  And if we 

          25      reiterate at that time, could that be construed as 

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           1      somehow as being material pieces of information?

           2                 What we have done is place on the 

           3      websites for the general public the fact that we 

           4      will have these meetings, and as long as we have 

           5      still posted on our website the current 

           6      expectations, they can rely on those as being 

           7      current and up to date.  And that's really one of 

           8      the things we have done. 

           9                 We have been webcasting our conference 

          10      calls for a number of years to people.  We are 

          11      having an analyst meeting here in New York City in a 

          12      couple of days that will have thousands of people, 

          13      the general public, listening on webcast.  It is 

          14      important to Intel -- we have approximately 40 

          15      percent of our shares owned by retail investors, so 

          16      it is important for us that they hear the same 

          17      information as our meeting analysts. 

          18                 Thank you. 

          19                 MR. RUDER:   My name is David Ruder, I am 

          20      a Professor of Law at Northwestern University School 

          21      of Law.  I had the privilege of serving as the 

          22      Chairman of the Securities and Exchange Commission 

          23      from 1987 to 1989. 

          24                 I would first like to congratulate the 

          25      Commission on enacting Reg FD.  The Commission was 

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           1      faced with a problem in relation to the Dirks 

           2      decision, in which analysts were able to receive 

           3      selective information from companies and absorb it 

           4      without running afoul of the insider trading rules.

           5                 This problem of selective disclosure was 

           6      one that the Commission had to grapple with, and I 

           7      think it has done so in a way that will inure to the 

           8      benefit of the investing public.  That's not to say 

           9      that the rule is perfect, and I think it is a very 

          10      fine step for the Commission to have this meeting to 

          11      hear what might be fixed. 

          12                 I expect to hear answers to various 

          13      questions:  Are disclosures increasing or 

          14      decreasing?  Are there more earnings projections 

          15      being made?  Is there more guidance being provided?  

          16      Is FD too costly, particularly for smaller 

          17      companies?  Does FD meet the problems of disclosure 

          18      for small cap companies?  Is the Commission's 

          19      materiality standard one which is livable for 

          20      companies?  And are the provisions for making 

          21      disclosures to the public adequate in light of new 

          22      technology?

          23                 These are just a few of the questions, 

          24      but I am awaiting eagerly to hear the answers from 

          25      the commentators. 

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           1                 MR. BECKER:   I am David Becker, I am 

           2      general counsel of the Commission. 

           3                 I think the staff's role here is 

           4      principally to sit and listen and learn and maybe 

           5      pose the occasional question.  I would add only one 

           6      to David's list, and that is:  What do people mean 

           7      when they use the word "guidance"? 

           8                 It can mean all sorts of things, and I am 

           9      interested in what it is that companies do that they 

          10      refer to as guidance and what is the purpose and the 

          11      effect of giving guidance? 

          12                 CHAIRMAN UNGER:   Thank you to all the 

          13      panelists.  In your introductory remarks, I think 

          14      you have raised a number of very interesting issues 

          15      that I hope we have a chance to cover.

          16                 I thought we could start off with one of 

          17      the more basic questions, which is, I think most of 

          18      you have said you haven't really changed your 

          19      practices substantially as a result of Reg FD, but 

          20      has it changed how you tell your analysts 

          21      information and convey the information? 

          22                 Has it changed what you tell them? 

          23                 Does anyone care to respond or shall I 

          24      call on you?

          25                 MS. PEARSON:   I would say it has not 

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           1      changed what we tell investors.  If anything, there 

           2      is a heightened degree of awareness; is that 

           3      something that is material?  But, if anything, we 

           4      have been open to the same degree before and after.

           5                 COMMISSIONER HUNT:   Somebody on the 

           6      panel, I think, mentioned -- and somebody outside 

           7      also mentioned to me -- the ogre of enforcement.

           8                 Are you concerned about that at all? 

           9                 MR. SHEDLARZ:   I think there is some 

          10      concern in terms of exactly how Regulation FD will 

          11      be practiced. 

          12                 In part, there are no bright line tests 

          13      here, so I think in large part the nature of 

          14      Regulation FD is going to be defined on the basis of 

          15      practice.  I think in terms of guidance, maybe it 

          16      has to lead to that in terms of how Regulation FD, 

          17      in fact, will be practiced. 

          18                 I think that will give much greater 

          19      clarity to those concerned and possibly some of 

          20      those who are taking a conservative posture, 

          21      there's a wait-and-see attitude.  At Pfizer, we have 

          22      not changed the nature of our disclosure.

          23                 It always had been quite robust, it has 

          24      been done on a frequent basis.  In certain respects, 

          25      that has been demanded by the marketplace.  I must 

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           1      admit that Pfizer does have the resources to 

           2      accommodate something like that.  And it is 

           3      long-standing history that we have practiced in such 

           4      a way in terms of providing robust disclosure to all 

           5      investors. 

           6                 But I imagine for some this could be an 

           7      encumbrance.

           8                 CHAIRMAN UNGER:   How many analysts 

           9      follow Pfizer?

          10                 MR. SHEDLARZ:   There are probably 30 

          11      analysts that follow Pfizer with an 

          12      ever-increasingly magnified microscope. 

          13                 CHAIRMAN UNGER:   I am curious because I 

          14      have heard initially, and still from a number of 

          15      large issuers, that they welcome FD because it sort 

          16      of made their job and their life a little bit easier 

          17      in terms of communications. 

          18                 But how about the smaller issuers who are 

          19      still building a relationship with the analysts, has 

          20      that encumbered that relationship at all?

          21                 MS. DEMSKI:   Most of my comments will be 

          22      with respect to several of the biotech companies in 

          23      the San Diego area on this particular issue.  With 

          24      respect to the smaller companies that are seeking 

          25      analyst coverage, they may have only one firm 

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           1      analyst relationship and are seeking additional 

           2      analyst coverage, it does pose a problem.

           3                 And they feel that it has hampered them 

           4      somewhat in their ability to attract analysts to 

           5      follow the company.  So that is one set of feedback 

           6      that I have received in regard to Reg FD.

           7                 COMMISSIONER HUNT:   As a follow-up maybe 

           8      relating to that, do you think that in your 

           9      experience, that Regulation FD is cost effective for 

          10      those relatively small companies?

          11                 MS. DEMSKI:   I posed the question of 

          12      cost to each of the companies that I polled.  In 

          13      each and every instance they said it was a minimal 

          14      cost issue. 

          15                 With respect to Vical, we had already 

          16      planned to implement conference calls and webcasts, 

          17      it just accelerated it by one quarter.  So it was a 

          18      non-event in that regard.  And from a cost 

          19      standpoint, everyone unanimously said it was not an 

          20      issue.

          21                 MR. HUBER:   If I could just interject, 

          22      cost is more than just a question of the compliance 

          23      cost.  There is also the cost with respect to 

          24      training management in terms of keeping them up to 

          25      speed with respect to developments.  The people who 

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           1      are senior officials, there is the cost with respect 

           2      to if you are doing an offering and paying different 

           3      interest rates for your bonds because of a change 

           4      due to disclosure. 

           5                 It also a question of cost with respect 

           6      to market volatility.  Have more people seen costs 

           7      in other areas besides just the compliance cost 

           8      itself?

           9                 MS. DEMSKI:   I certainly think that with 

          10      respect to the cost question, many of the companies 

          11      in San Diego answered from just the bottom line 

          12      impact with respect to the cost of the conference 

          13      calls, et cetera.  However, one company did indicate 

          14      that they felt there had been an impact on the 

          15      volatility of its stock.

          16                 COMMISSIONER HUNT:   FD had an impact on 

          17      it? 

          18                 MS. DEMSKI:   They felt that it did have 

          19      some impact on volatility.

          20                 CHAIRMAN UNGER:   And how were they able 

          21      to distinguish between the market conditions that 

          22      exist perhaps in the six months, coincidentally, 

          23      some would say, in the six months subsequent to the 

          24      adoption of FD with their own stock and the release 

          25      of information?

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           1                 MS. DEMSKI:   They did not comment on 

           2      that specifically, but certainly the biotech sector, 

           3      as well as many other stock issues, have experienced 

           4      great volatility during the past year.

           5                 However, in this particular instance, in 

           6      their response they indicated that they felt it was 

           7      due to more limited discussions with the analysts 

           8      and the analysts writing less.

           9                 COMMISSIONER HUNT:   Former Chairman 

          10      Ruder mentioned that one of the things we are trying 

          11      to do is deal with the problems in particular that 

          12      were created by the Dirks case. 

          13                 I would like to know from these 

          14      panelists, after the issuance of Reg FD, do you 

          15      treat requests for information from the press and 

          16      from analysts differently?

          17                 MR. LUSK:   I guess the answer, in all 

          18      fairness, is no.  The press is dealt with through 

          19      our PR firm, which is a separate organization.  I 

          20      can't speak for them, but clearly we would handle 

          21      requests separately. 

          22                 Are you saying things like interviews 

          23      with executives or meetings?

          24                 COMMISSIONER HUNT:   Yes, meetings, 

          25      interviews.

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           1                 MR. LUSK:   We balance that.  Obviously, 

           2      executives are very busy people and we have to 

           3      balance the best return on their time, so we do 

           4      both, and will continue to do so.

           5                 Also, getting back to your original 

           6      question, very little has changed in what we talk 

           7      about with analysts, investors.  I think, in part, 

           8      because we have for five years issued forward- 

           9      looking statements and it is really a frame work for 

          10      the meeting.

          11                 Our analysts are pretty-well trained, I 

          12      think, over the last five years and they know when 

          13      they walk in to a meeting, even if it is a 

          14      one-on-one, they are not going to get information 

          15      that is going to be any different from what we put 

          16      in a press release.  That is our expectation.

          17                 So both sides of the table can go ahead 

          18      and have a free conversation about other things.  We 

          19      are a fact-based industry, we have lots of different 

          20      products, two-thirds of our sales are overseas, and 

          21      we are trying to expand it to do business.  There is 

          22      lots that you can talk about in one-on-ones that 

          23      does not touch on material information, how the 

          24      quarter is going.  So from our perspective, very 

          25      little has changed. 

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           1                 I did talk about some changes in 

           2      implementation, but I think we have seen very little 

           3      change in the flow of information.  In fact, this is 

           4      not really because of FD, but in the spirit of it, 

           5      we are also doing a mid-quarter conference call 

           6      update now.  We just started this quarter where we 

           7      will open this up to the general public and webcast 

           8      it also, and give an update about six weeks or so 

           9      into the quarter, on how business is progressing.

          10                 MR. RUDER:   I am going to assume that 

          11      all the panelists here would say that "Our 

          12      disclosure practices were wonderful before and they 

          13      are wonderful now," but I would like to just 

          14      follow-up on John Huber's question a little bit. 

          15                 It seems to me that what is going on in 

          16      some companies is that the legal counsel had 

          17      insisted that there be a much more structured method 

          18      of releasing information.  That has had, I think, 

          19      costs of one kind, and certainly for outside 

          20      counsel's cost if that's where it is coming from, 

          21      but also more discipline on management and public 

          22      relations people as to how disclosures are made.

          23                 I wonder if anybody could comment about 

          24      what other companies are doing, other than the ones 

          25      that are here?

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           1                 MR. HANN:   I think you are correct, it 

           2      has certainly changed the way companies, I believe, 

           3      deal with the investment community.  We do have 

           4      legal counsel setting up policies, procedures, best 

           5      practices, and educating the management team.

           6                 I would also like to come back to 

           7      Commissioner Hunt's question and David's comments.  

           8      I think the SEC has a real opportunity for Reg FD to 

           9      be successful.  You want issuers to be comfortable 

          10      releasing more information, more specific 

          11      information.  There is an incredible interplay here 

          12      between Reg FD and the Safe Harbor for 

          13      forward-looking information. 

          14                 And I think one thing the Commission can 

          15      do is make that harbor deeper and wider, and that 

          16      will encourage issuers to be more forthcoming.  

          17      There are uncertainties out there, and no one, no 

          18      issuer wants to be the test case.

          19                 MS. THOMPSON:   If I could say one thing 

          20      quickly on your point of the legal department 

          21      getting involved.  Again, I would just like to read 

          22      a few comments from some of my counterparts at 

          23      fairly large public companies and also to your 

          24      point, Commissioner, that by and large the larger 

          25      cap companies are pretty comfortable and happy in 

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           1      dealing with the rule.  Again, these are some quotes 

           2      I would like to throw out for general discussion 

           3      because I think they refute that view.

           4                 But talking about the legal question, and 

           5      these are not my words, "Because the Regulation does 

           6      not give guidance on this issue and because each 

           7      general counsel has his or her own interpretation, 

           8      many IR professionals have been told not to 

           9      communicate in ways that before the Regulation would 

          10      have helped keep information flowing.  Some have 

          11      stopped meeting one-on-one with investors, even if 

          12      earnings are not discussed.  While opening up 

          13      conference calls may have been a positive outcome, I 

          14      think the overall result has been a decrease in 

          15      quality and quantity of communication with 

          16      investors."

          17                 This is a second viewpoint:  "One of the 

          18      unfortunate consequences in Reg FD is that it has 

          19      shifted some of the communications impetus to legal, 

          20      away from investor relations.  Although, legal 

          21      always reviewed investor presentations before Reg 

          22      FD, today I find legal wanting input as to the 

          23      actual meeting program I proposed with veto power 

          24      being given on certain meetings and presentations."

          25                 That, to me, says that people are being 

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           1      muzzled in a sense. 

           2                 And turning then just for a moment, 

           3      again, these are not all my words.  This is relative 

           4      to earnings guidance:  "We cannot contact an analyst 

           5      who has not updated their numbers on the services," 

           6      the first call services, "or who is way out of line 

           7      on the numbers, because we would get caught on Reg 

           8      FD.  Nor can we ask the services to eliminate all 

           9      estimates, because they will not do that as long as 

          10      the brokerage analysts are providing earnings 

          11      estimates.  We also now have an issue with the sell 

          12      side not updating numbers and they leave their 

          13      not-updated numbers on the public services and then 

          14      have their own internal numbers that they share with 

          15      the buy side."  So the public numbers are wrong, but 

          16      they don't update them because they say it is too 

          17      much trouble.  

          18                 Again, "We were doing a good job opening 

          19      up conference calls using the Reg and encouraging 

          20      management to meet with shareholders and analysts 

          21      more often." 

          22                 To your point, we had a good disclosure 

          23      policy, and I think we want to say that. 

          24                 "We were issuing press releases for 

          25      material information and having conference calls 

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           1      when big news items hit.  Reg FD came in with a way 

           2      too broad brush and killed the normal give and take 

           3      of information about how things are going in the 

           4      business.  Why is it wrong for a company to have a 

           5      dialogue with investors who care enough to ask about 

           6      current operations?  The rule has put a total chill 

           7      on conversations; in fact, they are now in the 

           8      freezer.  I think this raises serious policy 

           9      questions, as these folks are the owners of the 

          10      company.  I still think it is absurd for any company 

          11      to discuss the analysts' outlook that is based on 

          12      the analysts' faulty premises.  Why does it do the 

          13      market good to have such faulty ideas out there  

          14      until earnings announcements are made?"  

          15                 All those quotes came from large cap 

          16      companies.

          17                 MR. HUBER:   If I can just follow-up on a 

          18      few of those comments, because I think she is 

          19      raising a very important question that does apply to 

          20      big companies and small and mid-cap companies as 

          21      well; that is, the idea of how to conduct 

          22      one-on-ones, and the idea of how you give the 

          23      quality of information that companies, I think, want 

          24      to give, and the analysts surely want to get, into 

          25      this marketplace in an FD kind of world.

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           1                 In the survey that we did, the lawyers' 

           2      survey, the biggest decline in anything in the 

           3      impressions that was sought, was the decline in 

           4      one-on-ones, going from, for the most part, people 

           5      were doing one-on-ones.  77 percent of the 

           6      responses, believe that most of their clients have 

           7      conducted one-on one meetings with analysts.  

           8      Post-FD the number decreased to 27 percent. 

           9                 One-on-ones have suffered, and I think if 

          10      you talk to the analysts, if you do a study on 

          11      analysts, analysts like to ask those questions in 

          12      one-on-one kind of things that really show that they 

          13      have done their homework.

          14                 CHAIRMAN UNGER:   I think Bina is talking 

          15      about something much bigger than that.  I think she 

          16      is talking about the ongoing dialogue the issuer has 

          17      with its shareholders. 

          18                 One of my concerns was that the web was 

          19      allowing people to provide more information over the 

          20      Internet to individual investors, and they were 

          21      demanding more information and the companies didn't 

          22      mind providing it.

          23                 So I wonder how FD has changed that 

          24      philosophy of free exchange of information.  Some 

          25      people seem to think that companies don't want 

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           1      anyone to have the information, but what you say is 

           2      contrary to that, and it is really more of a concern 

           3      about legal liability that is holding back the flow 

           4      of information, not the desire of the issuer to make 

           5      this information available to all investors.

           6                 MS. THOMPSON:   That's right.

           7                 CHAIRMAN UNGER:   So I wonder if you 

           8      could maybe pinpoint exactly what it is -- "exactly" 

           9      may not be possible since those are not your words 

          10      -- maybe what some of the biggest concerns about FD 

          11      are?

          12                 MS. THOMPSON:   Fear of ogre.  Fear of 

          13      prosecution, enforcement. 

          14                 MR. BECKER:   Let me ask you both a 

          15      question that can help us evaluate what it is we 

          16      hear from everybody.  We are getting a lot of 

          17      extremely anecdotal information, and I don't know 

          18      what we should make of it. 

          19                 Bina, you read quotations from four or 

          20      five people.  I don't know whether there are four or 

          21      five people out there that might say something else 

          22      from the same community or what the proportion is.

          23                 John, you talk about a study that was 

          24      responded to by 62 lawyers, giving information about 

          25      what they are hearing from their clients.  What 

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           1      should we, as a regulator, make of these things? 

           2                 What is the type of evidence that should 

           3      have a significant impact on how the Commission 

           4      looks at this?

           5                 MR. HUBER:   Let me just respond about 

           6      the study.  62 lawyers does not the American Bar 

           7      Association make.  It is not something that I think 

           8      is statistically pure.  The concepts here are all 

           9      anecdotal. 

          10                 I share the commendation for the 

          11      Commission to actually have this six months after 

          12      the rule.  It is a major rule that affects every 

          13      public company 24 hours a day, seven days a week.  

          14      For the most part, what you are going to hear from 

          15      all of us is anecdotal.  We are still adjusting and 

          16      experiencing. 

          17                 But I think what Bina was talking about 

          18      is that there already is this concern with respect 

          19      to, and I am going to put it, on an anecdotal basis 

          20      I have seen it as well, the quality question.  And 

          21      the quality question comes in, as I was trying to 

          22      say before, on the one-on-ones, on the interplay and 

          23      the background, that sort of thing. 

          24                 And that's really where, I think, one of 

          25      the big pressure points come in on FD, is not the 

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           1      earnings calls, but rather how do you get through 

           2      the quarter kind of approach.  That, I think, is 

           3      something that I would ask that the panel here, from 

           4      the standpoint of both big companies and little 

           5      companies, how do you get through the quarter once 

           6      you finish that conference call?

           7                 CHAIRMAN UNGER:   In fact, I think Doug 

           8      talked a little bit about the one-on-ones.  And one 

           9      of the follow-up questions I have -- and I don't 

          10      want to cut off anyone to have the commentators 

          11      comment, I really want to hear from the people on 

          12      the panel because they are here to give their own 

          13      anecdotes, and that's what it is all about.

          14                 But you were mentioning that you still 

          15      have one-on-ones and there were lots of things that 

          16      could be discussed in the context of those 

          17      one-on-ones, which seems to contradict a little bit 

          18      with what this side of the table is saying.  So I 

          19      was wondering if maybe you could share with us, what 

          20      can you talk about?

          21                 MR. LUSK:   If the purpose of the meeting 

          22      is to discuss how the quarter is going, quite 

          23      frankly, I am not sure we would even set up the 

          24      meeting. 

          25                 We are there, and we use our executives 

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           1      to help educate both the sell side and the buy side.  

           2      We are a very complicated business and we are doing 

           3      lots of different things, new businesses, et cetera.  

           4      We have given our best shot at the beginning of the 

           5      quarter about our expectations, how business is 

           6      going to be.  And, as I said, we give them an update 

           7      now after we are through.

           8                 You know, an analyst walks into the 

           9      meeting with our CFO or someone else and says, "I 

          10      want to get some more insight on the quarter," it is 

          11      not going to happen.  And I think they know that. 

          12                 They are going to want to talk about 

          13      probably road maps, how sales are overseas, maybe 

          14      the various geographies, some of the trends that are 

          15      going on over there and what success we are having 

          16      in expanding, for instance, the communications 

          17      business, et cetera.  

          18                 As I said earlier, we have a lot to talk 

          19      about and yet, believe me, the analysts still want 

          20      to have those one-on-ones, even though they know 

          21      they are not going to get any useful information in 

          22      terms of how the quarter is progressing.  In fact, I 

          23      think what is going to happen is the analysts are 

          24      going to go out and have to do their job, which is 

          25      sort of dig around, talk to mother-board suppliers 

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           1      in Taiwan or whatever and try to figure out what is 

           2      going on in the PC market, et cetera, that way, 

           3      rather than trying to rely on a tidbit of 

           4      information from our CFO. 

           5                 COMMISSIONER HUNT:   I couldn't agree 

           6      with you more.  I thought that was precisely what 

           7      was going to happen when we promulgated FD, that the 

           8      analysts were just going to have to work harder and 

           9      do their job, and not just sit around and have 

          10      conversations with the CFO and say, "I've got the 

          11      scoop."

          12                 So if it is having that effect, I am 

          13      personally delighted. 

          14                 Are the lawyers being too conservative, 

          15      Mr. Huber, do you think?  

          16                 MR. HUBER:   I don't think the lawyers 

          17      are being too conservative.  I think, Commissioner, 

          18      during any period when a rule starts to take effect 

          19      that there is a transition period where lawyers see 

          20      how things work to begin with, and then based on 

          21      that experience, more and more, shall we say, things 

          22      are acceptable.  

          23                 From my standpoint, one of the things 

          24      that the Commission should be commended about is 

          25      having the division of corporate finance interpret 

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           1      things and issue Q&As on interpretations.  That 

           2      helps.  But the fact of the matter is, from my 

           3      standpoint, things like publication, dissemination 

           4      and all questions of notice should be less rigorous 

           5      and more flexible, because, as a number of people 

           6      have said on the panel, getting information is what 

           7      they are about and they shouldn't be penalized for 

           8      good-faith efforts to get that information out.  

           9                 MR. SHEDLARZ:    From Pfizer, we have not 

          10      curtailed the interface with the business community.  

          11      It has always been robust.  I think the nature of 

          12      our operational earnings press release is one of the 

          13      vehicles that allows us to do that on an ongoing 

          14      basis. 

          15                 Going beyond this, make no doubt about 

          16      it, this takes a lot of discipline, a lot of 

          17      practice, and it takes a lot of hard work and time 

          18      on the part of senior executives to be well aware of 

          19      what is in the public domain and what is not in the 

          20      public domain. 

          21                 So I agree with John, the cost in terms 

          22      of compliance is not necessarily the initial cost of 

          23      setting things up, it is more on an ongoing basis to 

          24      have the infrastructure and the discipline and take 

          25      the time to speak on behalf of the company and be 

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           1      well aware of the facts. 

           2                 I can imagine that companies somewhat far 

           3      afield of these are in some difficulty in getting 

           4      themselves up to speed, either not having the 

           5      infrastructure or not practicing in this fashion for 

           6      some time.  I am sympathetic to that, especially 

           7      with the regulation that does have some gray areas, 

           8      and in terms of people who have not practiced in 

           9      this fashion. 

          10                 But at Pfizer, the robustness, the 

          11      frequency of the communications with the analyst 

          12      community have not ceased.  And in certain respects, 

          13      they do more homework before they come in to speak 

          14      to you, especially in these volatile capital market 

          15      conditions.  It is probably a natural consequence.

          16                 CHAIRMAN UNGER:   Do the IR people see a 

          17      benefit to investors?  I mean, are they getting more 

          18      information?  Do the benefits outweigh the burden?

          19                 MR. BEDARD:   I would like to address 

          20      that, if I could. 

          21                 As a personal investor in a high-tech 

          22      business and an individual who has been with a 

          23      high-tech company for 17 years, last fall, quite 

          24      frankly, I was disappointed to learn how companies 

          25      hid behind the umbrella of Reg FD. 

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           1                 At a time when I thought the industry  

           2      should be leading the information flow, the default 

           3      was, "Let's stay protected.  Let's say less."  And I 

           4      felt that was a real disservice to the individual 

           5      investor, whose company should fill him in, and, in 

           6      fact, we had this umbrella to protect ourselves.

           7                 Number two, I am not sure I agree with 

           8      the rest of the panel or not, I can't quite tell 

           9      where everybody sits, but the practical application 

          10      of this is that not every audience wants the same 

          11      type of information.  It is becoming a real 

          12      nightmare to try and manage the conference call or 

          13      webcast that addresses every single audience that is 

          14      out there.

          15                 As an example, the international press 

          16      wants something completely different than the 

          17      national business press or the national product- 

          18      related press, even different than the local press.  

          19      The local governmental officials want something 

          20      different than the national governmental officials.  

          21      So to try and push this all into one meeting has 

          22      been, again, I think, a real disservice which has 

          23      created even more post-conference and webcast calls 

          24      with the information professionals put in a 

          25      situation where they have to decide, "Okay, am I 

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           1      raising more information now because this person 

           2      wants something more specific?"

           3                 So, to me, what Reg FD has done, it has 

           4      created an environment where now the information 

           5      professionals do not take the lead.  They feel they 

           6      are on an island now where they have to decide every 

           7      single phone call they take, "Where am I, and have I 

           8      just said something where now I must go and issue a 

           9      release?" 

          10                 So as a default, I think we tend to hold 

          11      back and not take the lead in providing information. 

          12                 MS. PEARSON:   In order to answer that, 

          13      do the benefits outweigh the burden, I think 

          14      individual investors and all investors definitely 

          15      enjoy their benefits from getting information. 

          16                 But to your point, Kipp, on the quality 

          17      of information, you do find yourself editing out 

          18      certain data points or glossing over others 

          19      designing an announcement.  And one thing that 

          20      wasn't on Bina's list that I would add to that as a 

          21      risk factor, from my corporate communications 

          22      standpoint, is that perception is reality, and if 

          23      the perception is that investors or analysts are not 

          24      going to get as good information with Reg FD that 

          25      they did prior to, what it is doing is it is 

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           1      throwing them in the arms of the absolute worst 

           2      spokesperson for good communication about your 

           3      shares, i.e., a random salesperson for that company. 

           4                 So what we are having happen is sell side 

           5      analysts might just unearth a random salesperson and 

           6      ask them how the quarter is or ask them how margins 

           7      are, or "Hey, did you do much golfing this quarter?"  

           8      Anything they can do to get a pulse on the quarter.  

           9      And that elevates volatility.

          10                 Or sell side might do a survey of 50 

          11      people and say it represents our whole business, and 

          12      it is erroneous data based on a subset of the world, 

          13      whereas if they asked the corporate office, we could 

          14      give them a much more thoughtful answer. 

          15                 So the perception of reality of Reg FD 

          16      means corporations might be clamming up; therefore, 

          17      go find a random employee and have them spill their 

          18      guts.  And it is one of our ongoing biggest 

          19      challenges is how to train our salespeople, "Don't 

          20      talk to investors about the company, send them to 

          21      us."

          22                 MR. HANN:   I would agree with some of 

          23      Kipp's comments, I believe. 

          24                 I am of the opinion the average press 

          25      release is now much longer and more detailed, and 

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           1      speaking as purely a shareholder, trying to separate 

           2      the wheat from the chaff in some of these releases 

           3      is very, very difficult as a shareholder. 

           4                 And then when analysts go to talk to the 

           5      investment relations people, oftentimes they are 

           6      merely referred back to the press release, because 

           7      you don't want to embellish beyond what is in that 

           8      release, so I think there has been a chilling effect 

           9      in terms of those relationships with analysts.  And 

          10      as an individual shareholder, I am not sure what has 

          11      really trickled down to that person has been 

          12      beneficial.

          13                 MS. THOMPSON:   I want to get back to the 

          14      point of, I think, a good investor relations program 

          15      has always been a good disclosure policy, if that 

          16      was there and was always there. 

          17                 And I think there is this perception that 

          18      everybody is running around whispering selectively 

          19      to analysts.  I mean, we weren't doing that.  We had 

          20      good disclosure practices in place. 

          21                 To the individual investors, I think if 

          22      you polled most companies who do webcasts, you will 

          23      find that they maybe have 250 people on their 

          24      webcasts at a photo conference call, if that.  

          25      Probably half of them are actually professional 

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           1      investors and another quarter are company employees.  

           2      So the individuals, that's why we like individual 

           3      shareholders, they don't care about the quarter.  

           4      They care about the longer term, they care about the 

           5      strategy, they are long-term stockholders.

           6                 So to try to get them involved in this 

           7      quarterly focus is doing everybody a disservice, in 

           8      a sense.  And they don't care.  They don't listen to 

           9      the calls.

          10                 CHAIRMAN UNGER:   I guess there are two 

          11      categories of information here we can talk about.  

          12      One is the earnings management and confirmation 

          13      process, and the other is general corporate 

          14      information. 

          15                 Is that the case?  Is there some 

          16      information that is more freely flowing as a result 

          17      of FD or is it all being curtailed?

          18                 MR. BEDARD:   To me, there is one common 

          19      theme here, and that is how many data points  

          20      represent something significant.  And with Reg FD 

          21      basically what has happened is you are less 

          22      comfortable in a free and open discussion about the 

          23      first data point because you don't know for sure 

          24      does that lead to three and four, now we have a new 

          25      trend we need to talk about. 

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           1                 So what you have is maybe the information 

           2      is the same but the timing of the information is now 

           3      different, which makes it of less quality to the 

           4      user.  It is either way too early, and you say, 

           5      "Here is this bead of information, you don't know 

           6      what it means, you guys go figure it out."  Or you 

           7      wait until you absolutely know that that information 

           8      has now changed and so then you press release it, 

           9      but then that's way behind the curve.

          10                 So I think when you say where you are 

          11      headed, there is a common theme and it has to do 

          12      with the timing and how that timing represents the 

          13      quality of information that you are trying to get 

          14      out.

          15                 COMMISSIONER HUNT:    So you are not just 

          16      putting out statements on quarter earnings, I hope.

          17                 MR. BEDARD:   No.  That is exactly the 

          18      point, whether it is business trends or earnings, it 

          19      has those same beads because businesses change all 

          20      the time, and our challenge, as communication 

          21      professionals, is when is it enough information that 

          22      internally, as officers of the company, you want to 

          23      go and change the perceptions in the market.

          24                 And, basically, Reg FD has kept us a 

          25      little bit more tight to the chest, which you have 

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           1      allowed, and not addressed any of the other 

           2      information providers unrelated to corporations, 

           3      they can put out any information at any point in 

           4      time.  And that puts us in the back seat, trying to 

           5      respond to information that may or may not be 

           6      accurate.  And now we have to make decisions, okay, 

           7      do we address this particular rumor or new data 

           8      point that for some unrelated purpose was put out 

           9      there or do we sit back and wait?

          10                 COMMISSIONER HUNT:    And you think FD 

          11      has hampered you in your usual pre-FD response to 

          12      that kind of data?

          13                 MR. BEDARD:   Well, it is never just one 

          14      data point that makes you decide, "This is enough of 

          15      a data point, I am going to go change my direction 

          16      of business."  It is usually several, so when is it 

          17      in that line of several that you make that decision? 

          18                 And now you are asking us to say to each 

          19      individual audience that is out there, "We now 

          20      believe we have enough information to change what it 

          21      is we are telling you."  That is a very difficult 

          22      position to be in, versus prior to Reg FD, you were 

          23      at least more comfortable to be able to just chat  

          24      free-form about what it could mean, "Well, we are 

          25      not sure, this is the first time we have seen it, 

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           1      but to the extent there is some similarity, past 

           2      business practices may be it will go here, we have 

           3      also seen it go here," at least we could help people 

           4      try to interpret the data.

           5                 Today it is more difficult to do that, 

           6      because you either want to release it and say, "We 

           7      have no responsibility for what it means," or you 

           8      go, "I am going to wait, wait, wait until I 

           9      absolutely know what it means," and by then, it is 

          10      typically old and outdated.

          11                 CHAIRMAN UNGER:   So is that a result of 

          12      the fact that we are now making sense of the 

          13      information or confirming the data point to a much 

          14      larger audience? 

          15                 What exactly is it that restrains you?

          16                 MR. BEDARD:   Why is it a bigger 

          17      challenge?

          18                 CHAIRMAN UNGER:   Yes.

          19                 MR. BEDARD:   It is probably a 

          20      combination of everything I heard today.  In some 

          21      cases, you have the attorneys breathing down your 

          22      neck, saying "Now, be careful if you say anything 

          23      different than what the last public comment was," so 

          24      you are a little bit apprehensive there. 

          25                 Number two, you have the press maybe who 

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           1      wants to grab the very first piece of data that 

           2      might be changing, "What do you think of it?"

           3                  I can't say, "Sorry, my attorney is 

           4      saying now I have to wait until I absolutely know it 

           5      is true."  So you have this push-pull here and 

           6      practical application makes it very difficult. 

           7                 MR. HUBER:   At the risk of defending 

           8      attorneys, since I am one, it is not just the 

           9      attorneys, it is the rule.

          10                 I agree with a large amount of what Kipp 

          11      says, aside from saying it is the attorneys.  A lot 

          12      of attorneys are wonderful people.

          13                 CHAIRMAN UNGER:   Should we take a poll?

          14                 MR. HUBER:   The point about this rule is 

          15      if you don't have an adequate publication and you 

          16      are talking to someone, and you are a senior 

          17      official talking to an enumerated person, the rule 

          18      is going to deem whatever you are saying is 

          19      intentional, that is the first one, if you knew what 

          20      you were saying when you were saying it.  I don't 

          21      know of very many educated people who would say, 

          22      "Gee, I didn't mean that," then it is intentional.

          23                 And if, indeed, it could be considered 

          24      material, I take Kipp's point one step, two steps, 

          25      three steps.  The three-point conversation, 

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           1      particularly in a technology company or any kind of 

           2      company that people are talking about a product, can 

           3      result in, "Oh, my goodness, I just gave away 

           4      something that could be viewed as important." 

           5                 And the mosaic point, Commissioners, I 

           6      mean, it is best done with 20/20 hindsight, as 

           7      opposed to, "Gee, what did you say at that meeting," 

           8      which goes to the question of what the lawyers 

           9      advise.

          10                 CHAIRMAN UNGER:   But FD only applies to 

          11      conversations you have with securities 

          12      professionals.

          13                 MR. SHEDLARZ:     I think part of the 

          14      problem is that there is in FD a fair amount of gray 

          15      area, and if you want to take a conservative 

          16      posture, the lawyer is going to be overbearing in 

          17      terms of the way which you approach your investment 

          18      relations  activity, and in that particular company, 

          19      that would be the practice. 

          20                 I think one of the critical things for 

          21      the SEC is will you be second-guessing good 

          22      corporate citizens, people who are well-intentioned 

          23      in terms of what they are trying to communicate.  I 

          24      think if that is done, then the environment will 

          25      turn quite conservative because I think, given the 

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           1      nature and expanse of aspects of Regulation FD, once 

           2      again, until we see how this is actually practiced 

           3      by the SEC, which will hopefully be done in a way 

           4      that is quite even-handed and respectful of the 

           5      bunches of folks that try to comply with Regulation 

           6      FD, and if that is done, I think things will work 

           7      out in time. 

           8                 If it is not, if it is done in a way that 

           9      puts in jeopardy good corporate citizens, I think 

          10      you will find quite a different reaction from 

          11      companies in the investment community.

          12                 COMMISSIONER HUNT:     Let me respond to 

          13      that, if I may.  First of all, at least from my 

          14      part, and I can only speak for myself, I can't speak 

          15      for the Chairperson.

          16                 CHAIRMAN UNGER:   Go ahead.

          17                 COMMISSIONER HUNT:     I would like to be 

          18      very cautious in terms of the way that we enforce 

          19      this.  We did not promulgate this for the purpose of 

          20      giving the enforcement another arm to use. 

          21                 We promulgated it for an entirely 

          22      different reason, we tried to establish a level 

          23      playing field of information for everybody out 

          24      there.  I think we have been very cautious in terms 

          25      of not trying to leap on the bandwagon of 

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           1      enforcement matters right out of the box, which is 

           2      how people view Regulation FD. 

           3                 I understand that people need time to get 

           4      accustomed to the new regime and they should be 

           5      getting accustomed to the new regime without undue 

           6      fear of the fact of what we are going to try to do. 

           7                 And a follow-up question to what you said 

           8      is, do you think we should be giving more concrete 

           9      advice or do you think it is too early for that?

          10                 CHAIRMAN UNGER:   While you think about 

          11      the answer, I would join Commissioner Hunt's 

          12      comments, and he does articulate my views on that.

          13                 In fairness, I think that both David 

          14      Becker and Dick Walker, who some of you know, I 

          15      think they have been fairly vocal in their public 

          16      statements to try to allay some of the concerns that 

          17      people have.  We absolutely don't intend to punish 

          18      corporate citizens and I think Commissioner Hunt 

          19      poses a very good question:  If the concern about 

          20      doing what is right is making you not do it at all, 

          21      how can we give you more comfort about the way to do 

          22      it right? 

          23                 MR. RUDER:   Can I just comment on that?

          24                 The problem that you have raised with the 

          25      rule is -- one big problem is the use of the word 

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           1      "material."  And I think that's what we are talking 

           2      about here.

           3                 You are putting corporate America in the 

           4      decision-making role of having to decide at the time 

           5      they are making a statement whether what they are 

           6      saying is material.  And the standards for judging 

           7      materiality, as we all know, are very uncertain.  

           8      And many lawyers will say to someone, "If the 

           9      statement is material, it is going to create a lot 

          10      of problems, so don't make it."

          11                 And I think the problem that you need to 

          12      address is whether or not there is some way to 

          13      address the threshold of materiality for the 

          14      purposes of this rule that is different than 

          15      standards in a fraud case.

          16                 COMMISSIONER HUNT:     When we were 

          17      talking about this rule, we looked at all the 

          18      standard literature on materiality, the TSC and all 

          19      the rest of it, and we came at least to a tentative 

          20      conclusion that we shouldn't. 

          21                 Now, we may be wrong about this, we 

          22      shouldn't redefine materiality just for this rule.  

          23      People already knew what materiality meant, what 

          24      investors want to see before making a decision. 

          25                 Do you think we were wrong in our 

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           1      thinking and we should define it for this rule?

           2                 MR. RUDER:   I think you should 

           3      investigate it. 

           4                 You do know that one of the things you 

           5      did was to incorporate SAB-99 in this release, so 

           6      that a staff statement on materiality now has become 

           7      a Commission statement.  And that also raised the 

           8      boundaries on materiality.

           9                 I don't have a judgment, except as a 

          10      former Commission person, I say you should study it 

          11      and see whether there is something you should do. 

          12                 CHAIRMAN UNGER:   Is one of the problems 

          13      the disconnect, that now we are talking about 

          14      company officials making the determinations of 

          15      materiality as they are engaged in dialogue, as 

          16      opposed to lawyers studying documents filed with the 

          17      Commission in which they could determine, maybe more 

          18      objectively, whether it is a material statement?

          19                 MR. RUDER:   But you have a shazam effect 

          20      in your rule which says the minute it becomes 

          21      material and you know it is material, now you have 

          22      24 hours to act.  And that puts a big burden on 

          23      those that are going to decide whether information 

          24      is material.

          25                 MR. HUBER:   If it was intentional, the 

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           1      shazam is you already violated FD unless you had 

           2      simultaneous publicity of it. 

           3                 Going back to the Commissioner's point, 

           4      my real comment here is, you are creating a 

           5      tremendous amount of pressure on people to do 

           6      exactly what David is talking about with respect to 

           7      SAB-99 and its synergistic effect with respect to 

           8      FD.  My answer to your question is, as opposed to 

           9      changing materiality, the incremental approach that 

          10      I would recommend is take some of the pressure off 

          11      companies with respect to publication intent and 

          12      making some statements sort of Safe Harbors in terms 

          13      of saying, "If you say certain things, it is going 

          14      to be okay." 

          15                 A lot of the flexibility is not taking 

          16      prisoners with respect to good-faith attempts at 

          17      compliance, I think are very important concepts with 

          18      respect to what the gentleman from Pfizer was 

          19      talking about, with which I agree. 

          20                 You are trying to encourage this exposure 

          21      process as opposed to basically saying, "There is a 

          22      hair trigger here and if you violate that hair 

          23      trigger, that's a problem."

          24                 COMMISSIONER HUNT:    Well, I am somewhat 

          25      concerned that in matters of public forum statements 

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           1      of staff people and Commission staff, that we don't 

           2      think this is a hair trigger.  There is still some 

           3      feeling about that, we have to be overly cautious or 

           4      they are going to get us."  And that's very 

           5      troubling to me because that is not the atmosphere 

           6      in which this rule was promulgated.

           7                 CHAIRMAN UNGER:   I don't think that is 

           8      the spirit of the rule.

           9                 MS. PEARSON:   At EMC, they have long 

          10      trained us, there is no such thing as a complaint 

          11      without proposing a solution. 

          12                 So we are kind of working through all of 

          13      these things, and really one potential solution, 

          14      recognizing the number of newly-public companies, 

          15      the number of people who have never dealt with 

          16      global equity markets that are suddenly finding 

          17      themselves in this world, the number of attorneys 

          18      who have never had a whole lot of training in this 

          19      role, that are suddenly the authority.  Perhaps it 

          20      is one of training.

          21                 I know the New York Stock Exchange does a 

          22      great job for the listed stocks.  I am sure the 

          23      NASDAQ does as well.  Maybe there should be a 

          24      section on newly-listed companies, "Here is a 

          25      section on how do you deal with disclosure, and this 

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           1      is the best and most proper way.  These are best 

           2      practice guidelines for you."  And then, just have 

           3      the SEC publish best practice guidelines to take out 

           4      some of the guess work. 

           5                 If you do agree most companies are 

           6      disclosing information well today.  I think we have 

           7      all read horror stories about a small cap 

           8      newly-public company that has done something 

           9      horrifying, giving the investor relations profession 

          10      a bad name, but let's just maybe put a little 

          11      training in at the beginning.

          12                 COMMISSIONER HUNT:    I presume that most 

          13      companies are trying to be good corporate citizens, 

          14      just like I presume that most companies are trying 

          15      to put out adequate financial statements.  Now my 

          16      faith in the latter is sometimes shaken, but I do 

          17      think most corporations are trying to be good 

          18      corporate citizens, and I really don't want to do 

          19      anything -- and one of the reasons we are having 

          20      this session is because we don't want to do anything 

          21      -- to restrict the free flow of information. 

          22                 If FD is having that effect, then we have 

          23      to think hard about how to fix it because that's the 

          24      last thing we want to do, is to hinder the free flow 

          25      of information. 

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           1                 CHAIRMAN UNGER:   Speaking of free flow 

           2      of information, I did want to get at least a little 

           3      feedback from the panelists about how you can 

           4      disseminate information. 

           5                 What has been the current practice under 

           6      FD?  Has that changed?  Can we make it easier to 

           7      disseminate information without the shazam effect?

           8                 MR. BEDARD:   I guess that's probably the 

           9      easiest part, make a conference call and put it out 

          10      on a press release. 

          11                 MR. LUSK:   Yes.

          12                 CHAIRMAN UNGER:   Is that the standard 

          13      practice?

          14                 MR. LUSK:   Yes.

          15                 MR. BEDARD:   Yes.

          16                 MS. PEARSON:   Although that does take an 

          17      awful lot of preparation, being a realist, and we 

          18      want free flow and high-tech.  The last conference 

          19      call we had that I got stats, we had 17,000 people 

          20      listen to it within the first 24 hours.  So my world 

          21      moves real fast, as I am sure Doug's does and 

          22      Kipp's.

          23                 But doing a news release, and we move 

          24      rapidly, but it does add hours into the process, as 

          25      does webcasting now, which means a slide creation, 

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           1      because slide companies want things 24, 48 hours 

           2      ahead of time sometimes, so that requires more time 

           3      when you are broadcasting to as many seats as we 

           4      are. 

           5                 So the other thing I would like, and I 

           6      think you have done a great job, Laura, and that is 

           7      using the word "intent" in getting the information 

           8      out, not strictly mandating news release, period.  

           9      But recognizing that, we, as communicators, need 

          10      many, many tools in order to get the information 

          11      out, and the best way we think, weighs the 

          12      information size or impact with the tool.  Let us 

          13      balance that and then make it freely available to 

          14      anyone that is mildly interested.

          15                 MR. BEDARD:   I think that's a great 

          16      point.  The tools that we use are not always 

          17      conventional.  There are lots of different ways to 

          18      channel information to prevent something from being 

          19      a disaster. 

          20                 Maybe there is somebody that started a 

          21      rumor because they want to short your stock, which 

          22      could devastate the small investors that are 

          23      particularly the long fliers, and if you could 

          24      address that without a press release, you could just 

          25      get it stopped within the first hour or two. 

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           1                 What you are really asking us to do, or 

           2      at least what we tend to feel like we are being 

           3      asked to do, is, "Wait, wait, wait until it gets 

           4      material enough where then you can address it."  I 

           5      think that is harmful for everybody and creates much 

           6      more volatility for a lot of stocks, that kind of 

           7      action.

           8                 COMMISSIONER HUNT:   I have heard, not 

           9      just here but in other venues, that a lot of people 

          10      think that Regulation FD has increased the 

          11      volatility of stocks.

          12                 It seems to me, and I want to hear what 

          13      you have to say, that given the time when the FD was 

          14      promulgated, it is very hard to know or measure what 

          15      impact it has as opposed to everything else going 

          16      on.  How can you carve it out?

          17                 MR. BEDARD:   It really is a gut feeling.  

          18      It is hard to measure statistics on what the impact 

          19      has been.

          20                 MR. LUSK:   Yes, I think it is almost 

          21      impossible, especially in light of what has happened 

          22      in the stock market. 

          23                 As long as I have been at Intel, every 

          24      quarter we have rumors at IR, we are not going to 

          25      make our expectations, we are going to beat them, 

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           1      you know, rumors out there every single quarter.  

           2      And I am not sure that will ever go away no matter 

           3      what we do, quite frankly. 

           4                 It is one of those things that is 

           5      frustrating for us to sit there and watch as we have 

           6      our expectations posted or we reiterate our 

           7      expectations, but rumors are out there and we really 

           8      can't address them.  But I am not so sure how you 

           9      get away from that.  I think that is going to happen 

          10      no matter what.

          11                 CHAIRMAN UNGER:   Didn't Intel have a 

          12      very dramatic decrease, temporarily --

          13                 MR. LUSK:  Oh, yeah.

          14                 CHAIRMAN UNGER:   -- at the initial stage 

          15      of FD?

          16                 MR. LUSK:   Well, that was just a 

          17      coincidence.  As I said, we have been doing this for 

          18      about five years and on numerous occasions we have 

          19      had to come out and issue a press release and have a 

          20      conference call and say, "We aren't going to make 

          21      our expectation," or "We are going to beat it."  And 

          22      we have had to do that numerous times over the last 

          23      five years. 

          24                 In fact, the last quarter we had to do 

          25      that.  And it gets out there all at once.  There is 

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           1      no talking to the analysts and sort of talking them 

           2      down.  It is just all of a sudden there is a press 

           3      release on the wire after the market closes, "Intel 

           4      is not going to make its expectations."  And often 

           5      the case is the stock will drop quite dramatically 

           6      and we have to talk people through it on a 

           7      conference call. 

           8                 We have done that several times, yes.

           9                 MR. SHEDLARZ:   One of the things that is 

          10      clear in this volatile capital markets environment 

          11      is that enhanced disclosure and an environment in 

          12      which more disclosure is encouraged, is critically 

          13      important.

          14                 And I think, as a number of the panelists 

          15      have highlighted during the discussion, this is not 

          16      solely, or even in this environment primarily, about 

          17      earnings and earnings guidance.  In many respects, 

          18      disclosure about non-financial items that would 

          19      impact both the short and longer-term position of 

          20      the company becomes critically important in terms of 

          21      how a company is perceived and how low the capital 

          22      market is.  And that provides probably a more 

          23      difficult circumstance in terms of making sure that 

          24      you live within the confines of Regulation FD. 

          25                 Just the nature of disclosure today, we 

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           1      can all appreciate less focus solely on the reported 

           2      financial results of the company and the increasing 

           3      extent the investors of the company are demanding a 

           4      better understanding of what drives the company's 

           5      performance and all the terms disclosed on those 

           6      items on an ongoing basis. 

           7                 In the case of Pfizer, what is critically 

           8      important is what is happening with a new product, 

           9      which may be sitting with the FDA or may be sitting 

          10      in research and development.  There is no bright 

          11      line test in terms of what is material and what is 

          12      not material in that regard.  It is a fact and 

          13      circumstance situation which makes it even more 

          14      difficult to deal with it. 

          15                 So I don't think any of us deny that it 

          16      is critically important to have broad-based 

          17      disclosure.  I am sure the SEC is well aware of the 

          18      fact that living under the confines of that 

          19      Regulation, dealing with both financial information 

          20      and basic operation information becomes an 

          21      increasing challenge.

          22                 CHAIRMAN UNGER:   Going back to the point 

          23      that Kipp mentioned, that is, using a variety of 

          24      tools to make an ongoing dissemination of 

          25      information possible, what kinds of tools are you 

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           1      talking about?  And do you think FD permits you to 

           2      do this?

           3                 MR. BEDARD:   I guess maybe I have 

           4      already been one of the more harsh critics today of 

           5      Reg FD, and I believe the theme that was stated 

           6      earlier was the right thing to do when you are 

           7      trying to promote a better flow of information, more 

           8      timely, more accurate, what we are all trying to 

           9      accomplish.

          10                 The fact is in day-to-day operations that 

          11      is difficult to do now with the attorneys and 

          12      everyone else putting pressure back on us, "If you 

          13      don't know for sure, be careful what you say," so 

          14      there is this tug of war.  That being said, first, 

          15      some of the others, with the Internet today, 

          16      information flows instantaneously.  Even the SEC 

          17      itself has changed from a guidance standpoint, it  

          18      normally was two business days to a week; it was 

          19      five business days when I first started back in 

          20      1983, then two days for pretty reasonable 

          21      dissemination of information.  Today, literally, you 

          22      can make an argument that by the time everybody got 

          23      involved and got on the Internet at work they've now 

          24      seen all the information throughout the day, so you 

          25      are really talking about a six or eight-hour period 

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           1      -- maybe two or three hours.  So information flows 

           2      fast. 

           3                 So that being said, just issuing a press 

           4      release might not be the most efficient way to 

           5      disseminate information.  Some people may not have 

           6      access to that press release, for example.  So we 

           7      have to use a myriad of dissemination tools to get 

           8      information out there.  One by itself is never 

           9      enough, I have found.

          10                 MR. HUBER:   The point I would add to 

          11      what Kipp is saying, is one size doesn't fit all, 

          12      not just in terms of methods of dissemination but in 

          13      terms of the companies as well. 

          14                 We have companies who will issue a press 

          15      release and not have it picked up.  We have 

          16      companies that literally can be pounding the door of 

          17      a service and still not get the information carried 

          18      through any service.  So the rule says "means 

          19      reasonably designed to disseminate."  I guess my 

          20      point is for the Commission to literally embrace 

          21      that concept and have more flexibility with respect 

          22      to the fact that one size doesn't fit all issuers 

          23      because diversity is good, and not penalize people 

          24      for a good-faith effort in trying to get the word 

          25      out.

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           1                 COMMISSIONER HUNT:    When we promulgated 

           2      the rule, we were very conscious of the Fortune 5000 

           3      companies, we weren't worried about the Fortune 500.  

           4      We were worried about the Fortune 5000 companies 

           5      make their information available.  Means reasonably 

           6      designed under the circumstances are substantially 

           7      different for a Fortune 5000 and a Fortune 500.

           8                 MR. HUBER:   I agree.

           9                 CHAIRMAN UNGER:   Does FD prevent you 

          10      from using all of the tools that are available that 

          11      would be effective in disseminating information?

          12                 MS. PEARSON:   It may.  I know one piece 

          13      of dialogue that is going around and around in my 

          14      company, and we have very friendly shareholder 

          15      attorneys at my company, we love our attorneys, and 

          16      that is, in essence, if a tree falls in the forest 

          17      and no one reports on it, did it actually fall?

          18                 So when we are at an investment 

          19      conference and we are speaking freely and it is 

          20      webcast live and it is being posted on EMC's website 

          21      within nanoseconds, and there are journalists in the 

          22      room, and we say something that might have the 

          23      slightest degree of materiality, depending on the 

          24      subjective nature of the audience, I would rather 

          25      not issue a news release afterwards.  I feel it is 

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           1      out there, there were journalists in there, and I 

           2      would like to say if the journalists felt it was 

           3      newsworthy, they are feeling "oohs" and "ahs" and 

           4      whatever in the room, I would like them to report on 

           5      it or not report on it, but I would like to feel 

           6      that that was disclosed in an open environment.

           7                 CHAIRMAN UNGER:   Do you not feel that 

           8      way now?

           9                 MS. PEARSON:   That's the way we have 

          10      been practicing, but nothing material in neon has 

          11      been put forward in these type of events.  There is 

          12      a real subjectivity to what is material in this 

          13      world, as you know. 

          14                 So I am leery on that, I am uncertain.

          15                 MR. BEDARD:   That takes us back to the 

          16      original point where as long as you have a press 

          17      release, a webcast and a conference call, you feel 

          18      protected.  Anything else, you have to swing shy for 

          19      everything, "Should I press release now?  I am not 

          20      quite sure."  It is really an awkward situation.

          21                 COMMISSIONER HUNT:    The problem is it 

          22      is technology driven.  There are so many people who 

          23      have access to one means of communication and not to 

          24      others, so to cover your bases, I don't know how you 

          25      get around not using a mixture of media to get the 

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           1      information out. 

           2                 MR. BEDARD:   I think Polly makes a good 

           3      point, too.  Even in our own business, in our space 

           4      in the memory business, the type of information that 

           5      is deemed material at any point in time changes. 

           6                 In some business it might always be 

           7      earnings related.  A lot of times, in ours it is not 

           8      earnings related, it is mostly that a change in the 

           9      direction of the stock price elicits a change in the 

          10      direction of the inventory.  Is industry building it 

          11      or is it shrinking it?  And it could be material at 

          12      one point in time, where another time, it isn't. 

          13                 So I guess that brings me full circle 

          14      back to trying to put some definition on whether it 

          15      is material.  Wow, this is really tough to address 

          16      all the different companies --

          17                 COMMISSIONER HUNT:   It is hard.

          18                 MR. BEDARD:   It is really hard to do. 

          19                 CHAIRMAN UNGER:   We have a very strict 

          20      timetable here.  We have about five minutes left on 

          21      the panel, so I would like to give you all an 

          22      opportunity to raise something that maybe didn't 

          23      come up in the course of the conversation, and we 

          24      will go around the room, and maybe you could mention 

          25      if you wanted to change one thing about Regulation 

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           1      FD, what would it be.

           2                 Does anybody want to raise any additional 

           3      points or topics?

           4                 MS. PEARSON:   I guess I could start.  I 

           5      found that every time there has been a change in our 

           6      industry, like in most industries and every 

           7      profession, change is hard. 

           8                 I can remember the discussion on whether 

           9      we should open our con calls, ten years ago, to 

          10      individual investors and would that open us up for 

          11      strike suits and all of this sort of thing.  And we 

          12      said, "It is the right thing to do, let's do it."

          13                 At Safe Harbor time, "Do we really want 

          14      to publish and make clear all of our bulletins and 

          15      guidance," again, the same fear.  "It is the right 

          16      thing to do, let's do it."  There have always been 

          17      tough decisions that you face, web-based 

          18      communications, "Let's do it." 

          19                 So our philosophy is, "Embrace it, don't 

          20      fear it."  And I am thrilled to have what appears to 

          21      be such an understanding Commission, and just keep 

          22      that word "intent" there; know that most companies 

          23      are operating with very, very good intent and do 

          24      what you can to protect us from overzealous 

          25      attorneys on the bad side. 

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           1                 MR. BEDARD:   I guess I will go second.  

           2      Just for record, I love attorneys, my boss is one.

           3                 That being said, I think the intent of 

           4      Reg FD is right on the mark.  It only encourages all 

           5      communication professionals to disseminate 

           6      information on a timely basis and a free-flow type 

           7      manner, which is what we are all trying to strive 

           8      for.  And if we can somehow eliminate the fear or 

           9      the impropriety of coming out in one area.  All 

          10      these decisions could somehow eliminate the need for 

          11      someone to be in a position of feeling like you have 

          12      to make a decision based on information that is 

          13      different for everyone.  I am not saying that very 

          14      well.

          15                 It is a very difficult decision to 

          16      determine what is material, it is very difficult to 

          17      know have you reached the actual level of 

          18      dissemination that is required by Reg FD.  And if we 

          19      can somehow address those issues, then Reg FD will 

          20      be a lot farther ahead in trying to, I think, get to 

          21      the goal of why we are all here, which is fair 

          22      dissemination of information to all audiences in a 

          23      high-quality and timely manner.

          24                 MR. HANN:   I will go next.  I love 

          25      attorneys, too.

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           1                 Once again, I would applaud the 

           2      Commission for having this forum today.  I think it 

           3      is very helpful and hopefully everybody can tell in 

           4      the audience that people are struggling, working 

           5      hard to comply.  And I would echo the statements 

           6      made thus far that anything the Commission can do to 

           7      improve and widen these safe harbors, I think, would 

           8      be very, very helpful and ultimately help meet the 

           9      effectiveness of Reg FD. 

          10                 Thank you. 

          11                 MS. DEMSKI:   My comment is with respect 

          12      to improvements that would be in the area of 

          13      providing some guidance so that the small cap 

          14      companies, in particular, that may be new to the 

          15      public environment would have some guidance provided 

          16      to them, because even if you were to poll the 

          17      attorneys -- and I hate to keep bringing up 

          18      attorneys here, but within the publicly traded 

          19      companies in biotech in San Diego, there has been a 

          20      difference in advice from the respective attorneys. 

          21                 And we talk amongst ourselves and compare 

          22      notes, and there isn't always consistency on how to 

          23      handle a given situation, so if a best practice form 

          24      of guidance could be provided, I think that would 

          25      help to alleviate some of the confusion and also 

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           1      some of the apprehension about dealing with this.

           2                 MR. SHEDLARZ:   I am actually still 

           3      forming my opinion on attorneys after 25 years.

           4                 I think there is a common theme in what 

           5      you are hearing here.  I think that most folks are 

           6      good corporate citizens.  I think this puts greater 

           7      onus on folks at a time when you are seeing very 

           8      volatile markets and, again, an increase in quantity 

           9      and quality of information on an ongoing basis.

          10                 I think the way that this is practiced by 

          11      the SEC in terms of whatever actions they take and 

          12      whatever flexibility they show, I think sessions 

          13      like this will make clear to folks that you are not 

          14      on a mission in terms of industry. 

          15                 I thank the SEC for holding this session 

          16      and giving us an opportunity to speak on behalf of 

          17      some of the concerns that we have with regard to 

          18      Regulation FD.  I think the extent to which you can 

          19      provide some guidelines would be useful.  I know 

          20      that is difficult, but we are dealing with something 

          21      as expansive as this, cutting to the core of your 

          22      communications with a broad base of investors, I 

          23      think wherever you can provide us some Safe Harbors 

          24      and bright line tests, I think that will continue to 

          25      allay people's concerns and probably avoid what 

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           1      clearly nobody wants, that is, finding that you have 

           2      a very cautious atmosphere in terms of disclosure.

           3                 COMMISSIONER HUNT:     Well, in thanking 

           4      all of you, I just want to say, as we have given you 

           5      the benefit of the doubt that most people are trying 

           6      to be good corporate citizens, I hope all of you 

           7      will give the Commission the benefit of the doubt 

           8      that we are trying to be good regulatory citizens 

           9      and are not out to get you.  So thank you all.

          10                 CHAIRMAN UNGER:   Did everyone get a 

          11      chance?

          12                 MS. THOMPSON:   I don't mean to beat a 

          13      dead horse, but two things, the interpretation of 

          14      the rule has been a big problem.  And, again, and it 

          15      is anecdotal evidence, as I look around, some people 

          16      are more hampered than others simply because of the 

          17      unclearness, perhaps, of the way the rule is 

          18      promulgated and the interpretation of it. 

          19                 And, secondly, most of us in investor 

          20      relations do have good disclosure policies.  

          21      National Investor Relations Institute, Lou Thompson 

          22      was our CEO, will be on a panel later today, have 

          23      published standards of good practice for investor 

          24      relations long before FD was promulgated, that we 

          25      provide a lot of education to public companies.  

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           1      There are a lot of venues out there for IR 

           2      professionals, either new or seasoned, to learn how 

           3      to practice good investor relations. 

           4                 I guess there seems to be a feeling that 

           5      people were not doing that, and I think we really 

           6      were. 

           7                 MR. HUBER:   The one thing I may add is 

           8      that we appreciate guidelines and good practices and 

           9      best practices, but please don't put corporate 

          10      America into square peg, square hole kind of 

          11      analysis from the SEC.  Because the moment the SEC 

          12      says, "This is the way to do it," it is going to be 

          13      the kind of thing that people are going to say, 

          14      "Well, if we want to reach outside of this," if you 

          15      want cautiousness, again, from your lawyers, if you 

          16      want to reach outside of that, that is a problem. 

          17                 It is not that the safe harbors are a 

          18      whole lot better in terms of telling people than 

          19      not, moreover, more flexibility in this rule, and I 

          20      would submit to you, it is really the rule, not the 

          21      lawyers.  It is really more flexibility in this rule 

          22      in terms of getting away from intent and 

          23      simultaneity and getting you to promptly encouraging 

          24      disclosure and allowing for a multiplicity of public 

          25      meetings without penalty.  And you will start to see 

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           1      more people be more open with respect to this point 

           2      and stop the chilling.

           3                 MR. RUDER:   Since commentators can 

           4      comment, I would like to remind all of you that the 

           5      SEC has, both today through the comments of 

           6      Commissioner Hunt and Chairman Unger, indicated that 

           7      the SEC's enforcement posture is not going to be 

           8      fierce, and your director of the division of 

           9      enforcement, Dick Walker, gave a speech in October 

          10      of last year in which he made it very clear that the 

          11      SEC is going to be very hesitant to bring regulatory 

          12      actions here.

          13                 I think that assurance ought to go a long 

          14      way towards helping the lawyers, God bless them, to 

          15      be less cautious and less restrictive in their 

          16      advice to clients. 

          17                 CHAIRMAN UNGER:   Well, I am going to 

          18      beat a dead horse because that is a regulator's 

          19      prerogative, but I thought it would helpful to just 

          20      sum up what I think I heard today and tell you what 

          21      I am going to walk away from this panel thinking 

          22      about. 

          23                 One is, first, kill all the attorneys.

          24                 The safe harbor interplay, that is really 

          25      something -- I worked on the safe harbor 

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           1      legislation, so I hadn't really considered the full 

           2      extent in which we actually have some flexibility to 

           3      do a little bit more there.  So that's something I 

           4      would like to look at, and I appreciate the 

           5      conversation about that. 

           6                 Means of dissemination, the tools that we 

           7      talked about and the fact that we need a variety of 

           8      ways to communicate a variety of different types of 

           9      information, I think that is an important point.

          10                 The guidance.  Of course, I knew there 

          11      was a need for guidance, but then the guidelines are 

          12      very difficult for us.  We are always a little 

          13      paranoid that if we draw a bright line, people are 

          14      going to be walking right next to it or outside of 

          15      it.  But we could do more in terms of providing 

          16      guidance on materiality and perhaps other aspects of 

          17      the rule.

          18                 And, then, finally, I thought the notion 

          19      of best practices was something worth exploring, and 

          20      we will be having conversations about the SROs, 

          21      about involving them more because they do have their 

          22      own rules that are similar to this, actually.  

          23      Except for the means of disseminating the 

          24      information, they do have some rules that are along 

          25      the lines of FD.

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           1                 So I appreciate your time and the 

           2      frankness of the conversation, all of you who have 

           3      traveled here, and everybody's willingness to 

           4      participate in what I think has been a very helpful 

           5      and productive panel.  

           6                 COMMISSIONER HUNT:    I want to say not 

           7      everybody here is against lawyers.   And I quote 

           8      from Shakespeare, "If you want to destroy liberty, 

           9      first kill all the lawyers." 

          10                 CHAIRMAN UNGER:   Thank you. 

          11                 I would like to invite the next panel to 

          12      come up. 

          13                 (Off the record.)

          14                 CHAIRMAN UNGER:   If people would like to 

          15      return to their seat, please, we will get back on 

          16      the schedule. 

          17                 Thank you all.  This is also a very 

          18      exciting panel that we have here and I don't want to 

          19      have to cut it short because it will cut our 

          20      lunchtime short, so I want to make sure that the 

          21      panels have ample time to fully discuss a lot of the 

          22      issues and perspectives they hold as a result of FD.  

          23      So I thought, if you don't mind, that we will go 

          24      around the room starting with Floyd, and give the 

          25      same kind of introduction we did with the last 

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           1      panel. 

           2                 If you want to put up or if there are any 

           3      specific points that you think we should discuss, I 

           4      would appreciate that.

           5                 MR. NORRIS:   I want to thank you and the 

           6      Commission for inviting me to appear today.

           7                 CHAIRMAN UNGER:   And I have been asked 

           8      by the webcaster that we all speak into the 

           9      microphone.

          10                 MR. NORRIS:   Regulation FD has enabled 

          11      me to do a better job.  I think it is working very 

          12      well.  The last thing I would want you to think is 

          13      that I am an uninterested observer. 

          14                 My job is to write news stories and 

          15      columns about investments, markets and the economy.  

          16      I often find myself wanting to learn quickly about a 

          17      company about which I may have known very little 

          18      before I began working on an article.  Being able to 

          19      listen to a conference call, including those from 

          20      several months or weeks earlier, is invaluable to 

          21      me. 

          22                 I want to talk briefly and remind you of 

          23      how things used to be in the pre-FD days, and more 

          24      importantly, the pre talk about FD days.  Some of 

          25      the more disingenuous talk leading up to FD argued 

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           1      that because there was a lot more disclosure after 

           2      former Chairman Levitt began talking about the new 

           3      rule, that there was no need for a rule.  I thought 

           4      that was wrong then; I still think so. 

           5                 I have been in this business for more 

           6      than two decades.  I have been kicked out of road 

           7      shows that allowed every retail broker who was 

           8      willing to come listen, on the presumed basis that 

           9      the brokers were professionals, while I was somebody 

          10      who might sully the minds of innocent investors with 

          11      what the companies were saying. 

          12                 I have been lied to by companies more 

          13      than a few times.  I have been refused permission to 

          14      listen to conference calls.  I found myself calling 

          15      analysts, not seeking their insight or their 

          16      opinions, just trying to get them to tell me what 

          17      they had been told by the company.  They often felt 

          18      they had better things to do with their time, and I 

          19      suspect they did. 

          20                 A few years ago, it was common to read 

          21      articles in the newspapers and on the wires that 

          22      went something like this, "American Widget shares 

          23      fell yesterday after analysts from three," or four 

          24      or five "Wall Street firms cut their earnings 

          25      estimates."  I used to occasionally call the 

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           1      companies and ask what they had told the analysts.  

           2      Sometimes they would tell me, but often they would 

           3      sit there and deny they had said anything. 

           4                 In the news room, we would tell jokes 

           5      about widget analysts all waking up, looking out at 

           6      the sunrise and simultaneously realizing the widget 

           7      industry was running into problems. 

           8                 I do think that there are people 

           9      suffering from FD.  I think many Wall Street 

          10      analysts are going to have trouble adjusting to it.  

          11      Their role in the past has partially been the role 

          12      of conveyors of what managements wanted distributed 

          13      but don't want to announce publicly.  That role is 

          14      going to be reduced, if not eliminated.  I think 

          15      this is going to be a problem for some. 

          16                 It has long seemed to me that many 

          17      analysts were really too busy to do a very good job 

          18      anyway.  They covered too many companies, they spent 

          19      an awful lot of their time selling, they spent a lot 

          20      of time working on investment banking deals in some 

          21      cases, and they spent some time talking to people 

          22      like me.  That didn't leave a lot of time for really 

          23      poring over financial statements, talking to 

          24      competitors and customers and simply thinking about 

          25      changing trends.

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           1                 In recent months, the press, including my 

           2      newspaper, focused on the conflict of interest 

           3      problems confronting Wall Street analysts.  And I 

           4      think those problems are real, but I think the 

           5      bigger problems are a lack of time and the market 

           6      reality that Wall Street makes so little money from 

           7      commissions that there is very little incentive to 

           8      really serve the customers who are paying those 

           9      commissions with quality analysis.  I think FD 

          10      might, over time, actually improve that situation. 

          11                 Under the old rules, analysts who angered 

          12      management were sometimes excluded from conference 

          13      calls, they were certainly excluded from the private 

          14      conversations that could help their competitors in 

          15      warning their customers about changes in the 

          16      company.  That is less likely now, and, therefore, 

          17      we also have a more level playing field for 

          18      analysts, which I think could be valuable to 

          19      analysts who are trying to do a good job.

          20                 Let me also talk about some of the claims 

          21      made by those who opposed FD.  One is that companies 

          22      will disclose less information.  I have seen two 

          23      polls of companies on this, and I doubt either is 

          24      scientific.  Both came to similar numbers, which was 

          25      about half of the companies said they were 

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           1      disclosing the same amount of information and of the 

           2      remaining companies who answered the question, about 

           3      a quarter of them, say about half of the remainder, 

           4      said they were exposing more, and about half said 

           5      they were disclosing less. 

           6                 I don't think it is good that they are 

           7      disclosing less information, but I think the 

           8      companies that want to disclose information will 

           9      find ways to do it.  There are companies that I am 

          10      familiar with that will never talk to me or any 

          11      reporter, and there are companies that will never 

          12      talk to an analyst.  That's their right, they 

          13      publish their financial statements and that's it.  

          14      Nothing can make them talk more unless they think it 

          15      is in their interest to do so.

          16                 One of the comments that was made earlier 

          17      by the gentleman from Micron, which puzzled me and I 

          18      wanted to react to it briefly, was that he felt it 

          19      was harder to discuss -- he seemed to be indicating 

          20      that he had to wait until information was material 

          21      under this rule to discuss it.  Now I am unfamiliar 

          22      with any SEC rule that forbids companies from 

          23      disclosing information that they believe to be 

          24      immaterial.  Nor does this rule require them to 

          25      disclose material information.  It simply requires 

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           1      that if he chooses to disclose material information, 

           2      he cannot do it on a selective basis, which I have 

           3      always thought was the law to begin with, or at 

           4      least should have been the law. 

           5                 Finally, I want to talk briefly about 

           6      volatility.  I don't think anyone knows whether this 

           7      has affected volatility.  I am also hearing now a 

           8      lot of people blaming the new decimalization trading 

           9      for the reason we have increased volatility.  We had 

          10      an awful lot of volatility before either of these 

          11      changes took effect, but if it is producing extra 

          12      volatility, I think the answer is to do nothing and 

          13      wait for the markets to learn to cope with it.

          14                 From block trading in the '60s and the 

          15      '70s to program trading in the '80s, day trading in 

          16      the '90s, I have been told that volatility was being 

          17      horribly enhanced by these new changes and it had to 

          18      be stopped.  Well, traders learn how to adapt to all 

          19      those changes in the market and if there were 

          20      traders who didn't learn how to adapt to them, they 

          21      found other professions.  They will learn to adapt 

          22      to this as well. 

          23                 MR. THOMPSON:   I am Lou Thompson, and I 

          24      represent the National Investor Relations Institute.  

          25      We have about 5,600 members representing about 2,700 

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           1      public companies, about 48 percent of those listed 

           2      with NASDAQ, 46 percent with the New York Stock 

           3      Exchange, and the rest with AMEX.

           4                 We believe, from the SEC's perspective, 

           5      that the Commission should be rather pleased with 

           6      the results of Reg FD in terms of leveling the 

           7      playing field when it comes to equal access to 

           8      information.  In our view, Reg FD is really bringing 

           9      an information bonanza to the individual investor.

          10                 We asked in a recent survey in February, 

          11      I don't know whether you would call it scientific or 

          12      not, it was a sample of 577 public companies 

          13      profiling our membership by market cap, by industry 

          14      groups, et cetera.  And the results are within four 

          15      percent, three or four percent on accuracy in that 

          16      survey conducted by an outside research group. 

          17                 We asked in that survey, whether in the 

          18      context of the entire investment community, they 

          19      were issuing more, about the same, or less 

          20      information.  28 percent said more, 48 percent said 

          21      the same, 24 percent said less.  Now while that may 

          22      appear to be a wash, the fact that individual 

          23      investors are now provided much greater access to 

          24      that information means that they are really getting 

          25      much more than before. 

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           1                 89 percent are conducting 

           2      fully-accessible webcast conference calls.  Ten 

           3      percent don't hold conference calls because they are 

           4      not required to, and half of those have no analyst 

           5      following.  Only one percent said they would 

           6      continue to hold restricted-access calls.  84 

           7      percent announced their upcoming quarterly 

           8      conference calls in a news release, generally a week 

           9      in advance.  75 percent post a notice on their 

          10      websites, and 54 percent are using push technology, 

          11      e-mail push technology, to notify interested 

          12      investors of their upcoming calls.

          13                 67 percent are providing earnings 

          14      guidance in their news release.  89 percent discuss 

          15      this guidance in their conference calls.  33 percent 

          16      issue guidance in an SEC filing. 

          17                 Now NIRI, the Exchanges and NASDAQ would 

          18      like companies to put their material earnings 

          19      guidance in a news release before discussing it in 

          20      their conference calls.  Now the self-regulatory 

          21      organizations, however, still do not recognize the 

          22      fully-accessible conference call as a means for full 

          23      disclosure, as does the SEC in Reg FD. 

          24                 The New York Stock Exchange recently sent 

          25      a letter to its listed companies saying they are not 

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           1      changing their disclosure requirements to recognize 

           2      the fully-accessible conference call as a means of 

           3      full disclosure.  In other words, the square peg in 

           4      the square hole.  I mean, it is basically saying, 

           5      "You must issue a news release as a follow-up." 

           6                 The NIRI survey also shows that 35 

           7      percent of companies under 500 million market cap 

           8      are providing no earnings guidance, but only 15 

           9      percent of mid cap companies and 12 percent of large 

          10      cap companies are not.  Now the Association for 

          11      Investment Management and Research survey says that 

          12      the quality of information has declined 

          13      significantly, and this well may be creating a 

          14      greater spread in earnings estimates and increased 

          15      volatility demonstrated by six out of ten 

          16      respondents to the annual survey.

          17                 Now, we believe the reluctance to engage 

          18      in any discussion with analysts who are asking for 

          19      comment on business trends or information they have 

          20      gathered in constructing their mosaic is because 

          21      companies are concerned over whether those 

          22      discussions may be material. 

          23                 When the SEC listed earnings guidance at 

          24      the top of the list of items it considers material, 

          25      and stating in Reg FD release the now famous 

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           1      "guidance" paragraph, the name of the game changed 

           2      considerably.  That release says when an issuer 

           3      official engages in a private discussion with an 

           4      analyst receiving guidance about earnings, he or she 

           5      takes on a high degree of risk under Reg FD. 

           6                 That language, in the minds of the 

           7      lawyers, leaves little doubt about the intent of the 

           8      SEC's enforcement objectives.  And, hopefully, the 

           9      message you are hearing here today and what David 

          10      Becker has said in previous speeches, as well as 

          11      Dick Walker, will cause the lawyers to relax a 

          12      little bit, but so far we have not seen a lot.

          13                 The release went on to say, however, that 

          14      the mosaic is still at work under Reg FD, and that a 

          15      company official has no liability if he or she were 

          16      to give an analyst information that the official 

          17      believes is non-material but happens to be the piece 

          18      of information that the analyst needs to complete a 

          19      mosaic and come to a material conclusion.

          20                 Now, while the SEC feels it probably did 

          21      nothing in Reg FD to change the definition of 

          22      materiality, one cannot look at Reg FD without 

          23      considering the Supreme Court's definition of 

          24      materiality in Basic versus Levinson, and TSC 

          25      Industries versus Northway, as well as Staff 

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           1      Accounting Bulletin.  SAB 99 says that information 

           2      that moves the stock price may be material as well 

           3      as qualitative information.  Moreover, some 

           4      securities lawyers have opined that the issue of 

           5      intent is also brought into the picture in SAB 99. 

           6                 Both NIRI and the AIMR say the questions 

           7      over materiality may be what is driving the decline 

           8      in the quality of information.  Now, our survey says 

           9      the percentage that now review analyst earnings 

          10      models has dropped from to 54 percent from 81 

          11      percent prior to Reg FD, with the greatest decline 

          12      among large cap companies which went from 91 percent 

          13      to 51 percent post Reg FD. 

          14                 Nearly four out of five companies are 

          15      continuing to hold one-on-ones with analysts and 

          16      institutional investors to the same extent or 

          17      greater than before Reg FD; yet, the analysts and 

          18      the portfolio managers are saying they are getting 

          19      less information in these forums. 

          20                 And Reg FD, in spite of earlier concerns, 

          21      seems to be having minimal impact on the composition 

          22      of a company's sell side coverage or its 

          23      institutional holdings.  Only one of the 577 

          24      companies in our survey said it lost analyst 

          25      coverage due to Reg FD, and only five said they 

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           1      believe institutional investors sold their stock due 

           2      to their new disclosure policies attributed to Reg 

           3      FD. 

           4                 In summary, our concern and that of the 

           5      AIMR, I think the SIA, the Securities Industry 

           6      Association, and the American Bar Association, is 

           7      that placing a regulatory structure based on 

           8      materiality decisions around a voluntary disclosure 

           9      process might well result in a chill on the flow of 

          10      legitimate information, and that may be happening. 

          11                 The playing field has been leveled for 

          12      the ten to twelve million individual investors, who 

          13      are largely self-informed and self-directed, and 

          14      want and deserve more equal access to information, 

          15      but what about 88 million American investors who own 

          16      mutual funds, directly or indirectly, and aren't so 

          17      much concerned about their access to information, 

          18      but are much more concerned about whether those who 

          19      are managing their portfolios are getting the best 

          20      information possible?  The evidence suggests that 

          21      may not be happening, and this problem may be the 

          22      most significant unintended consequence of Reg FD, 

          23      the real cost of the new rule. 

          24                 Thank you. 

          25                 CHAIRMAN UNGER:   Thank you very much, 

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           1      Lou.

           2                 Cathy, and if you could please speak into 

           3      the microphone, I have been receiving numerous notes 

           4      on this.

           5                 MS. BARON TAMRAZ:   I am Cathy Baron 

           6      Tamraz, chief operating officer for Business Wire.  

           7      I represent the press release side of the business.  

           8      I know that in the last discussion there was a lot 

           9      of talk about press releases versus webcasts and 

          10      conference calls, et cetera.  And I will be mostly 

          11      speaking about the news release and how the press 

          12      release services have successfully now migrated onto 

          13      the Internet and are embracing the technology.

          14                 As far as Regulation FD, Business Wire 

          15      believes that it has passed the test and over these 

          16      past six months it is working as intended.  And as 

          17      primary disseminator of information to corporate 

          18      America, we have experienced this firsthand.  We 

          19      have seen the flow of news from public companies 

          20      increase.  We have also seen a rise in the pre 

          21      earnings estimates on webcasts and conference call 

          22      advisories, and I can get into some stats on that 

          23      later. 

          24                 Actually, the growth has been 

          25      exponential, particularly with our partner CCBN, we 

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           1      will run about 15,000 webcasts this year.  As we see 

           2      it, the Internet had a lot to do with Regulation FD, 

           3      basically, to democratize the flow of information to 

           4      individual investors and consumers and give them 

           5      direct access to full text news releases that they 

           6      never had in the past.  And, similarly, Reg FD has 

           7      democratized the disclosure process by making 

           8      material information directly available to all 

           9      investors, and it has, thus, provided equal access 

          10      to market-moving news.

          11                 And I know there are some nuances that 

          12      have been discussed and will continue to be 

          13      discussed about materiality, et cetera.  And I think 

          14      that is something that is important to take a look 

          15      at. 

          16                 Taking it a step further, Business Wire, 

          17      I think, did its part to create a level playing 

          18      field for all investors, and we eliminated the 

          19      15-minute delay that we had tried to get rid of 

          20      about a decade prior, but because the process 

          21      between news distribution and the role of financial 

          22      media was a pretty complex one, it was a difficult 

          23      task to accomplish.  But Reg FD pretty much gave us 

          24      the courage to lift that delay, and we took it away 

          25      in October, and use real-time to anybody that wanted 

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           1      to see it. 

           2                 Coupled with that, we and our competitor 

           3      have successfully migrated onto the Internet.  And 

           4      every news release that is sent out by a service 

           5      like ours is posted on our website, it is also 

           6      posted to in excess of 16,000 databases and online 

           7      services, Yahoo, AOL, other portals, and it lives on 

           8      in perpetuity, and it is available virtually to 

           9      everybody.  And I think that is something that is 

          10      really important to remember.

          11                 And I think today all investors and all 

          12      companies have real-time access to corporate news 

          13      and they can reach a very, very large global 

          14      audience.  So I would agree that companies are now 

          15      providing more earnings guidance to the investment 

          16      community as a whole and they are doing it on a 

          17      sustained basis. 

          18                 We took a look at some news wire totals 

          19      comparing the period October 1 to April 23rd of this 

          20      year to the period last year, and we saw that 

          21      earnings guidance releases increased more than 

          22      tenfold compared to a comparable period a year ago.  

          23      So that tells you that FD has had some effect on 

          24      information. 

          25                 And I think companies have adopted an 

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           1      open-door policy regarding the conference calls, 

           2      meaning that the media and the individual investor 

           3      are included in addition to analysts.  Webcast 

           4      announcements nearly quadrupled in this period, 

           5      about 11,000 compared to 3,000 the prior year.  And 

           6      the number of teleconference calls nearly tripled, 

           7      2,000 compared to a little over 600. 

           8                 So I think after an initial period of 

           9      uncertainty, companies appear to be embracing the 

          10      spirit of FD and they are making their investor 

          11      outreach programs more accessible to everybody. 

          12                 I think regarding webcasts, I want to say 

          13      a word about that.  The fact that the SEC recommends 

          14      that webcasts include a broadly disseminated press 

          15      release in advance of the events, meant that Reg FD 

          16      has succeeded in maintaining an orderly information 

          17      flow.  Because you have to get the word out to a 

          18      service like ours, which is very widely 

          19      disseminated, that these calls are -- and what 

          20      events are about to happen.  We are talking about a 

          21      push technology versus a pull technology, two very 

          22      different types of distribution methods.  And a 

          23      service such as ours does really serve as the 

          24      information backbone of the financial markets.  

          25      Business Wire, for example, reaches more than one 

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           1      million terminals in the worldwide investment 

           2      community. 

           3                 I think the role of the news media 

           4      remains as important as ever because all investors 

           5      now have access to information real-time.  The 

           6      analysis, context and perspective that bona fide 

           7      journalism organizations provide is more important 

           8      than ever, so that role has not been diminished at 

           9      all. 

          10                 In closing, I think it would be important 

          11      to say that, from a Business Wire perspective, we 

          12      would never advise anybody to trade or buy a stock 

          13      based on a press release alone; you have to take in 

          14      comprehensive news reports and look at the in-depth 

          15      assessment before actively trading in one particular 

          16      company. 

          17                 CHAIRMAN UNGER:   Thank you, Cathy.

          18                 Ron?

          19                 MR. INSANA:   I am Ron Insana with CNBC. 

          20                 It is my personal position and the 

          21      position of CNBC that we have long felt that any 

          22      regulation or any piece of legislation that makes 

          23      the playing fields fairer for individual investors 

          24      is something that we would wholeheartedly support 

          25      and we do with respect to Regulation FD. 

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           1                 I would like to talk about some of the 

           2      personal concerns that I have about it in a minute.  

           3      First, though, we have had, in the last several 

           4      months, two chief executive officers break news on 

           5      our air with the intent to comply with Regulation 

           6      FD.  They have come on and discussed material 

           7      earnings guidance that they decided to push on CNBC 

           8      as a means of disseminating information, and while 

           9      it is in the early stages to be the vehicle through 

          10      which many CEOs might deliver that information, we 

          11      expect that Reg FD will open up a number of 

          12      opportunities to us to act as a principal 

          13      disseminator since being in 77 million homes does 

          14      allow CEOs to reach a broad audience and reach a 

          15      number of constituents simultaneously, both on the 

          16      professional side and on the individual investor 

          17      side as well. 

          18                 That said, some of the things that I have 

          19      noticed with respect to Regulation FD, and this is 

          20      more anecdotal than it is scientific, that in the 

          21      drive to become fair, I am wondering whether or not 

          22      the market has become slightly less efficient as a 

          23      consequence.

          24                 In the older environment, being before 

          25      Reg FD, there was a dissemination process, though 

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           1      informal, that did allow investors some opportunity 

           2      to move before the bombshell type announcements that 

           3      you see today, where some corporations might 

           4      withhold information up until a strategic point and 

           5      then let the information out, and we see the stocks 

           6      move dramatically. 

           7                 And while in a bad news environment, 

           8      analysts, professional money managers and 

           9      individuals are trapped together and that is much 

          10      fairer, there is a lot less room for people to sneak 

          11      out of the stock before the information actually 

          12      hits the wire.  In the old days, with respect to the 

          13      dissemination flow, you would see a stock move, you 

          14      would see some discussion of some of the reasons, 

          15      you would see analysts come out with comments, you 

          16      would see the company confirm or deny the rumor that 

          17      was surrounding the stock, and then you would 

          18      ultimately see a legitimate announcement.

          19                 In that process, which could take several 

          20      days, there would opportunities to act.  These days, 

          21      those opportunities seem to be a little bit fewer 

          22      and farther between, which creates, again, 

          23      unintended consequences with respect to Regulation 

          24      FD, and certainly not one that you can principally 

          25      blame on the regulation, but it does seem from our 

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           1      position anecdotally that sometimes that has been 

           2      the case. 

           3                 In addition, in my conversations with 

           4      money managers, and particularly hedge fund 

           5      managers, they have discussed their willingness to 

           6      find ways to side-step the rule in order to obtain 

           7      information that would not be available to 

           8      individual investors anyway, whether they go farther 

           9      down on the company food chain and talk to people 

          10      who are not covered by Reg FD, they will, if they 

          11      are well resourced, find ways to gather information 

          12      that wouldn't be otherwise available to individual 

          13      investors.  And that is just a consequence, again, 

          14      of money managers having the time, the inclination 

          15      and the resources to do sometimes more extensive 

          16      research than others might. 

          17                 Those are the only things I have noticed 

          18      so far that make for interesting conversation points 

          19      when it comes to Regulation FD, and certainly making 

          20      the playing field more fair and more level is 

          21      laudable and something that Regulation FD has gone a 

          22      long way towards accomplishing. 

          23                 But I know Lou has the same concerns as I 

          24      do with respect to how money managers, who act as 

          25      intermediaries for individuals, are treated in this 

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           1      environment, and that is something that merits 

           2      further consideration as well.

           3                 Thank you. 

           4                 CHAIRMAN UNGER:   Thank you, Ron.

           5                 Stuart?

           6                 MR. KARLE:   I am Stuart Karle, I am a 

           7      lawyer at Dow Jones, and I am on this panel because 

           8      I am a press lawyer, not a securities lawyer.

           9                 And one of the things I do, in addition 

          10      to defending meritless defamation actions, is to 

          11      deal with people who don't want to give reporters 

          12      information, whether this is in court or companies 

          13      who say, "We would love to talk to you, but." 

          14                 Any regulation passed by any government 

          15      body is always the first refuge of the over-cautious 

          16      or occasionally, the scoundrel.  And so with this 

          17      regulation, when it went into effect last October, 

          18      there are companies who in response to an inquiry 

          19      from a reporter will say, "We would love to talk you 

          20      but Regulation FD says we can't."  And there were 

          21      even references to that on the panel this morning.

          22                 That is nonsense.  This regulation 

          23      specifically does not apply to communications with 

          24      the media, so when companies say that it is because 

          25      they really do want to talk to the press but for 

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           1      reasons having nothing to do with the regulators 

           2      telling them they can't do that. 

           3                 If Regulation FD didn't exist, some of 

           4      these companies would generally rely on other 

           5      regulations to say "We can't talk to you."  The 

           6      quiet period is always expanded to years.  These 

           7      things have always happened.  That, I think, leads 

           8      to two things.  One is, and again there was a 

           9      reference on the panel this morning, that analysts 

          10      have to work harder to get their information.  I 

          11      think that's a good thing.  I think that is part of 

          12      what was intended by this regulation.

          13                 The other thing is the press has to work 

          14      harder, because the press has to make it clear, as 

          15      Ron has referred to at least in a couple of 

          16      instances on CNBC, that the press is a far more 

          17      viable -- always has been in reality, but now 

          18      legally -- is a far more viable means of 

          19      distributing material news to the marketplace. 

          20                 And I think the press has to work harder 

          21      to make that clear, that Regulation FD does not 

          22      apply to it, the media information will be 

          23      disseminated broadly into the marketplace, and 

          24      that's a good thing.  The one thing I want to 

          25      quibble with the statement made earlier is I think 

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           1      the fact that there is no longer this run up to 

           2      news, the price goes up in the stock, the price goes 

           3      down in the stock, and then after days of 

           4      discussions on various news programs or be it 

           5      stories in the Wall Street Journal, the company 

           6      comes out with an announcement stopping that process 

           7      and the perception of course is one of the things 

           8      this regulation is specifically intended to stop. 

           9                 That there is going to be this boom 

          10      factor where suddenly the news will come out and 

          11      then the stock will move, and all people have an 

          12      equal opportunity to respond to it, I think that's 

          13      what the regulation is directed toward, and I think 

          14      that is probably a good thing.  It is true that 

          15      people get surprised, but everyone gets surprised 

          16      equally, and I think what this has been devised for 

          17      and I think it actually works that way, and the 

          18      perception of our reporters is that it does. 

          19                 CHAIRMAN UNGER:   Thank you.

          20                 David?

          21                 MR. ARMON:   Good afternoon, I am David 

          22      Armon, I am the president of PR Newswire Americas.  

          23      We are in the business of helping the free-flow of 

          24      information, whether it is text information in the  

          25      form of a news release, or digital audio information 

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           1      like earnings webcasts or IR websites that companies 

           2      choose to outsource.  We distribute that information 

           3      both to traditional media, like 77 million 

           4      households that are reached by CNBC and the Wall 

           5      Street Journal and The New York Times, but also to a 

           6      lot of the web portals that investors and members of 

           7      the investing public would access, and that would 

           8      range from the B-to-B portals all the way to the 

           9      consumer sites that everyone puts their e-mail on. 

          10                 What has happened with our business is 

          11      that we have seen a willingness by corporations to 

          12      -- a speed up of the willingness of corporations to 

          13      embrace new technologies and not just put out their 

          14      news in a single format, but to use the webcasts.  

          15      And another trend recently is to include slides 

          16      among the webcasts that may have been handouts at 

          17      their meeting in-house, but now they are actually 

          18      screening them along with the audio webcast that is 

          19      going out.

          20                 There is also a lot of push technology.  

          21      As Cathy mentioned, there is a difference between 

          22      the push and the pull, and a lot of shareholders are 

          23      going to corporate websites and they are entering 

          24      their e-mail address in and they are saying, "Please 

          25      alert me when a news release hits the wire," or 

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           1      "Please alert me when there is an EDGAR filing," or 

           2      "Please alert me when a conference call is 

           3      scheduled." 

           4                 And we have seen millions of those 

           5      registrants now start to say, "I want to be alerted 

           6      when there is news."  It is not a replacement for 

           7      the traditional media reach of the wire, but it is 

           8      an add-on event when you are on the chat room at 

           9      night playing around and all of you sudden you have 

          10      mail and you know there is something significant in 

          11      your portfolio and one of your companies has just 

          12      put something out. 

          13                 In a similar trend to my competitor, we 

          14      have noticed that there are earnings projection 

          15      stories increasing each quarter, since actually 

          16      before Reg FD hit.  In the summer a lot of people 

          17      realized that it was happening, and we started to 

          18      see, I think it was at first a 25 percent increase 

          19      in earnings projection stories, and then a 69 

          20      percent increase, and then a 78 percent increase in 

          21      the last quarter.  So people are definitely giving 

          22      mid-quarter guidance through the news releases. 

          23                 We have also incorporated into our 

          24      webcasting product, and a lot of webcasters will 

          25      prepare earnings and we have a 400 percent increase 

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           1      in webcasts since Reg FD hit.  And we have been in 

           2      that space since 1996, but it was a little bit of a 

           3      hard push to get companies to try that out before, 

           4      and now all of a sudden, they are calling us a lot, 

           5      they want to issue a webcast along with their news 

           6      release. 

           7                 And we have incorporated a notification 

           8      of the webcast availability to click on it, you can 

           9      get access to the real players, the Microsoft media 

          10      player.  And after the webcast, there is another 

          11      release in case a shazam effect hits, Professor 

          12      Ruder, and that is if there is any kind of a 

          13      disclosure during a call, there is an insurance 

          14      policy that another release could be issued. 

          15                 Frankly, not a lot of clients have taken 

          16      advantage of that, but we are conscious that our 

          17      clients don't want to have a financial burden in 

          18      having to issue release after release after release 

          19      about their webcast.

          20                 A couple of other observations from our 

          21      industry.  The length of earnings releases has been 

          22      substantially increased in the past year, and that 

          23      is because, yes, they are including a lengthy 

          24      webcast; yes, they are including a bigger and bigger 

          25      Safe Harbor paragraph; yes, they are including more 

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           1      information about guidance looking on a little bit 

           2      further. 

           3                 So another observation is that clients 

           4      used to give us one copy of their earnings release 

           5      for their fax and e-mail list which would go to 

           6      analysts, and another copy of the earnings release 

           7      would go to the media and the websites that 

           8      consumers access, and the longer one would go on the 

           9      first call terminals.  Clients are more and more 

          10      telling us that one release is what is to go out for 

          11      the whole world.  And I am sure that is information 

          12      that you want to know.  The only such things that we 

          13      hear in the newsroom on earnings days now that would 

          14      differentiate the two releases would be "Change my 

          15      contact information for the release that goes out to 

          16      my analyst fax list.  Let's put an IR contact on 

          17      that one versus a media contact" on a consumer 

          18      story.

          19                 The other significant change, I think I 

          20      should mention is the availability of full-text 

          21      press releases issued by PR Newswire, and I am sure 

          22      by Business Wire as well, through the Internet 

          23      environment to PDAs and pagers.  And so the question 

          24      that was raised earlier about small cap issuers and 

          25      about whether they get play and whether the 

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           1      shareholder has access to the information is really 

           2      addressed through the Internet, through the 

           3      basically 50 million pagers in a month that come to 

           4      the PR Newswire copy through the 2,500 web portals 

           5      that carry us.  And if you are a small cap stock, 

           6      you enter in the ticker symbol, and if you are a 

           7      shareholder, that news will follow you no matter 

           8      where you are.  So that's a significant shift. 

           9                 The other thing is that disclosure is not 

          10      only an Internet phenomenon, and I think that this 

          11      is information, as I mentioned, that Ron and the 

          12      people on CNBC get the copy and there are plenty of 

          13      shareholders looking at the screen to watch for 

          14      breaking news, but just in this market in New York, 

          15      1010 WINS has business reports at 25 and 55, and so 

          16      does WBBN with Lynn Walter on the floor of the 

          17      Chicago Stock Exchange.  And these folks are getting 

          18      live feeds from the press release wires, new news 

          19      and breaking it as it is coming out, so you don't 

          20      have to necessarily be next to a web browser to be 

          21      informed in this market.

          22                 So that's a nutshell of what we have.  I 

          23      have a lot of statistics that I can talk to you 

          24      about when we get into the question period.  Thank 

          25      you.

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           1                 CHAIRMAN UNGER:   Thank you. 

           2                 Mark?

           3                 MR. COKER:   I am Mark Coker, I am 

           4      president of BestCalls.com.  We are a public 

           5      directory of earnings, conference calls schedules, 

           6      and events.  We help companies disclose and promote 

           7      their conference calls and then we also help 

           8      investors gain access to conference calls.  We have 

           9      got about 80,000 registered members for our service 

          10      and they have subscribed to the service so that they 

          11      can receive e-mail notifications of the conference 

          12      call schedules that interest them.  When IBM 

          13      Corporation, for example, posts their conference 

          14      call schedule on BestCalls, it is automatically 

          15      e-mailed out to about 12,000 of their investors. 

          16                 The idea for BestCalls came to me back in 

          17      '97 when I was denied access to an earnings 

          18      conference call for a company I was a shareholder 

          19      in, and they denied me access because I was an 

          20      individual investor and the call was only open to 

          21      institutional investors.  And I felt that wasn't 

          22      fair.  I felt that as an investor I deserved equal 

          23      access to that information, that I was an owner of 

          24      that company. 

          25                 Clearly, the company didn't agree with 

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           1      me, and as it turned out, most companies at that 

           2      time did not agree with me.  But it gave me the idea 

           3      for BestCalls, and BestCalls really started as a 

           4      cause wrapped in website's clothing.  And my cause 

           5      was to work with companies to help them open up 

           6      their calls.  I believe that it is in the company's 

           7      best interest to do this, and I bring a unique 

           8      perspective to this situation. 

           9                 In addition to being an individual 

          10      investor for the last 20 years, I also operate one 

          11      of Silicon Valley's largest public relations firms, 

          12      and so I come to it as an individual investor but 

          13      also as a communications practitioner.  And I have 

          14      always believed that open communications are the 

          15      best thing for the companies and for the investors.

          16                 As you might imagine, I have been a 

          17      tremendous supporter of Regulation FD.  I think the 

          18      is one of the most significant regulations ever 

          19      adopted by the SEC.  I think it impact of Regulation 

          20      FD transcends our borders.  I think we will see it 

          21      ripple across the globe as global capital markets 

          22      must compete for investor confidence because fair 

          23      disclosure is the foundation of investor confidence.

          24                 One of the interesting things that has 

          25      happened as a result of Regulation FD, in my 

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           1      opinion, is that it has basically collapsed the 

           2      information dissemination supply chain.  The 

           3      analyst, which was previously the key choke point in 

           4      the information dissemination equation, has been 

           5      eliminated as the choke point and they now receive 

           6      information at the same time as everyone else.

           7                 And, yes, I do believe that it 

           8      contributes to volatility, and I would agree with 

           9      Stuart here, that it is a good thing because when 

          10      you release market-moving information it is going  

          11      to cause the market to move one way or another, it 

          12      can move all at once or slowly.  And if it is moving 

          13      slowly, you don't want to be the last person in line 

          14      to get that information. 

          15                 When I think about the future of 

          16      disclosure, I get really excited by this idea of 

          17      transparency, and Reg FD is going to be a driver for 

          18      this.  I think we are entering the age of the 

          19      transparent corporation where more information is 

          20      known about more companies more of the time than 

          21      ever before, so investors can now make more informed 

          22      opinions and investment decisions. 

          23                 Contrast this with the key way that 

          24      investors learned about the companies just ten years 

          25      ago, or even five years ago where the primary 

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           1      information tool was an annual report which came out 

           2      three or four months after the close of the quarter.  

           3      So Regulation FD and open conference calls are just 

           4      a continuation of this trend for more real-time 

           5      access information and more information. 

           6                 When we launched BestCalls back in March 

           7      of '99, we found that approximately 80 percent of 

           8      the public companies who were holding earnings 

           9      conference calls have a policy excluding individual 

          10      investors.  Today close to 100 percent of the public 

          11      companies that are holding calls now provide some 

          12      form of individual investor access.  That trend was 

          13      already starting to take hold prior to Reg FD, Reg 

          14      FD just accelerated it.

          15                 So, in summary, I would just say that Reg 

          16      FD is a boom for companies and for investors, and I 

          17      look forward to seeing its effects.  Thank you.

          18                 CHAIRMAN UNGER:   Thank you. 

          19                 I would just like to say before we get 

          20      started in the discussion portion, that the schedule 

          21      says that we will done with this panel right about 

          22      now.  Obviously, we are not done, we are just 

          23      starting, so we started about 20 minutes late, so if 

          24      everyone is amenable to continuing 20 minutes to 

          25      about ten of 1:00, that's what I would like to do.  

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           1      Thank you. 

           2                 Well, it is an interesting contrast to 

           3      hear this panel's views from the last panel's views 

           4      because I could have sworn that there was less 

           5      information being disseminated, but now I am 

           6      thinking there is more. 

           7                 So I was wondering if, maybe we could 

           8      start with you, Floyd, and if you could quantify, 

           9      you mentioned FD doesn't cover communications to the 

          10      press.  Does that mean the issuers are giving to the 

          11      press more when disseminating information?  How has 

          12      that changed the dynamics of your relationships with 

          13      issuers?  

          14                 MR. NORRIS:   I was not concerned about 

          15      it.  Dow Jones, of course, as you know, complained 

          16      about the original version of FD that did not 

          17      clearly indicate that press releases were not 

          18      covered, I was not concerned about it at the time.  

          19      For me, people who wanted to tell me stuff before, 

          20      did; people who didn't, didn't. 

          21                 Now what has changed is that people who 

          22      choose to release information, period, have to 

          23      release it in a way that I can get at it.  And to 

          24      me, that is a wondrous change.  Some companies, 

          25      whenever I wanted information, I could get what I 

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           1      wanted; some companies would not talk to me.  Some 

           2      companies still don't talk to me. 

           3                 I wrote a column last week about a 

           4      company that literally was afraid to talk to me, but 

           5      I was able to listen to their last two conference 

           6      calls quite easily, and I learned what they had been 

           7      saying and informed the coverage tremendously.  That 

           8      would not have been possible pre FD, and to me, that 

           9      has made a big difference.

          10                 MR. INSANA:   I would agree with Floyd on 

          11      that.  And I think that to the extent that reporters 

          12      call a CEO and ask material questions, they still 

          13      have the option of answering or not commenting or 

          14      not giving us any help at all.  I don't think 

          15      anything has changed in that regard. 

          16                 We will ask CEOs on our air if there is 

          17      something material taking place, that we, in fact, 

          18      may know is going on, and they will still decline 

          19      comment or lead us astray, and there has been no 

          20      impact.  I think we need to break a lot of these 

          21      things out, though, in constituent parts.  The open 

          22      conference calls are great, they make our lives so 

          23      much easier.  We used to have to lie and say we were 

          24      analysts and obtain the password to the conference 

          25      call to get on it so that we could actually listen 

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           1      to it -- 

           2                 MR. KARLE:   Our reporters never did 

           3      that. 

           4                 MR. INSANA:   Most times we got the 

           5      password from a Dow Jones reporter.

           6                 But with respect to the question as to 

           7      whether or not there is more or less information, 

           8      when you are looking at these numbers, we have to go 

           9      back to Economics 101, and all things being equal, 

          10      clearly the business climate has changed 

          11      dramatically in the last six to nine months, and  

          12      that has encouraged some companies to come out and 

          13      make forward-looking statements because the 

          14      environment has been altered so drastically that 

          15      earnings expectations were dropping so quickly, some 

          16      companies might have been forced to come out and 

          17      make these statements anyway, just in their own 

          18      shareholder interest, to step forward and say "The 

          19      business has changed, we have to let you know."

          20                 I am not quite sure that at this point we 

          21      can tell, and I think we heard this in the last 

          22      panel as well, how much has been the result of the 

          23      changing economic environment in terms of earnings 

          24      guidance and how much is the result of Reg FD.

          25                 MR. THOMPSON:   Well, I think there is a 

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           1      lot, and I can vouch for this among our members, 

           2      there is a lot of confusion of what the media 

           3      carve-out really means. 

           4                 Does it mean that a CEO at, let's say, 

           5      3:00 a.m. could call the Minneapolis Star and manage 

           6      his earnings estimates through the Star?  I don't 

           7      think that is what the SEC meant.  I mean, the 

           8      Minneapolis Star's distribution reach is not 

           9      nationwide.  And we have had examples of companies 

          10      that have called and said that a reporter from the 

          11      metropolitan area newspaper insisted that the 

          12      company give them material information that had not 

          13      been made public.  I mean, I am sure the reporter 

          14      had been working and knew the company was in 

          15      possession of that information, and said, "You can 

          16      do this because Reg FD allows you to do that." 

          17                 That is not, I think, what they intended 

          18      with the media carve-out, unless you can tell us 

          19      otherwise.  Because in your telephonic guidance, the 

          20      supplemental guidance, one of the points made was 

          21      that it is not enough to have a reporter sitting in 

          22      on an analyst meeting, unless, of course, you can be 

          23      assured that that reporter is going to report what 

          24      is material and the distribution reach would be like 

          25      a wire service.

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           1                 CHAIRMAN UNGER:  Very quickly, can we get 

           2      an answer to that question about whether or not we 

           3      intended -- what the carve-out does? 

           4                 MR. BECKER:   Well, I think what we 

           5      intended, I guess we had the view that the press 

           6      makes things public.  And the only concern would be 

           7      if the particular choice of the press doesn't make 

           8      things public enough.

           9                 But in terms of the thing that we were 

          10      worried about, that is to say, the use of material 

          11      -- misuse of material non-public information, we 

          12      didn't see the press as a big concern there.  If the 

          13      folks misused the information, they probably had 

          14      serious insider trading problems and we saw an 

          15      enormous public benefit of information getting 

          16      public by means of disclosure to folks whose job it 

          17      is to make information public.

          18                 MR. RUDER:   Laura, and others, I think 

          19      this whole conversation creates a question for the 

          20      Commission, and that is to identify when information 

          21      is public for the purpose of this rule. 

          22                 We are seeing technological advances, as 

          23      we heard today discussions of push technology, which 

          24      I think is an interesting development and it 

          25      certainly put the onus on the Commission to 

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           1      scrutinize the means of distribution to know if you 

           2      are up to date as to what is public or not, and your 

           3      insistence on a press release is something maybe you 

           4      need to look at. 

           5                 I just have to say one thing to David, I 

           6      don't think you are going to be involved in insider 

           7      trading problems when you release material 

           8      information to the press because that would 

           9      certainly not be a Dirks problem, as I see it. 

          10                 MR. BECKER:   No, it would be the 

          11      reporter who misuses it.  It would be the reporter 

          12      who trades on it in violation of the rule and 

          13      misappropriate information.

          14                 MR. RUDER:   If he has gotten it in a 

          15      confidential way. 

          16                 And one other point that I just made from 

          17      my lawyer's point of view, there is no obligation to 

          18      disclose, so the press really can't call a company 

          19      and say, "You must disclose the information if you 

          20      have it."  So we are still in the situation where, 

          21      for business reasons or whatever reason, a company 

          22      can refuse to disclose. 

          23                 MS. BARON:   I would like to add 

          24      something to that, bring up something for 

          25      discussion. 

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           1                 I think what is missing here is having 

           2      the New York Stock Exchange, AMEX and NASDAQ weigh 

           3      in on this because they put out guidelines for 

           4      corporations as to what constitutes disclosure and 

           5      they make some recommendations.  And those 

           6      recommendations have changed over time, particularly  

           7      NASDAQ. 

           8                 And it used to be that disclosure was 

           9      made, according to the New York Stock Exchange and 

          10      the AMEX, when a release appeared in either Dow 

          11      Jones or Reuters, the service picked up and covered 

          12      -- actually ran on those wires.  But several years 

          13      ago, NASDAQ made a change to that ruling, and they 

          14      said, no, at this point, because of the wide reach 

          15      of news wire services, and I am talking about 

          16      commercial services, specifically Business Wire and 

          17      PR Newswire, disclosure is met when it is 

          18      disseminated over those services.  And that's an 

          19      important change.

          20                 And, frankly I haven't seen any updated 

          21      changes from the New York Stock Exchange, but that 

          22      would be interesting to see, what their view is on 

          23      that today.  And I think that gets to the heart of 

          24      what action constitutes disclosure. 

          25                 MR. THOMPSON:   The New York Stock 

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           1      Exchange sent a letter out to listed companies about 

           2      two to three weeks ago, saying that they were going 

           3      to continue to require a news release regardless of 

           4      whether you held a fully-accessible conference call.  

           5      So if new material information should emerge in the 

           6      course of the Q&A on a conference call, you are 

           7      obligated to issue a news release as a follow-up to 

           8      that. 

           9                 A lot of companies consider that an 

          10      unnecessary expense, to do that.  I mean, a 

          11      conference call is open for a reason.  This 

          12      regulation really is a wonderful opportunity to look 

          13      at diverse means of communication, depending upon 

          14      the market cap size you reach and so on, but the 

          15      SEC, in a release in a footnote says, in effect, 

          16      that this rule does not necessarily mean that you or 

          17      the self-regulatory organizations have to change 

          18      their requirements, so they are not. 

          19                 Now, NASDAQ, I think, may be moving in 

          20      this direction, but New York has put its foot down 

          21      and said, "No, this is the way it is going to be, 

          22      that it is a one size fits all type of approach to 

          23      disclosure.  You have got the discussion about the 

          24      digital divide that was a concern when we were 

          25      discussing the proposed rule. 

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           1                 I would suggest that the people who are 

           2      interested in real-time access to information, that 

           3      most of those have computer access.  These were some 

           4      pieces that were done at Iowa State last year of 500 

           5      people from the American Association of Individual 

           6      Investors and 500 from investment clubs.  20 percent 

           7      of them invested online, about 35 percent used a 

           8      combination of online and traditional brokers.  Of 

           9      the total sample of a thousand, 84 percent had web 

          10      access. 

          11                 So to ignore the web as a place where 

          12      people have the best opportunity to get real-time 

          13      information, other than, of course, watching Ron on 

          14      CNBC or CNN, or one of the real-time news 

          15      dissemination stations, it is where it is.

          16                 MR. INSANA:   And you know the technology 

          17      has come so far that we have the opportunity to make 

          18      or deliver real-time earnings announcements on CNBC.  

          19      The problem, though, is being recognized as the 

          20      principal disseminator, which the Exchanges have yet 

          21      to do.  We would be able to deliver as much earnings 

          22      information by text on our screen in real-time, we 

          23      have the technology to do that.  But, again, we need 

          24      to be recognized as a disseminator in order to make 

          25      our case to the companies that they go ahead and do 

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           1      that.

           2                 CHAIRMAN UNGER:   This is a good 

           3      follow-up to the conversation that we were having on 

           4      the last panel about tools that could be used to 

           5      disseminate different types of information.  So I 

           6      would love to hear any other views of the panelists  

           7      about what those tools would be and whether FD 

           8      restricts the use of those tools and how? 

           9                 COMMISSIONER HUNT:     And I just want to 

          10      say, clearly, some of the market moves on 

          11      dissemination I have noted in light of today's 

          12      technology, but I think we have to bear in mind that 

          13      there are some companies that nobody on the web is 

          14      going to pick up.  And for those companies, we still 

          15      have to have press releases because, you know, they 

          16      are in, and I don't want insult anybody's city, but 

          17      if they are in some particular city and the market 

          18      for securities is only in that city, it is entirely 

          19      likely that a major national news service or 

          20      national newspaper is not going to pick it up and  

          21      that's going to be true, so we just have to aware of 

          22      a broad range of ways to disseminate information. 

          23                 MR. ARMON:   If I can follow up your 

          24      point, Commissioner, a survey of media receiving PR 

          25      Newswire copy recently concluded that there are 

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           1      still tens of thousands of reporters covering 

           2      breaking financial news who prefer fax.  It is just 

           3      their work flow and they prefer receiving a fax, and 

           4      prefer to receive information coming into their 

           5      local area network within their newsroom as opposed 

           6      to a web browser. 

           7                 Not everybody has taken this jump, so it 

           8      is important to cover all media means of 

           9      transmission, whether it be old wire circuits which 

          10      come in on satellite dish at The New York Times 

          11      through intermingling with the AP and Reuters and PR 

          12      Newswire and Business Wire, as well as faxing to 

          13      those reporters who prefer to receive that way, and 

          14      e-mailing to those who prefer that.  So I would 

          15      hesitate to say that the web is the answer for 

          16      everyone.

          17                 COMMISSIONER HUNT:   I agree with you.

          18                 MR. NORRIS:   I would like to emphasize, 

          19      I think that while the web is broadly used, it is 

          20      not universal.  Moreover, there was some suggestion 

          21      when the FD was adopted that a company could simply 

          22      put information on its website and that would 

          23      constitute disclosure. 

          24                 And I think the SEC took a negative 

          25      position on that, and I think they should take a 

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           1      negative view on that.  There needs to be a 

           2      dissemination certainly of the fact that information 

           3      is available in the somewhat untraditional media, so 

           4      press releases saying, "We had a conference call and 

           5      you can listen to the conference call this way," 

           6      strikes me as acceptable.

           7                 But to simply put it on the web so that 

           8      those who happen to click into this website in time 

           9      have the advantage over those who don't happen to 

          10      click into this website today is, I think, 

          11      unacceptable.

          12                 COMMISSIONER HUNT:   We were very 

          13      concerned about -- that's why we talk about digital 

          14      bar, one, people who didn't have access; and, two, 

          15      the people who didn't click in on it at the right 

          16      time.  And that is when we will be having a 

          17      dissemination, when those two things occur.

          18                 MR. RUDER:   But if you don't watch CNBC, 

          19      you have the same problem. 

          20                 CHAIRMAN UNGER:   Perhaps now would be a 

          21      good time to talk about some of the statistics that 

          22      you all alluded to in terms of the numbers of people 

          23      who are listening in on the conference calls. 

          24                 I don't know if you have a way of 

          25      figuring out the percentage of shareholders that 

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           1      would constitute or not.  This panel may have more 

           2      information on that, and I would be interested to 

           3      hear if anybody has any statistics.

           4                 MS. BARON TAMRAZ:  Not that in-depth, but 

           5      I do have some quick statistics that I think paint 

           6      the picture of what is going on. 

           7                 And this is according to our partner at  

           8      CBN.  The number of listeners has gone up almost 300 

           9      percent.  Unfortunately, I don't have the breakouts 

          10      of who those listeners are, but the appetite is 

          11      there and people are coming in and listening to 

          12      these conference calls.

          13                 CHAIRMAN UNGER:   In what time period?

          14                 MS. BARON:   In the last six months, so 

          15      that is pretty heavy.

          16                 And the number of webcasts is up 54 

          17      percent in the last six months, 126 percent in the 

          18      last year.  Again, this is one broadcasting company 

          19      that intends to do about 15,000 this year.  So I 

          20      would say the universe is probably double that.

          21                 MR. THOMPSON:   We are finding that there 

          22      are not a lot of individual investors 

          23      percentage-wise in companies who are listening to 

          24      the live calls, but there are a number who are 

          25      listening to the replays when they get home from 

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           1      work and so on.  It is significantly higher than 

           2      those who are listening to the live calls, but it is 

           3      still there.  And we recommend that you keep replays 

           4      up there for at least a week or so, so people have 

           5      an opportunity to listen to them. 

           6                 Again, this is a wonderful way, but like 

           7      the SEC and its recommended procedures, we believe 

           8      that you put your material information that you know 

           9      you are going to discuss in the news releases, and 

          10      that really solves the regulatory problem for the 

          11      SROs, that they will know whether or not to be 

          12      listening to this as to whether they need to 

          13      institute a trading halt or not.  That's what their 

          14      real concern is, what mechanism to use.

          15                 We do not recommend you just hold a 

          16      conference call and announce new material 

          17      information without putting it in a news release 

          18      beforehand.  The issue is, should you have to put 

          19      out a follow-up news release as a result?  And that 

          20      we really consider to be unnecessary.  You know, you 

          21      have the option to do it, but you shouldn't be 

          22      required to do it.

          23                 CHAIRMAN UNGER:   So that goes back to 

          24      the question on whether a telephonic call is, in 

          25      fact, to the public.

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           1                 MR. THOMPSON:   Well, this presumes a 

           2      fully-accessible conference call with proper 

           3      notification and everything, in other words, that 

           4      complies with what the SEC considers would be a 

           5      webcast or a telephonic call that constitutes full 

           6      disclosure.

           7                 COMMISSIONER HUNT:   But wouldn't you 

           8      also want a time period after the call so that 

           9      people could have the chance to hear it?

          10                 MR. THOMPSON:   Absolutely.

          11                 COMMISSIONER HUNT:   Obviously some 

          12      people work during the day and can't be listening to 

          13      conference calls.

          14                 MR. THOMPSON:   Absolutely. 

          15                 And the other thing we find, and this is 

          16      even a problem for some of the media, they have 

          17      sometimes difficulty getting into the conference 

          18      calls because they have fire walls within their own 

          19      systems that don't permit them. 

          20                 And there are a lot of investors that 

          21      work in office environments where they can't use the 

          22      computer system.

          23                 MR. NORRIS:   And their companies may 

          24      prefer that they work.

          25                 MR. INSANA:   But there is an issue of 

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           1      pure practicality here, I mean, with respect to 

           2      regulating the time frame for conference calls.  Now 

           3      that we have after-hours trading, again, the 

           4      advantage will fall disproportionately to those in 

           5      the financial community if the conference call comes 

           6      in between four and six o'clock and there is still 

           7      trading activity going on. 

           8                 Individual investors, like myself, will 

           9      be at work and unable to access the information in 

          10      real-time when the stock could be moving.  Whereas, 

          11      a conference call after six or six-thirty, when 

          12      there has been a sufficient settlement period,  

          13      would further level the playing field. 

          14                 MR. COKER:   I would like to comment a 

          15      little bit more about this idea of best practices 

          16      that came up in the previous panel.  It is coming up 

          17      again, Lou has mentioned it a couple of times.

          18                 I think this is an area where the SEC 

          19      could provide some additional guidance in terms of 

          20      what constitutes minimal disclosure of your full 

          21      disclosure information. 

          22                 I would propose that a press release 

          23      become part of the standard best practices.  Press 

          24      releases reach a very wide range of investors.  I 

          25      would also suggest, and this is self-serving, that 

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           1      as part of that disclosure process, your events were 

           2      posted in one of the several different calendar 

           3      directories that are out there, of which we are just 

           4      one. 

           5                 Another thing that I would propose is 

           6      that you take a look at the length of time that 

           7      these events are archived, because currently it is 

           8      all over the map.  Some companies archive their 

           9      events for a day, some archive them for two years.  

          10      And it has always kind of boggled my mind that an 

          11      SEC filing is archived for perpetuity; yet, a 

          12      webcast might disappear in a day.  And I would like 

          13      to see the SEC encourage the issuers to extend the 

          14      period of that archiving. 

          15                 And then just one other comment.  We were 

          16      talking a little bit earlier about the number of 

          17      conference calls that are being broadcast.  At 

          18      BestCalls we have a broadcast to produce the calls 

          19      that we aggregate from all the different sources.  

          20      And in the most recent quarter, we listed over 4,300 

          21      open conference calls.  And that compares with 1,300 

          22      conference calls just a year ago.  So we have seen a 

          23      number of events explode, not only have earnings 

          24      conference calls opened up, but many companies, such 

          25      as Intel mentioned earlier, are starting to hold 

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           1      interim quarterly events.  And I think this is a 

           2      good trend.

           3                 Again, we are looking toward increased 

           4      transparency where companies can take advantage of 

           5      the communications technology that is out there 

           6      today to communicate more frequently to their 

           7      investors.

           8                 COMMISSIONER HUNT:   Do you think that 

           9      companies are providing you with better information 

          10      today than before?  

          11                 MR. COKER:   My personal opinion, based 

          12      on observations I have made in conference calls that 

          13      I attend as well as data that I have seen from Lou 

          14      Thompson's organization, is that the net effect is 

          15      that companies are disclosing more information 

          16      during the conference calls.

          17                 A year ago it was standard practice for a 

          18      company to hold an earnings conference call and then 

          19      do one-on-one calls with the analysts to spoon-feed 

          20      earnings guidance.  Now we are seeing the earnings 

          21      guidance spoon-feeding happen right on the call, so 

          22      that companies come in specifically with what their 

          23      estimated EPS ranges are going to be, what their 

          24      sequential growth rates are going to be.  And we are 

          25      also seeing that information directly in press 

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           1      releases now. 

           2                 MR. ARMON:   We have noticed in the 

           3      conference call listener statistics that the number 

           4      of listeners actually have declined as companies 

           5      have obviously narrowed the time that the archive is 

           6      available. 

           7                 Lou Thompson makes reference to a five 

           8      day or a week type of a time period that a call 

           9      should be up after it's webcast.  That seems to be 

          10      the average that we are experiencing now at PR 

          11      Newswire, while the product that is on the market 

          12      that we sell in conference calls on the web allows 

          13      90 days, nobody is taking advantage of that, or very 

          14      few at this point, so I think Mark's point is true.

          15                 MR. COKER:   I think the problem here are 

          16      the lawyers. 

          17                 MR. KARLE:   As the only lawyer on the 

          18      panel, I will say in regards to this archiving, it 

          19      is easy to archive for 60 to 90 days. 

          20                 MR. ARMON:   Sure. 

          21                 The average number is in the range of 

          22      about 120 listeners.  If you take all of the large 

          23      caps and the small caps and lump them together and 

          24      look at that.  We have a New York Stock Exchange 

          25      automotive company with 240 listens.  You heard, I   

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           1      think, on the last panel, Colgate said they had 250 

           2      listeners on a call; yet, you heard the 17,000 

           3      figure from EMC, so they are kind of all over the 

           4      board.

           5                 COMMISSIONER HUNT:     But you think 

           6      there should be a minimum archiving period?

           7                 MR. COKER:   I think there should be 

           8      because the information disclosed during the 

           9      conference calls, especially the analysts Q&A, 

          10      cannot be found anywhere else.  You are not going to 

          11      find it in a press release, a 10-K or a 10-Q.  You 

          12      can't write a 30-page press release.

          13                 MR. RUDER:   That would give the 

          14      Commission a chance for another rule, a rule which 

          15      would declare that information that remains on the 

          16      website is not subject to updating because then it 

          17      is becoming misleading.

          18                 MR. COKER:   I believe you have an 

          19      opportunity to extend some of your safe harbor 

          20      guidance to the conference calls where it becomes 

          21      clear to the investors that the information that is 

          22      presented in this archive conference call 

          23      represented the company's views and opinions at that 

          24      time and you have no obligation to update it.

          25                 COMMISSIONER HUNT:   That's an 

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           1      interesting idea.  We could also include the Q&As.

           2                 MR. COKER:   You definitely should 

           3      because that's what the best information is.

           4                 CHAIRMAN UNGER:   Can I follow-up on one 

           5      thing that you said, and I think it will be a quick 

           6      answer. 

           7                 Why is it that you think press releases 

           8      are the most effective way to reach investors?

           9                 MR. COKER:   Because those press releases 

          10      reach, as Cathy mentioned, 16,000 to 20,000 

          11      different news outlets, it reaches the online 

          12      databases such as Yahoo.  Yahoo is an 800-pound 

          13      gorilla in this space. 

          14                 An interesting thing to look at here is 

          15      that press releases have become media in their own 

          16      right over the last ten years.  Ten years ago, 

          17      individual investors never read a press release.  

          18      Now press releases are written for everyone.  And 

          19      online databases such as Yahoo and Site and 

          20      Microsoft Money, all of these facilitate instant 

          21      exchange of information.  You can go to Yahoo, such 

          22      as My Yahoo, which is the service I use, and 

          23      subscribe to information that interests you.

          24                 MS. BARON:   I also want to add, that 

          25      with a press release you also have not only the push 

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           1      out to the private line networks that includes 

           2      disclosure media, but we are also posting every news 

           3      release on our website. 

           4                 Anyone can tap into that and it is free, 

           5      and that's on a real-time basis.  So there is an 

           6      archive ability there and there is also archiving 

           7      through all the online services and databases that 

           8      we are also going into.  So a press release can 

           9      remain alive pretty much in perpetuity.

          10                 MR. NORRIS:   I would like to suggest 

          11      that the idea, of course, that they need a Safe 

          12      Harbor, strikes me as odd, you know, any more than 

          13      the fact that a '98 10-K is now out of date, I don't 

          14      think really needs disclosure.

          15                 But there are services which, if the law 

          16      is clear for them, and I don't know if it is, that 

          17      will archive and make available conference calls, 

          18      more or less, forever.  I know in the past some of 

          19      those services had problems with companies claiming 

          20      copyright violations.  And I think that one thing 

          21      the SEC might consider doing, and I am not sure if 

          22      it is required, is to make clear that after a 

          23      conference call, since the conference call is to be 

          24      publicly disseminated, just as they are not going to 

          25      stop anyone from making a xerox of the 10-K from 

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           1      EDGAR, nor should they stop anyone from 

           2      disseminating the conference call information as 

           3      long as they wish to do so with a clear date so that 

           4      we are not worried about someone claiming that the 

           5      first quarter 2000 report reflects current 

           6      information on the company.  But there are people 

           7      who will solve that disclosure problem and sometimes 

           8      information on a conference  call becomes 

           9      significant later when other information comes out.

          10                 There was a conference call a few weeks 

          11      ago in which a CEO expressed his complete outrage 

          12      that the stock was trading at the current price.  It 

          13      was a ridiculous price, he had no understanding how 

          14      the market could have marked the stock down to that 

          15      level.  And it subsequently turned out, that a few 

          16      days before and a few days after, he chose to sell 

          17      his own stock at that level.

          18                 CHAIRMAN UNGER:  I would say, just 

          19      briefly, that you could definitely make a case for 

          20      distinguishing between historical information like 

          21      SEC filings, and real-time information that's really 

          22      only as good until the next time you disseminate 

          23      that real-time information about earnings. 

          24                 But that said, I think we need to start 

          25      thinking about wrapping up, because we are late in 

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           1      our lateness.  So I know Commissioner Hunt has 

           2      another question, and if we could just go around and 

           3      sort of give you the opportunity to do a 30-second 

           4      sum-up or make your final point, I would greatly 

           5      appreciate it.

           6                 COMMISSIONER HUNT:   Are any of you 

           7      following the Item 9s on the 8-K reports, which is 

           8      one method of adequate dissemination of the 

           9      information? 

          10                 Do you follow that on a regular basis?

          11                 MR. ARMON:   One of our partners is Tom 

          12      Boss with EDGAR Online, and he has indicated to us 

          13      that there has been a substantial increase in volume 

          14      there as well since Reg FD. 

          15                 COMMISSIONER HUNT:   Well, I think there 

          16      is an increasing volume because the release, I 

          17      think, says this is one of the things you can use.  

          18      And so I would assume that lot of people will say, 

          19      "If I follow that, I should be getting a lot of 

          20      material information."

          21                 MR. ARMON:   Right.  But it is not 

          22      real-time, though, and certainly it is not a 

          23      convenient tool for individual investors to track 

          24      what is going on with a company.

          25                 COMMISSIONER HUNT:   No, but I think for 

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           1      professional news sources it might be useful.

           2                 MR. THOMPSON:   Well, we urge companies 

           3      -- I would say companies are using the filings for 

           4      certain items.  Furnishing information for Item 9 is 

           5      really kind of back-up, but to use that as a primary 

           6      means is a mistake because individual investors are 

           7      not cruising EDGAR for this.

           8                 And some companies have, in effect, 

           9      furnished information under Item 9 in an 8-K, then 

          10      bad news.  Then they hold a conference call because 

          11      they feel that bad news is going to look a lot worse 

          12      in a news release, so they file it under Item 9 

          13      because it is lower profile, but then they will be 

          14      willing to talk about it in a conference call.  It 

          15      is kind of a misperception of the process, but I 

          16      will tell you, the investment community gets very 

          17      upset when they find that a company has put 

          18      something in an SEC filing that wasn't in the news 

          19      release where they had real access to it and were 

          20      given a heads up on it.  You will pay a market price 

          21      for that.

          22                 MR. KARLE:   I think the experience of 

          23      our reporters is exactly that, that essentially the 

          24      8-K is a fail safe or safe harbor.  That is what 

          25      they use it for so everything goes in there, but no 

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           1      companies really rely on that as a sole means of 

           2      dissemination.

           3                 CHAIRMAN UNGER:   Floyd, do you want to 

           4      start?

           5                 MR. NORRIS:   I will pass. 

           6                 MR. THOMPSON:   Just very quickly, I will 

           7      say that the SEC could perhaps give us some more 

           8      guidance on guidance, if I may say so.  And I am not 

           9      sure that the lawyers are going to completely relax 

          10      until they see an enforcement case.  You have to be 

          11      careful what you wish for, to see that the SEC is 

          12      really interested in egregious kinds of cases of 

          13      selective disclosures, and are not, as David Becker 

          14      has said numerous times, they are not trying to take 

          15      enforcement actions on materiality, particularly in 

          16      these sessions. 

          17                 And the other thing would be to really 

          18      urge the self-regulatory organizations to try to 

          19      open their minds.  We are in the 21st century with a 

          20      lot of different means to disseminate information, 

          21      and to allow companies that opportunity which this 

          22      Regulation gives them. 

          23                 COMMISSIONER HUNT:   I don't know how 

          24      many times we have to say we are not trying to get 

          25      everybody under Regulation FD.

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           1                 MR. BECKER:   It's all those enforcement 

           2      cases we haven't brought.

           3                 MS. BARON:   If the message from the SEC 

           4      is that all investors should have equal access to 

           5      information, then I would say that the regulation is 

           6      successful and is working.

           7                 I think change is always difficult for 

           8      everybody, and there was period of nervousness and 

           9      maybe over-distribution going on.  But I think 

          10      everybody is settling down and companies, as far as 

          11      press releases go, are continuing to do what they 

          12      have always done and are putting the news out pretty 

          13      much in the same way, with the exception of there 

          14      being more forecasts on the wire. 

          15                 MR. INSANA:   I would agree with Lou and 

          16      encourage self-regulatory organizations to view 

          17      different media as a legitimate source of 

          18      dissemination.  But I would also maybe suggest at 

          19      some point in engaging in a qualitative assessment 

          20      of Reg FD in addition to just a quantitative one 

          21      where we look at whether or not there is more or 

          22      less dissemination but, too, also where can we 

          23      improve or fine tune the existing regulations so 

          24      that they work more in the spirit with the rule. 

          25                 MR. KARLE:   If anything, Reg FD makes 

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           1      journalists and analysts work harder, and that's got 

           2      to be a good thing. 

           3                 MR. ARMON:   It is our goal to reach as 

           4      many individuals and institutions with a press 

           5      release when it goes out.  If there are any new 

           6      methods that we should be exploring beyond what are 

           7      already in place, please let us know. 

           8                 MR. COKER:   To borrow a phrase from 

           9      Martha Stewart, "Regulation FD is good thing."

          10                 COMMISSIONER HUNT:   She said that in 

          11      K-Mart. 

          12                 MR. COKER:   I think Regulation FD has 

          13      had a tremendously positive impact on our markets.  

          14      I think that we all still underestimate the impact 

          15      that it is going to have for decades to come. 

          16                 Yes, there is room for improvement.  When 

          17      I see that a minority of companies, that 23 or 24 

          18      percent are disclosing less and clamming up, that 

          19      does concern me.  And I would encourage the SEC, 

          20      through the issuance of recommended best practices 

          21      to address ways to increase the comfort level for 

          22      the issuers so that we can see more information 

          23      disclosed.

          24                 COMMISSIONER HUNT:   Well, I think both 

          25      of us would urge all of you in the audience to let 

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           1      us know of any unintended bad consequences that you 

           2      see or experience in terms of the operation of FD, 

           3      so that if it could possibly be corrected, we can do 

           4      so.

           5                 CHAIRMAN UNGER:   I want to thank this 

           6      panel's panelists, and say although I thought I was 

           7      hearing very different things at the outset, I am 

           8      hearing very much the same things in terms of what 

           9      the Commission needs to focus on, again, more 

          10      guidance, best practices --

          11                 COMMISSIONER HUNT:   No enforcement.

          12                 CHAIRMAN UNGER:   The lawyer thing.  

          13      Having the answers weigh in perhaps in developing 

          14      best practices and concerning the tools that we use 

          15      to further the dissemination. 

          16                 And so I am very appreciative of your 

          17      points and your information and your willingness to 

          18      come and share them with the Commission and with the 

          19      audience.  And I thank you very much.  And we will 

          20      save this in perpetuity. 

          21                 (Lunch recess taken.)

          22                 CHAIRMAN UNGER:   We are going to start 

          23      again.  This panel hardly needs any introduction, 

          24      but we will go around the room the way we have for 

          25      each of the previous panels and hear from each of 

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           1      the panelists for a couple of minutes about their 

           2      background and maybe a couple of points on Reg FD 

           3      that they would like to discuss during the course of 

           4      this panel.  Commissioner Hunt will be joining us in 

           5      a couple of minutes, so he said to go ahead.

           6                 And I would like people to speak directly 

           7      into the microphone because the webcasters said that 

           8      they are having difficulty hearing, or at least the 

           9      people trying to listen in, so if you could try to 

          10      speak directly into the microphone, that would be 

          11      greatly appreciated.  And we will just start this 

          12      initial go-around, say, limit it to a couple of 

          13      minutes so that we can really have a wholesome 

          14      dialogue.

          15                 Thank you. 

          16                 MS. WALTERS:   Thank you, Commissioner.

          17                 My name is Pat Walters, and I am 

          18      representing the Association for Investment 

          19      Management & Research, and many people refer to us 

          20      as AIMR, many people refer to us as AIMR.  We answer 

          21      to all of those names.  And we represent 

          22      approximately 49,000 investment professionals 

          23      worldwide.  We have the chartered financial analyst 

          24      examination program.  This year we have over 86,000 

          25      candidates for that designation worldwide. 

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           1                 And we responded through a task force on 

           2      selective disclosure and analysts' independence to 

           3      the Commission's original proposal on Regulation FD 

           4      from a number of different perspectives.  We 

           5      certainly support the Commission's intention with 

           6      the Regulation; however, we had a number of problems 

           7      at the time, and we still have problems with the way 

           8      the Regulation has been implemented. 

           9                 A couple of questions that occurred this 

          10      morning that I would like to respond to.  The first 

          11      was:  Is there more information available in the 

          12      market post Regulation FD?  And I think there are 

          13      two issues here.  The first is, I don't think there 

          14      is any question that there is more accessibility to 

          15      information.  We did a study that Lou Thompson 

          16      mentioned this morning, a survey.   We surveyed 

          17      6,100 of our members and about 445 members 

          18      responded.  

          19                 75 percent of them were from the buy 

          20      side, and the remainder was from the sell side, and 

          21      they do admit that there is an increase in both the 

          22      volume and frequency disclosed by companies.  

          23      However, the buy side, in particular, believes that 

          24      the usefulness and specificity of that information 

          25      has decreased.  The sell side is somewhat mixed 

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           1      about that.  Both the buy side and the sell side 

           2      believe that candor in terms of communications has 

           3      decreased.

           4                 So the question is, yes, more people are 

           5      getting information, but is it more or less 

           6      information than was available in the marketplace 

           7      beforehand?  And we believe that it is significantly 

           8      less information and that the information available 

           9      isn't as meaningful and as useful as it might have 

          10      been before.

          11                 I think one of the things that doesn't 

          12      come out in some of the discussions we have is the 

          13      question of what constitutes sufficient information 

          14      for people to make reasonable investment decisions.  

          15      We talk a lot about earnings guidance and earnings 

          16      forecasts, but one simple number is definitely not a 

          17      basis on which people should make investment 

          18      decisions for themselves or for others.  There is a 

          19      lot more that goes into analysis and valuation 

          20      decisions. 

          21                 Something else that was mentioned this 

          22      morning has to do with how hard analysts work.  I 

          23      know a number of analysts personally, I think they 

          24      worked very hard before Regulation FD, I think they 

          25      continue to work just as hard.  There are only so 

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           1      many hours in the day, I guess, that we can work.  

           2      Perhaps they have to work differently, I think 

           3      that's a slightly different characterization of what 

           4      is going on than perhaps has been mentioned earlier.

           5                 Analysts' responsibility is to ferret out 

           6      information, that could be ferreting out information 

           7      from voluminous annual reports and public documents 

           8      that are available, it can be talking to management, 

           9      it can be talking to competitors, it can be talking 

          10      to suppliers and customers, it can be going to see 

          11      whether or not the company actually owns real estate 

          12      that it claims to own. 

          13                 The analysts' competitive advantage 

          14      relative to others, whether you are talking on the 

          15      buy or the sell side, is the ability to ferret out 

          16      particular pieces of data and to put together a 

          17      mosaic that has been mentioned previously and to 

          18      form an investment decision and a valuation 

          19      recommendation based on that information. 

          20                 One of the other things that was 

          21      mentioned this morning was how important it was to 

          22      include the question and answer phase of the 

          23      conference call in any archived piece of 

          24      information.  That tells you that the ability to 

          25      formulate questions, which by and large is done by 

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           1      the investment professional, I suspect, on 

           2      conference calls, rather than the individual 

           3      investor, is a part of the information disclosure.  

           4      And just as journalists do not always want to ask 

           5      important questions in a public forum like a press 

           6      conference, neither would the analyst like to 

           7      necessarily ask their competitive advantage kind of 

           8      question, whether it looks to material information 

           9      or not, in a public forum. 

          10                 With respect to their ability to have 

          11      one-on-one conversations with management prior to 

          12      Regulation FD, 68 percent of the people responding 

          13      to our survey on the buy side said that they did 

          14      have these one-on-one conversations, and 69 percent 

          15      of them said that their ability to do that 

          16      decreased.  As you might imagine, 90 percent of the 

          17      sell side said they had such conversations, and 70 

          18      percent of them said their ability to do that has 

          19      decreased. 

          20                 CHAIRMAN UNGER:   Would you mind summing 

          21      up?  We will have plenty of time to talk about some 

          22      of these issues.

          23                 MS. WALTERS:   Okay.

          24                 I think one of the key things that we 

          25      would like to say is something that has been said 

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           1      about a definition, and that has to do with what the 

           2      definition of materiality is.  I think it is 

           3      important for both the company and the questioner, 

           4      whether that questioner is an investment 

           5      professional or an individual investor, to know 

           6      whether it is reasonable for them to expect the 

           7      company to answer that kind of question.

           8                 And then, finally, I would like the 

           9      Commission to not forget that there are other 

          10      markets besides the equity markets to which this 

          11      Regulation applies.  Everything that was really 

          12      addressed this morning had to do with the equity 

          13      markets.  We have not surveyed our members relative 

          14      to the fixed income markets and some of the other 

          15      similar types of markets where there is nowhere near 

          16      the amount of publicly available information for 

          17      investment professionals, particularly if they are 

          18      investing on behalf of others in those markets, to 

          19      do their due diligence, and that very little has 

          20      been either discussed about the effect on those 

          21      markets or how people in those markets should react 

          22      in terms of understanding this Regulation.

          23                 CHAIRMAN UNGER:   Thank you. 

          24                 Adam?

          25                 MR. LASHINSKY:   My name is Adam 

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           1      Lashinsky, I am a Silicon Valley columnist with 

           2      TheStreet.com.  And I know that journalists are not 

           3      supposed to praise public officials in public, but 

           4      at that risk, I just want to say that I am delighted 

           5      to be invited here, Chairman Unger, and thank you 

           6      for having this Roundtable because it is a topic 

           7      that I have devoted a lot of time to even before Reg 

           8      FD existed. 

           9                 So as I said, I am delighted to be here 

          10      to discuss it.  And I know there is some confusion 

          11      as to why I am on this panel, so if you will indulge 

          12      me, I just want to say that some of my best friends 

          13      are research analysts. 

          14                 COMMISSIONER HUNT:   Not lawyers?

          15                 MR. LASHINSKY:   No, we are moving on to 

          16      a new demon this afternoon. 

          17                 Bina Thompson at Colgate-Palmolive 

          18      suggested this morning that Regulation FD has cut 

          19      down on the give and take between issuers and the 

          20      financial community, and that essentially, to 

          21      paraphrase the comments that she made representing 

          22      large companies, she said there really was no 

          23      problem.  So let me state clearly, you know and I 

          24      know, there was a problem. 

          25                 It was the problem known as the wink, 

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           1      wink, nudge, nudge communication between issuers and 

           2      investors both on the buy side and on the sell side 

           3      in terms of selectively disclosing information.  

           4      Floyd Norris was right when he said that he thought 

           5      that was against the law.  It was against the law 

           6      but it went on all the time and there was very 

           7      little done to stop it. 

           8                 Regulation FD has stepped in to 

           9      significantly slow down the wink, wink, nudge, nudge 

          10      game.  And I think that's a good thing for all 

          11      investors.  There is absolutely nothing in 

          12      Regulation FD preventing issuers from communicating 

          13      with investors.  They could put out a press release, 

          14      they can put out long press releases if they like, 

          15      they can give detailed information on their business 

          16      operations.  They just have to do it for everybody, 

          17      and if that's how they choose to communicate, so be 

          18      it.

          19                 Ron Insana, I think, suggested earlier -- 

          20      he seemed to suggest that there was something 

          21      nefarious about fund managers -- I'm sorry, it 

          22      wasn't Ron Insana, it was one of the panelists on 

          23      the first panel who suggested there was something  

          24      wrong with contacting salespeople or going further 

          25      down in the organization from where Reg FD allows 

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           1      communication. 

           2                 I think that's a wonderful thing.  That 

           3      is called doing mosaic analysis.  That is called 

           4      doing your homework.  One person in the organization 

           5      doesn't have the visibility that the chief executive 

           6      or the head of IR has, that is why the Regulation 

           7      was written the way it was.  So I don't think we 

           8      have anything to fear from investors doing their 

           9      research and talking to different people in the 

          10      organization. 

          11                 Then I would just raise the difficult 

          12      topic that nobody wants to discuss, and I assume 

          13      that's why the SEC asked me to be on this panel.  

          14      Patricia said that an analyst's job is to ferret out 

          15      information.  That's true, but anyone who knows how 

          16      this business works knows that the sell side equity 

          17      research analyst has far more jobs than simply 

          18      ferreting out information.  They are there to help 

          19      the investment banking process.  God bless them for 

          20      it because that's how their employers make money, 

          21      but until fairly recently the investing public 

          22      hasn't understood that well. 

          23                 So as I throw it back, I am frustrated 

          24      that there doesn't seem to be anything that the SEC 

          25      can do to help the individual investor with this 

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           1      problem that they don't know where to get 

           2      independent research.  I say frustrated because I am 

           3      told that there is no role to play for the SEC here.  

           4      Having said that, the individual investor needs more 

           5      protection than the media or the plaintiff bar in 

           6      battling information in the marketplace put out by 

           7      people who have conflicts of interest.  And I am 

           8      sure we can argue about that for the rest of the 

           9      afternoon, if we like.

          10                 CHAIRMAN UNGER:   Well, Michael, what a 

          11      perfect introduction.  

          12                 MR. BLUMSTEIN:   Good afternoon, I am 

          13      Mike Blumstein, and I am the North American equity 

          14      research director of Morgan Stanley Dean Witter.   I 

          15      was a sell side analyst for 15 years and have been a 

          16      research director overseeing our U.S. and Canadian 

          17      stock and industry research for the past year.  We 

          18      have more than 100 analysts in both the U.S. and 

          19      Canada combined.

          20                 I will be pretty short here.  Let me tell 

          21      you first, we have two very strong beliefs.  One is 

          22      that, in part, the underlying and enduring strength 

          23      of our economy is, in part, a function of our 

          24      smoothly functioning capital markets, and we don't 

          25      want to lose sight of that.  And, two, I want to 

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           1      tell you that we have long believed in research 

           2      integrity, and research integrity is paramount to 

           3      the job of what we do in equity research at Morgan 

           4      Stanley.  And we have been in print internally with 

           5      that to our analysts dating back to 1984. 

           6                 Regarding Reg FD, I will tell you that we 

           7      think the goals of Reg FD are worthwhile.  We are 

           8      not here to shoot hundreds of holes in Reg FD.  Our 

           9      concerns center on what you might call the 

          10      execution.  We are concerned that there is more 

          11      noise but less substance and we are also concerned 

          12      about corporate paranoia, this idea that, "If we 

          13      don't say anything then we can't really get into 

          14      trouble." 

          15                 It seems that no company wants to be the 

          16      first test case, so we fear that in some cases there 

          17      is less worthwhile information coming out, and while 

          18      the Regulation specifically said that operating 

          19      managers should be available to educate analysts, 

          20      our concern is that they are less available now, not 

          21      more available. 

          22                 And our concerns really here are that all 

          23      the uncertainty leads to more volatility in the 

          24      capital markets and, ultimately, our concern is that 

          25      more volatility raises the cost of capital for 

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           1      everybody and ultimately hampers our economy.  And I 

           2      will leave the rest for Q&A.

           3                 CHAIRMAN UNGER:   Thank you.

           4                 Charles. 

           5                 MR. HILL:   I am Chuck Hill, director of 

           6      research at First Call, I have been there ten years.  

           7      First Call is a firm that distributes sell side 

           8      research selectively to only their individual 

           9      clients, and in addition, we put together the 

          10      consensus earnings numbers and recommendations. 

          11                 Prior to coming to First Call, I spent 22 

          12      years as an analyst, 18 on the sell side, and so I 

          13      have seen it from a number of different angles.  In 

          14      relation to the comment that Adam made about the 

          15      wink, wink, nudge, nudge, there were things that are 

          16      far more flagrant than that.  We saw notes in First 

          17      Call where the analysts were saying the company was 

          18      calling analysts last night to revise their numbers. 

          19                 Now, there it is in print, folks, the 

          20      company was initiating selective disclosure.  So I 

          21      think there was a real need for something like FD.  

          22      And from our point of view, I think the best 

          23      testimonial is that when FD was about to be 

          24      introduced in September and early October, there was 

          25      a lot of grousing in the sell side analyst reports, 

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           1      particularly from the banking analysts, so they must 

           2      have known what was coming. 

           3                 But since FD has been implemented, we see 

           4      very little grousing except in the banking industry.  

           5      So I suspect there is some kind of problem there.  I 

           6      don't know if maybe the bank lawyers are more 

           7      conservative than others or what the reason is, but 

           8      it does seem that there is some sort of problem in 

           9      getting information from the banking industry.  But 

          10      outside of that, I think the comments from the 

          11      analysts about problems getting information have 

          12      been pretty few and far between since 

          13      implementation. 

          14                 I would say that given a lot of the 

          15      comments that have been made lately by pundits in 

          16      the investment business, that this big increase in 

          17      warnings from companies was due to FD, I think it is 

          18      absolutely untrue.  Unfortunately, FD was 

          19      implemented at the worst possible time in terms of 

          20      being able to measure the impact of it.  We are in 

          21      this radically changing environment here, but we 

          22      would have gotten, I am sure, a record number of 

          23      negative pre announcements from companies even if FD 

          24      hadn't been implemented.  It certainly added some to 

          25      the list, but the ironic thing was where we know it 

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           1      added a lot, because in some cases it even said in 

           2      the release that we are confirming prior guidance as 

           3      a result of FD, we saw in the fourth quarter and in 

           4      the first quarter that the number of on-target pre 

           5      announcements went up less than the negative, so no 

           6      matter how you slice it, I don't think FD is 

           7      responsible for this huge increase in warnings.

           8                 I think what it has led to is an 

           9      increased number of analysts meetings that are 

          10      obviously open to the public via webcast or 

          11      conference call, and in addition, we are seeing a 

          12      number of them, and, again, some of these were 

          13      prefaced with "as a result of FD" that they had 

          14      instituted regularly-scheduled mid-quarter or 

          15      monthly conference calls to give guidance. 

          16                 Incidentally, in the guidelines that the 

          17      SEC has put out, one of the issues was, can we 

          18      confirm things to individual analysts and still be 

          19      on safe ground in the guidance, the issue about how 

          20      long had it been since you put out a formal 

          21      guidance.  And I guess it was interpreted as if you 

          22      were halfway through the quarter, you were on kind 

          23      of shaky grounds.  So, obviously, if companies are 

          24      going to have regular monthly scheduled calls, that 

          25      would get around that issue. 

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           1                 As far as what it is going to do to 

           2      earnings estimates and volatility, I think, first of 

           3      all, it is important to differentiate between the 

           4      current quarter and subsequent periods because it is 

           5      a very different environment between those two.  

           6      Even before FD, the current quarter was mainly in 

           7      the hands of the IR person.  When I was the analyst, 

           8      if I went and talked to the company, they told me 

           9      what their thinking was for a full year and next 

          10      year.  I took it with a grain of salt, it was just 

          11      another input. 

          12                 But if they told me the current quarter 

          13      was going to be such and such, and I was high or 

          14      low, I had to listen because I figured, hey, they 

          15      know more about the current quarter certainly than I 

          16      possibly could since they are looking at the books.  

          17      But now with the public guidance that they have to 

          18      give on the quarter, I think it is really in the 

          19      hands of the IR folks at the companies. 

          20                 That is going to mean -- 

          21                 CHAIRMAN UNGER:   Chuck, can we say 

          22      something to slim down a little?

          23                 MR. HILL:   Less final surprises, higher 

          24      estimate ranges, and I think it is going to 

          25      eliminate the purposely low-balling the guidance 

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           1      that some companies have been doing in the past. 

           2                 It is one thing if you are doing it on 

           3      the private calls for the analysts versus putting 

           4      something out in a public release.

           5                 On the further out stuff --

           6                 CHAIRMAN UNGER:   You know what, this is 

           7      not your only opportunity to talk.  I wanted to let 

           8      people touch on their topics for one or two minutes.

           9                 MR. HILL:   All right, but I think it 

          10      will lead to better analysis in subsequent --

          11                 CHAIRMAN UNGER:   I appreciate your 

          12      comments.  I think they are all valid points, but 

          13      I'd like to hear from David. 

          14                 MR. BERRY:   I am David Berry, I am 

          15      director of research at Keefe, Bruyette & Woods.  We 

          16      are basically a research company in the public 

          17      financial services industry. 

          18                 Frankly, God's honest truth, this is 

          19      probably too early to really say whether Reg FD is a 

          20      good thing or a bad thing.  The truth is we can 

          21      accommodate pretty much anything, but it does seem 

          22      to me as a working analyst, that practically, it is 

          23      less disclosure. 

          24                 Well, let me word this in a very careful 

          25      way.  Certainly now information is much more broadly  

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           1      disseminated, but it is the incremental information 

           2      from which we get nuance, from which we develop the 

           3      mosaic theory, that being inside it is harder to 

           4      achieve.  So in that sense, it is probably making 

           5      our job a little harder. 

           6                 There are certain kinds of conversations 

           7      that we are no longer having with companies, 

           8      conversations like, "So how is the quarter going," 

           9      so it is especially limited today. 

          10                 It let us free up the rules on late in 

          11      the quarter, and that's nice, but it also means our 

          12      estimates are not as good as they used to be.  So it 

          13      seems to us that the opportunities for companies to 

          14      surprise either with earnings releases or if they 

          15      choose to create announcements is greater than it 

          16      used to be.  On one level that is good news, I 

          17      guess, but in another sense it doesn't seem very 

          18      smart because it means there is less good 

          19      information in the marketplace.  More guess work, 

          20      less real information, greater propensity for 

          21      mispricing securities.  I am not sure why that is a 

          22      good thing.

          23                 There is implicit in all of this some 

          24      sense that analysts were just sitting around, taking 

          25      phone calls from managements previously.  I wasn't 

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           1      doing that, I am not sure what anyone else was 

           2      doing.  There is some sense that if an analyst got 

           3      information by talking to a supplier of a company or 

           4      a customer of a company, somehow that is more fair 

           5      than an analyst simply talking to a CEO or director 

           6      of investor relations.  I find this a peculiar point 

           7      of view.

           8                 With respect to this issue of analyst 

           9      conflicts between analysts' roles as analysts or 

          10      analysts' roles as people working for an investment 

          11      banking department, at this point, the Reg FD does 

          12      nothing to address those conflicts.  They are with 

          13      us or not regardless of Reg FD. 

          14                 So in short, it seems like there is a 

          15      little less information out there in the 

          16      marketplace.  Yes, the places we do get information, 

          17      it becomes actually harder to get what you want in a 

          18      public forum.  You have to sit through everyone 

          19      else's silly and pointless questions, where you 

          20      could ask your one really penetrating question.

          21                 And I think the issue is trying to 

          22      develop independent points of view, all kinds of 

          23      things, set down like a strip mall, with consistent 

          24      and streamlined disclosure.  And I am not sure it is 

          25      really doing what we need to do, but, frankly, you 

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           1      know, we can live with anything. 

           2                 CHAIRMAN UNGER:   Thank you.

           3                 Frank? 

           4                 MR. FERNANDEZ:   My name is Frank 

           5      Fernandez, I am the director of research with the 

           6      Securities Industry Association.  We represent about 

           7      700 securities firm that account for 80-some-odd 

           8      percent of all securities traded in North America.

           9                 I have been in the financial industry 

          10      here in New York for 22 years, first as a regulator, 

          11      also as an asset manager, broker, but principally as 

          12      an analyst.  I promise to be brief, but I would like 

          13      to make two very general comments.

          14                 First, a bit of clarification.  The SIA 

          15      has been painted one way on this issue because we 

          16      have been broadly in opposition to it since it was a 

          17      twinkle in Mr. Levitt's eye.  But SIA has, since the 

          18      inception of the debate on the issue of selective 

          19      disclosure and still does today, support the same 

          20      ends as the Commission.  We opposed it largely for 

          21      the same reasons as you said you voted against it, 

          22      we had concerns about the impact on the flow of 

          23      information and the quality, in particular. 

          24                 We do favor a system that provides broad, 

          25      non-discriminatory dissemination of quality 

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           1      information.  We believe that the process of 

           2      increasing information flow and opening access to 

           3      all investors was already underway prior to Reg FD's 

           4      adoption.  And this is not a disingenuous claim.  

           5      And it was largely the result of the diffusion of 

           6      significant inventions and innovations and 

           7      information and communications technology and the 

           8      broadening of the investor base in the United 

           9      States.  

          10                 We also believe that, as was mentioned 

          11      earlier, that the SEC already had sufficient 

          12      enforcement powers.  Nonetheless, Reg FD has 

          13      equipped the SEC with additional enforcement tools 

          14      used in instances where selective disclosure occurs.  

          15      Our concern then, as now, is that any solution 

          16      mandated by regulatory fiat is apt to produce 

          17      unintended consequences.  Our hope would be to 

          18      mitigate those unintended negative consequences that 

          19      now exist to the greatest extent possible.  We want 

          20      to work constructively with the SEC to improve Reg 

          21      FD to achieve the goals we all share by examining 

          22      the definition of material, by limiting collateral 

          23      liability, and by giving clear guidance to issuers 

          24      and analysts. 

          25                 The second point I would like to make is 

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           1      that we have sought throughout to present a balanced 

           2      appraisal of the impact of Reg FD and assess its 

           3      cost and benefits.  We have engaged in a study that 

           4      now has gone on for more than six months.  We are 

           5      now completing, nearing completion of our effort in 

           6      this regard and we will in the next month be 

           7      prepared to release our findings.

           8                 Our preliminary conclusions present, 

           9      really, very few surprises.  The impact of Reg FD  

          10      appears to produce the unintended consequences we 

          11      anticipated in our early comment letters to the SEC 

          12      on this issue.  Specifically, it would produce a 

          13      chilling effect, reducing the quantity to a degree, 

          14      but more importantly, reducing the quality of 

          15      information.  Specifically, that information now 

          16      arrives, first, largely devoid of content, context 

          17      and analysis. 

          18                 Secondly, that it would pose significant 

          19      costs, costs well in excess of those presupposed by 

          20      the advocates of this regulation prior to its 

          21      effectiveness, and costs well in excess of the 

          22      perceived benefits.

          23                 And, third, that it could, and I say 

          24      "could" induce additional volatility in a 

          25      marketplace already experiencing sustained, high, 

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           1      near-record levels of volatility, and that possesses 

           2      additional cost.

           3                 CHAIRMAN UNGER:   Thank you.

           4                 Perry?

           5                 COMMISSIONER HUNT:     Can I make a brief 

           6      comment?

           7                 CHAIRMAN UNGER:   Very brief.

           8                 COMMISSIONER HUNT:   I am glad to see the 

           9      views of my friends at SIA haven't changed. 

          10                 MR. FERNANDEZ:   We are now prepared to 

          11      substantiate. 

          12                 MR. BOYLE:   My name is Perry Boyle, and 

          13      I am the director of research at Thomas Weisel 

          14      Partners.  Many of you probably haven't heard that 

          15      name before.  We like to think of ourselves as the 

          16      nation's newest major investment bank, started 

          17      February 1, 1999.  We did almost 500 million in 

          18      revenues last year, and despite Reg FD, our first 

          19      quarter was within an inch of our previous record, 

          20      so this clearly didn't have a bad impact on the 

          21      financials of investment banks.

          22                 My take is very similar to the other 

          23      analysts on this panel.  I have to say it is 

          24      interesting that of the nine people on this panel, 

          25      only three are practicing analysts, and one is from 

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           1      the media. 

           2                 What we see is essentially you get the 

           3      positive benefit to the public of webcast conference 

           4      calls that people can join in on -- that is, if a 

           5      company does have one, many companies don't -- 

           6      versus the cost of compliance, reduced quality of 

           7      information flow to the markets, and more 

           8      volatility.  I think you are going to hear that as a 

           9      consistent refrain from people in the analytical 

          10      community, that there is more volatility. 

          11                 Reg FD has been positive in that it 

          12      encouraged companies to share more information with 

          13      the general public and has made it easier to some 

          14      degree for an individual investor to keep up with 

          15      the information flow out of the company via the 

          16      Internet, press releases and webcasts, but I think 

          17      it creates a false impression that the individual is 

          18      now on an equal playing field with the professional.  

          19      That wasn't the case before, it is not the case 

          20      after and it will never be the case of an individual 

          21      being equal with people who spend their full time  

          22      doing this for a living.  

          23                 COMMISSIONER HUNT:   And we never thought 

          24      it would do that.

          25                 MR. BOYLE:   Okay.

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           1                 But I think this has been more costly to 

           2      the public than has been generally accepted.  I 

           3      think we hear a lot of opinion and hypothesis about 

           4      this, but I think we need to do more study and 

           5      analysis about what the costs and what the benefits 

           6      are.

           7                 The regulation clearly lacks standards on 

           8      materiality and time level of projections.  Giving 

           9      just one quarter's projections does nothing to 

          10      really help analysts come to a decision about a 

          11      company. 

          12                 We think the SEC should not encourage 

          13      just fair disclosure, but full disclosure, more 

          14      information about segment information, off balance 

          15      sheet items, better financing, and the like.  It has 

          16      been a constant source of amusement to me that the 

          17      media often gets this wrong and thinks the "F" does 

          18      stand for "full."  We look at who are the winners 

          19      and who are the losers so far with FD. 

          20                 Well, clearly, the winners include 

          21      lawyers, the media, storage companies, as was 

          22      pointed out at the last panel, and good analysts.  

          23      In general, I think Wall Street wins with Reg FD 

          24      because volatility is good for people who make 

          25      markets in securities; it is bad for people who buy 

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           1      and sell securities as investors. 

           2                 The losers are the issuers, bad analysts 

           3      and some investors.  I think, ultimately, Reg FD is 

           4      going to prove to be irrelevant.  I kind of agree 

           5      with David Berry, we can live with anything.  Our 

           6      job is to analyze information.  And, frankly, stocks 

           7      don't move up or down based on Reg FD. 

           8                 And I am done, thanks. 

           9                 CHAIRMAN UNGER:   No, the hand motion was 

          10      to speak into the microphone. 

          11                 MR. BOYLE:   I will turn it over to 

          12      Donald.  

          13                 CHAIRMAN UNGER:   Donald?

          14                 MR. LANGEVOORT:   I will be very brief. 

          15                 I am a commentator here, my name is Don 

          16      Langevoort from Georgetown University Law Center.  I 

          17      am one of the few people on the panel right now who 

          18      likes Reg FD pretty much.  I do think that the 

          19      demand for high-quality information for reasons well 

          20      beyond Reg FD is ultimately, after a year or two 

          21      period, going to drive us into a higher-quality 

          22      information environment, notwithstanding some of the 

          23      downside effects of Reg FD. 

          24                 I think the rule should be studied, I 

          25      think materiality is an interesting issue, but I 

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           1      think these are all manageable problems. 

           2                 CHAIRMAN UNGER:   Thank you.

           3                 Bill?  

           4                 MR. ATKINSON:   My name is Bill Atkinson, 

           5      I am acting chief economist with the Securities and 

           6      Exchange Commission.  I am here, I am very 

           7      interested in the empirical evidence on some of the 

           8      issues that Frank has raised regarding volatility 

           9      and will be interested to see the evidence regarding 

          10      the impact of FD on volatility, and also on how we 

          11      go about estimating the true cost of FD. 

          12                 CHAIRMAN UNGER:   Thank you. 

          13                 In the interest of time, I thought I 

          14      would just run through what the new timing will be 

          15      since we have gone so far off schedule.  This panel 

          16      will run until 3:15, so we will get the full hour 

          17      and fifteen minutes that was allocated, and not a 

          18      second longer.  And then the investor panel will 

          19      begin as soon as we move the investor individuals up 

          20      here, hopefully, very close to 3:15, 3:20, and run 

          21      for the hour to 4:15.

          22                 In the spirit of all the talk about 

          23      lawyers today, we have dropped the lawyer panel.  

          24      No, we did cut it in half because one of the lawyers 

          25      could not make it, so we will have one lawyer 

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           1      responding to all of the lawyer cracks made today.  

           2      And so, that will go for about fifteen minutes, from 

           3      around 4:15 to 4:30, so we can still finish on 

           4      schedule. 

           5                 I would like to pick up on something that 

           6      you raised, Michael, in terms of corporate paranoia 

           7      and the fact that companies would rather say nothing 

           8      than run the risk of running afoul of Reg FD.  In 

           9      the context of answering that, do analysts receive 

          10      the same information now that investors receive?  I 

          11      think that was part of the shazam theory that was 

          12      mentioned earlier, or do you receive different 

          13      information, and, if so, in what context?

          14                 MR. BLUMSTEIN:   I guess it is hard for 

          15      me to know what everybody is receiving.  I do know 

          16      that our analysts sometimes feel when they ask a 

          17      question, all they hear is, "Well, what we said on 

          18      the last conference call was X."

          19                 And we do see a reluctance on the part of 

          20      companies to give some explanation, to give some 

          21      nuance sometimes.  It feels like there is a lot of 

          22      reliance on the script, like the investor relations 

          23      person has a script in front of him and regardless 

          24      of what is asked, just a standard answer is given. 

          25                 And there are two concerns.  One, the 

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           1      obvious concern of:  Do we have sophistication of 

           2      information?  We have a lot of information out 

           3      there, but do we have depth of information?  Are the 

           4      important nuances less understood?  

           5                 And our longer term concern is, if 

           6      companies are very reluctant to say much, how do we 

           7      train the next generation of analysts?  The current 

           8      generation of analysts can probably live with Reg FD 

           9      because they have the background, they have the 

          10      knowledge, and they can just push forward, but 

          11      someone who is becoming a new analyst is really 

          12      getting into a company and understanding the heart 

          13      of the company, meeting with the operating managers, 

          14      understanding the operating units, understanding 

          15      line by line how the model works, how the P&L works, 

          16      how it looks on the balance sheet, the cash flow 

          17      savings.  And if companies are reluctant to open 

          18      themselves up, we wonder how the next generation of 

          19      analysts will get up to speed.

          20                 CHAIRMAN UNGER:   For the three analysts 

          21      on the this panel, has Reg FD changed the way you 

          22      get pertinent information? 

          23                 MR. BOYLE:   Absolutely, yes.

          24                 CHAIRMAN UNGER:   In what way?

          25                 MR. BOYLE:   Often companies would give 

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           1      more detailed disclosure about further out on the 

           2      time line.  For example, you see right now, it is 

           3      very interesting to see a lot of press releases have 

           4      the next quarter, some companies even put the full 

           5      income statement projection.  That's great, but that 

           6      is only a quarter.  And I think that encourages 

           7      short-term trading around quarterly info.

           8                 In the old version, pre Reg FD, you 

           9      wouldn't get companies telling you, "Well, this year 

          10      we are going to do this, and for next year, we are 

          11      going to do this," but you could have some give and 

          12      take on that subject, "Well, what are your 

          13      assumptions about that?"  We don't get any of that 

          14      anymore.  And I think this is what in particular 

          15      contributes to the volatility. 

          16                 CHAIRMAN UNGER:   David?

          17                 MR. BERRY:   It's a very mundane kind of 

          18      example but I think it gets to the heart of the 

          19      problem.  We follow close to 300 financial services 

          20      companies and we regularly collect information from 

          21      them, historically, by mailing out questionnaires, 

          22      and they fill in an income statement and data sheet.  

          23      This is not market-moving stuff.  This is actually 

          24      reported results, it is just coming off a database. 

          25                 And an awful lot of companies won't do 

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           1      that anymore because it is perceived as a Reg FD 

           2      violation, so you sit around and wait for the 10-Qs 

           3      to come out.  And I know that seems more fair, but 

           4      there is a depth and coherence of information that 

           5      we just don't have on a timely basis at all anymore 

           6      to assess peer group performance and get a really 

           7      good sense about what is going on. 

           8                 There are examples of bits and pieces of 

           9      information that I would think are clearly 

          10      non-material, not market moving, that you can't get 

          11      anymore.  And, yet, the edge that an analyst has, 

          12      ultimately, is based on his ability to put 

          13      information together from a variety of sources, 

          14      listen for nuance.  But there is less information to 

          15      play with than there was before.

          16                 MR. FERNANDEZ:   I concur.  In our 

          17      surveys and in-depth interviews with both sell side 

          18      and buy side analysts, we have been told, and this 

          19      is consistent with the other surveys that have been 

          20      done, that analysts have found that there is a 

          21      reduction both with respect to non-material 

          22      information as well as material information. 

          23                 In response, as expected, as you had 

          24      anticipated, analysts have relied more heavily on 

          25      fundamental analysis, trying to construct this using 

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           1      a mosaic approach.  However, an analysis of issuers 

           2      with very complex business models, with new 

           3      companies, with new products and markets, the 

           4      process of relying solely on external views is much 

           5      more difficult and it often results in a less than 

           6      satisfactory result. 

           7                 A number of the analysts have commented 

           8      that even though they may work harder, that isn't 

           9      the point.  They are just not able to produce the 

          10      same level of analysis because their access has been 

          11      reduced.  Perhaps not because of anything Reg FD 

          12      does do and its intention, but just perhaps of the 

          13      misperceptions of the way it is seen in the 

          14      marketplace.

          15                 COMMISSIONER HUNT:     Is it your 

          16      experience that even with clearly non-material 

          17      information, the companies are reluctant to talk to 

          18      you?

          19                 MR. FERNANDEZ:   I think what we have 

          20      seen is -- the point was made earlier, there is a 

          21      certain segment of people who will use this as an 

          22      excuse not to talk, when they didn't intend to talk 

          23      anyway.  But we also see that there is a substantial 

          24      amount of confusion out there.

          25                 CHAIRMAN UNGER:   By the issuer 

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           1      community? 

           2                 MR. FERNANDEZ:   By the issuer community, 

           3      yes.  

           4                 MR. BLUMSTEIN:   We actually came across 

           5      one company that just shut down its investor 

           6      relations department.

           7                 COMMISSIONER HUNT:   Well, if you heard 

           8      some of the panels this morning, some of the 

           9      investor relations people were saying that -- well, 

          10      these obviously were exceptions to the rule -- they 

          11      always had a superb investor relations department 

          12      and they continue to have a superb investor 

          13      relations department. 

          14                 MR. LASHINSKY:   I think I will make a 

          15      prediction, which is, over time issuers will 

          16      continue to communicate with Wall Street for one 

          17      simple reason, they want Wall Street's money and 

          18      they want to communicate their story, they want to 

          19      tell their story and so they will. 

          20                 It actually would be helpful to hear from 

          21      the two Commissioners.  Intel was very clear about  

          22      that this morning, they have no problem doing 

          23      one-on-one meetings with Wall Street, they have no 

          24      problem arranging meetings for analysts with 

          25      business unit heads, with heads of marketing and 

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           1      such.  They just make it clear that there is to be 

           2      no material information disseminated at those 

           3      meetings. 

           4                 So that seems to be a model of behavior.  

           5      Is that acceptable behavior?

           6                 CHAIRMAN UNGER:   Are you asking us 

           7      questions?  

           8                 MR. BOYLE:   He is from the media. 

           9                 CHAIRMAN UNGER:   Patricia, I would love 

          10      to hear -- I want to hear what you have to say right 

          11      now, but I just don't want to forget what Michael is 

          12      saying with the one-on-one meetings and the way a 

          13      new analyst sort of learns the business, so if we 

          14      could come back to that after your comment.

          15                 MS. WALTERS:   I guess my comment has to 

          16      do with companies' propensity to disclose or not. 

          17                 It was very interesting that on the first 

          18      go-around of the company panel, everyone does  

          19      fabulous disclosure, no one had any problem with Reg 

          20      FD.  By the end of the panel we discovered that, 

          21      yes, there really were a lot of problems with Reg FD 

          22      and maybe there really needs to be more guidance 

          23      about what materiality is or isn't. 

          24                 I've spent most of my career at AIMR, 

          25      working to improve financial reporting disclosure in 

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           1      corporate financial reporting and SEC filings.  I 

           2      have spent hundreds of hours talking with companies 

           3      about disclosures, lobbying -- I hesitate to use 

           4      that word -- with FASB to improve financial 

           5      reporting disclosures and to improve the kinds of 

           6      requirements that companies have to provide.

           7                 Companies are never, on my side of the 

           8      table, saying "That's exactly what we want, let's 

           9      have more disclosure in our financial report."  

          10      Companies, by their very nature, want to keep their 

          11      cards as close to the vest as they can, and to 

          12      trickle out pieces of information as they think it 

          13      will be beneficial to them.  And that it is good 

          14      companies and bad companies; it is not just one kind 

          15      of company or another.  It is their natural 

          16      inclination. 

          17                 And the market had a lot of pressure on 

          18      them in the past to disclose things.  Some of the 

          19      comments that AIMR members made in our survey were 

          20      that everything is now essentially boilerplate kind 

          21      of disclosures, even in conference calls.  They are 

          22      not getting the kinds of nuances that are necessary 

          23      to put together a mosaic to actually get a feel for 

          24      the company.  So I think that companies saying, "I 

          25      am a great discloser," I always take that with a 

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           1      grain of salt because my experience has been that is 

           2      not the case.  Otherwise, we would have stock 

           3      options recorded as expenses.

           4                 MR. BLUMSTEIN:   The question is, how do 

           5      you define good disclosure?  Is it leading to 

           6      another decimal point, going up two decimals instead 

           7      of one, or is it really giving you a sophisticated 

           8      understanding as to what is happening in the 

           9      marketplace and where the company is trying to go?

          10                 CHAIRMAN UNGER:   So what about those 

          11      one-on-one meetings and other types of communication 

          12      between the issuer and the analyst?  Is that still 

          13      taking place?

          14                 MR. BLUMSTEIN:   In terms of one-on-one 

          15      meetings, we are finding that they are limited, that 

          16      some companies are doing them and some are not.  We 

          17      can't give you generalizations that everybody is 

          18      doing the same thing.  It really does tend to run 

          19      the gamut. 

          20                 But we have seen companies pull back from 

          21      doing one-on-one meetings, and that raises with us 

          22      this issue of, are investors able to really get a 

          23      nuance of the story as to what is going on, or is 

          24      everybody being pushed to the least common 

          25      denominator?  

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           1                 CHAIRMAN UNGER:   What was it, the strip 

           2      mall?  

           3                 MR. BERRY:   I am working on a good 

           4      metaphor. 

           5                 CHAIRMAN UNGER:   All right, we will come 

           6      back to that at that end. 

           7                 Let me go back.  You said at one-on-one 

           8      meetings it is different.  What about the plant 

           9      tours and the factory tours and all of that?  

          10                 MR. BLUMSTEIN:   That has been a little 

          11      disappointing in that it seemed that in the 

          12      regulation, you were trying to carve that out.  It 

          13      looked like you were trying to say to companies, 

          14      "Look, you can do that, this rule is really focused 

          15      on the investor relations person, the CFO.  You 

          16      know, don't whisper into somebody's ear how the 

          17      quarter sales are going." 

          18                 It looked like you were trying to say, 

          19      "Look, it is still okay to make operating managers 

          20      available to help investors really understand 

          21      in-depth how a company works and how an industry 

          22      works."  And, unfortunately, what we seem to be 

          23      finding is that companies, for fear that somebody 

          24      will violate Reg FD unintentionally or just a 

          25      general fear of going where they don't want to go, 

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           1      that basically they are cutting back on those sorts 

           2      of opportunities.

           3                 CHAIRMAN UNGER:   Which circles back to 

           4      what Adam asked, and that is, if you have these 

           5      one-on-one meetings where there is no material 

           6      information disclosed, is that okay?

           7                 I would say, yes, that is okay.

           8                 MR. BLUMSTEIN:   We would argue that the 

           9      education is already in place.

          10                 CHAIRMAN UNGER:   I think that is part of 

          11      what is coming out of the dialogue today from what I 

          12      hear in terms of the panelists.

          13                 MR. HILL:   The one thing that seems to 

          14      be forgotten in relation to these one-on-one 

          15      meetings is that there is an out if somebody 

          16      whispers or whatever some piece of information that 

          17      you had told them not to disclose.  You have 24 

          18      hours, if it is material, to put something out.

          19                 You will know if it is material if the 

          20      stock goes up or down, and you have this capability, 

          21      which I think puts you in a better-off position than 

          22      where you were before, because now if you get 

          23      something out immediately after the incident has 

          24      happened and can say "Well, we had 24 hours within 

          25      the SEC guidelines, but we had something out an hour 

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           1      after this happened on the plant tour where somebody 

           2      said something they shouldn't have," I think now if 

           3      you went to a court case where shareholders were 

           4      suing, you now have a better piece of information 

           5      than you did before. 

           6                 And, "Look, we reacted well within the 

           7      time within the SEC guidelines, and in good faith we 

           8      have taken care of this problem."  So I think it is 

           9      a plus for the companies if this kind of incident 

          10      were to occur.

          11                 COMMISSIONER HUNT:     Let me ask you a 

          12      question:  Do you think conference calls and 

          13      follow-up requests are still helpful?

          14                 MR. BERRY:   Sure.  In fact, they are 

          15      almost, in some respects, in some cases, more 

          16      important than ever.

          17                 MR. BOYLE:   But, again, one of the 

          18      things you might encourage is transcripts of the 

          19      calls.

          20                 CHAIRMAN UNGER:   Why is that? 

          21                 MR. BOYLE:   Transcripts of the calls on 

          22      the websites.  It would be much faster to furnish 

          23      people the information, open up webcasts to people 

          24      who are hearing impaired.

          25                 MR. BERRY:   Transcripts would be great 

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           1      because, frankly, now there are replays and you can 

           2      go back and there is an hour's worth of stuff you 

           3      have to slog through to find that little nuance. 

           4                 MR. BOYLE:   You kind of want to get past 

           5      the rereading of the press release to the Q&A. 

           6                 CHAIRMAN UNGER:   So you can search the 

           7      transcripts; is that what you are saying?

           8                 MR. BOYLE:   That would be nice.

           9                 MR. LASHINSKY:   If I may, we didn't 

          10      start out this way, but as the day has gone on, Reg 

          11      FD suddenly has come to be responsible for market 

          12      volatility.

          13                 CHAIRMAN UNGER:   Are you going to ask 

          14      more questions?

          15                 MR. LASHINSKY:   No, I am going to make 

          16      an observation.

          17                 Lots of things contribute to market 

          18      volatility.  Because stocks spike when there is bad 

          19      news or good news, I am not sure it is the fault of 

          20      Regulation FD.  Hundreds of thousands of mutual 

          21      funds taking out hundreds of thousands of ads in 

          22      newspapers and television, and CNBC having fund 

          23      managers who hype their positions all day long, et 

          24      cetera, I could go on with the list.  All these 

          25      things contribute to volatility.

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           1                 MR. BERRY:   Adam, I think what we are 

           2      looking at here is where the Street, through their 

           3      own devices, has guessed wrong.  And it is surprised 

           4      by an announcement or a pre announcement, and as I 

           5      said before, in one respect, that is fair, we all 

           6      get surprised at the same time.  But I think it does 

           7      contribute to the volatility.

           8                 And there is also the "gotcha" mentality 

           9      that the SEC is well aware of, if there is less 

          10      information out there, little scraps of information 

          11      that you do get, little monthly filings or 

          12      intra-quarter reviews, are seized upon and maybe 

          13      even acted upon, without the benefit of someone 

          14      really going back and thinking about what they are 

          15      saying and conceptualizing. 

          16                 So, I mean, there are a lot of things 

          17      that cause volatility, to be sure, and I don't think 

          18      I could statistically prove to you that Reg FD has 

          19      enhanced or permitted or affected it, but I think it 

          20      has. 

          21                 MR. BOYLE:   Well, it is a provable 

          22      thing.  

          23                 COMMISSIONER HUNT:     Well, I think 

          24      that, as somebody, I think, on this panel said, this 

          25      has been a very difficult time since the 

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           1      promulgation of Reg FD to measure what kind of 

           2      effect it has on volatility because so many other 

           3      things are going on in the market.

           4                 And I don't know how you divorce out what 

           5      it is caused by.  I don't think we have the tools 

           6      yet to separate out what volatility was caused by FD 

           7      and what was caused by other things going on in the 

           8      market at that time.  It would have been nice if we 

           9      had promulgated it when the market was static and 

          10      nothing was happening, there was no other news in 

          11      the world.  But the world doesn't work that way.

          12                 Somebody else, I think Mr. Boyle, 

          13      indicated that one group of people whom he thought 

          14      FD might help was the good analyst.  Well, that's 

          15      precisely who we wanted it to help.  We didn't want 

          16      it to help the bad, lazy analyst.

          17                 MR. BOYLE:   Why should you care which 

          18      analysts it really helps, though?

          19                 COMMISSIONER HUNT:     Because our view 

          20      is that a competent, good analyst dissects, 

          21      analyzes, puts the information back together and 

          22      adds great value to the information there for the 

          23      investing public.

          24                 That somebody who just parrots what he or 

          25      she learned from a conversation with the chief 

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           1      financial officer is not as valuable as the person 

           2      who puts a mosaic of information together, analyzes 

           3      and --

           4                 MR. BOYLE:   And I disagree with that.

           5                 But, again, I cannot understand why the 

           6      SEC cares about analysts at all, one way or the 

           7      other?  I mean, analysts work for their clients.  It 

           8      is not the force of state. 

           9                 COMMISSIONER HUNT:   Well, I think, and 

          10      this is my personal view, that analysts have always 

          11      added some value to the way the market analyzes 

          12      information and, certainly, we are not trying to do 

          13      anything to destroy the function. 

          14                 Some of your colleagues may have thought 

          15      that, but we were not trying to destroy the function 

          16      of the analyst. 

          17                 MR. BOYLE:   I don't think you have.

          18                 MR. LASHINSKY:   The SEC is interested in 

          19      the investor who is not your client.  That's why the 

          20      SEC is interested in analysts.

          21                 MR. BOYLE:   What do they have to do with 

          22      me, that is what I don't understand.  If they are 

          23      not clients, what do they have to do with me?

          24                 MR. LASHINSKY:   If you have an unfair 

          25      advantage, the SEC is looking out for the investor  

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           1      who is not paying you.

           2                 CHAIRMAN UNGER:   I hate to break up this 

           3      love fest.  And, Adam, I think you are taking 

           4      liberties about speaking for the Commission, but I 

           5      will take the liberty even further and actually 

           6      speak for the Commission. 

           7                 I think, really, where this whole thing 

           8      evolved from is the trading and the lack of 

           9      authority or the perceived lack of authority that 

          10      the Commission felt that it had as a result of the 

          11      Supreme Court case, the Dirks case.  And it all 

          12      started with trading and the unfair advantage that 

          13      selective disclosure of information to favored 

          14      clients who were trading on information making 

          15      profit.

          16                 MR. BOYLE:   That's a great case.

          17                 CHAIRMAN UNGER:  Because what we did was 

          18      we tried to get at trading and we got at 

          19      communications.  And communications is a much 

          20      broader subject matter than trading. 

          21                 And as a result, I think there are many 

          22      good things that can come out of this, and what we 

          23      are trying to do is find out what those things are 

          24      and how, if at all, we can work with the existing 

          25      rule or at least find out what people living with 

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           1      the rule's observations are about it.

           2                 COMMISSIONER HUNT:     And we said when 

           3      we promulgated the rule, we were going to monitor it 

           4      very closely, we want to see what its unintended 

           5      consequences -- unforeseen, unintended consequences 

           6      were. 

           7                 This is part of that process.  We are 

           8      trying to hear from the whole business community as 

           9      to what their views are on the rule.  Since I worked 

          10      on it so much, obviously, I think it is perfect.  

          11      But it is not.  We may have to change it.  But we 

          12      are trying to hear from all of you to see what 

          13      changes need to be made.  

          14                 We also said that we would not be 

          15      reluctant to make radical changes if we found that 

          16      the rule was seriously bombing the market and the 

          17      financial community. 

          18                 MS. WALTERS:   Can I get back to 

          19      volatility for a second? 

          20                 COMMISSIONER HUNT:   Yes.

          21                 MS. WALTERS:   Since that is where we got 

          22      off. 

          23                 I think you are absolutely right, 

          24      Commissioner Hunt, in that there is no way that we 

          25      can understand the magnitude, if any, of the effect 

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           1      of this particular regulation in the current market.  

           2      And I think it is going to be a while before there 

           3      is sufficient data for academics to beat it into 

           4      submission to figure that out.

           5                 But I think that there have been a number 

           6      of comments about people's behavior that have been 

           7      made today that can give us inferences about how to 

           8      look at certain kinds of tests.  One of the comments 

           9      that one of our surveying members had to say was, 

          10      "One way that some companies try to comply with Reg 

          11      FD is to disclose as much information as possible as 

          12      often as possible, even if the information is 

          13      tentative or of borderline importance.  The market 

          14      generally assumes initially that any release is 

          15      material."  

          16                 And I think that really actually plays 

          17      back into the comments of the gentleman that was 

          18      actually sitting where Dave Berry is sitting right 

          19      now, this morning.  Kipp, I think his name was. 

          20                 And he explained how they don't really 

          21      understand when to provide information to the 

          22      market.  Sometimes they provide it very early with 

          23      some caveat about how they are really not sure where 

          24      things are going.  Other times they are going to 

          25      wait until they are absolutely sure.  And that 

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           1      actually plays right into this comment, because if 

           2      you are never sure whether the company is disclosing 

           3      a material piece of information or not, until you 

           4      learn over time, your initial inclination is going 

           5      to be assuming that it is material. 

           6                 And so I think there is evidence that 

           7      there is some effect from this regulation on market 

           8      volatility even though we don't really know what the 

           9      magnitude of it is relative to other possibilities.

          10                 COMMISSIONER HUNT:  I am certainly not 

          11      excluding that possibility, don't get me wrong.  I  

          12      just think at this time, in this market, it is just 

          13      premature.  But I don't have a closed mind to the 

          14      fact that it may be affecting volatility.

          15                 CHAIRMAN UNGER:   I don't think we can 

          16      statistically measure, but I think we have heard 

          17      some interesting anecdotes from people's own 

          18      observations and judgments about whether it is 

          19      impacting their own company or the companies they 

          20      follow. 

          21                 And I would be interested to hear if any 

          22      of the analysts have any notions about whether FD 

          23      has impacted the volatility of the companies they 

          24      follow.

          25                 MR. BOYLE:   I think it is just common 

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           1      sense.  I mean, the company now doesn't want to say 

           2      anything that they don't want to read in their own 

           3      press release.  And so the AICPA on their website 

           4      replies to companies, "Consult lawyers."

           5                 NIRI, on its website, "Limit the number 

           6      of authorized spokespersons."  I mean, more 

           7      information should contribute to less volatility.

           8                 MR. FERNANDEZ:   If I could, I think that 

           9      the Commission has some excellent questions here.  

          10      We have kind of wandered afield. 

          11                 I would like to second what Commissioner 

          12      Hunt has said about the issue of volatility, and 

          13      then maybe we can put this to rest and move on to 

          14      something more substantive, because I think the 

          15      important issue here is some of the issues about the 

          16      structure of the reg itself and the differential 

          17      impact it has had.  

          18                 It has not affected everyone equally, 

          19      that is why we are getting so many diverse 

          20      responses.  And we have spent a lot of time looking 

          21      at this buy versus sell, versus issuer, versus 

          22      large, medium and small.  First of all, to put 

          23      volatility aside for a minute, we have done surveys, 

          24      as a number of other associations have, and we have 

          25      said early along that Reg FD would probably increase 

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           1      market volatility. 

           2                 So subsequently we posed this question in 

           3      surveys.  And the majority of the respondents in 

           4      each and every survey had said "Yes, it did."   

           5      Whether these perceptions are correct or not, and if 

           6      so, how significant is the contribution of Reg FD to 

           7      volatility is a much more difficult question to 

           8      answer.  Statistical analysis, at this point, is of 

           9      little help.  There are too many factors that have 

          10      contributed to volatility in U.S. equity markets 

          11      that has been sustained at near-record levels for 

          12      the past two years.

          13                 It is not insignificant to worry about 

          14      volatility as huge costs, both for investors and for 

          15      the market and for market stability.  During the 

          16      past six months, the time that Reg FD has been in 

          17      effect, volatility has gone even higher and become 

          18      more broadly based. 

          19                 But while Reg FD may be correlated with 

          20      higher volatility, that does not prove causation.  

          21      And you certainly can't prove causation with six 

          22      months worth of data to examine the markets that are 

          23      undergoing both significant structural change and a 

          24      market correction.  Now in assessing the cost and 

          25      benefits of the impact of this regulation, it is 

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           1      much more beneficial to ask and examine the manner 

           2      in which additional volatility may be generated or 

           3      transmitted in a post FD environment, than it is to 

           4      try and quantify how much. 

           5                 And we are looking at it.  The important 

           6      issue, I don't even think is how has this changed 

           7      the role of analysts, but how do you change the way 

           8      market data and market information is disseminated?  

           9      If you look at it first you have to come to the 

          10      conclusion that now the first arrival of information 

          11      comes from a press release, either an 8-K posting, a 

          12      straight press release, a webcast.

          13                 These releases are now compared to the 

          14      pre FD world, generally void of context, additional 

          15      content, an analysis that used to accompany these 

          16      releases.  So this added value that had a function 

          17      is now gone.  It did serve as a filtering mechanism, 

          18      and it included financial advice to investors on how 

          19      to respond to the arrival of this information. 

          20                 The release now when it arrives produces 

          21      an immediate price impact which is amplified by the 

          22      greater uncertainty generated by the absence of 

          23      context and content.  And somewhat later, the 

          24      analysis that is provided by the financial media and 

          25      by the sell side and buy side analysts impacts the 

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           1      market, and oftentimes it moves the market in a 

           2      different direction than the original company 

           3      release or statement.

           4                 This is why people say it just stands to 

           5      reason, because of the nature of the dissemination.  

           6      This brings us back to whom the differential 

           7      impacts.  We find that most of the large firms, the 

           8      buy and sell side, have not been disaffected by Reg 

           9      FD.  Why?  They have the additional resources to 

          10      bear the cost. The large buy side firms still have 

          11      the ability and the clout to gain access to the 

          12      issuers. 

          13                 The larger issuers themselves also can 

          14      bear the additional costs, and these are not 

          15      inconsequential.  The firms, the issuers that have 

          16      been most heavily impacted, we find to be those  

          17      6,000 OTCBB and yellow-sheet type of companies.  And 

          18      even the mid-size companies out there, they can't 

          19      afford this.  They are confused.  Sure, "Call a 

          20      lawyer."  How much does an outside counsel cost 

          21      every time you have a substantive change in your 

          22      business environment?

          23                 So when we are looking at this, who has 

          24      been most advantaged by all of this?  The media.  We 

          25      did an investor survey and in the interest of 

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           1      supporting the fight against selective disclosure, 

           2      we provide these results to the SEC staff before we 

           3      make them public.

           4                 In this survey, we went out to a large 

           5      group of individual investors.  What we found here 

           6      is that there are only about 14 percent of the 

           7      investors that make use of the information that is 

           8      actively being provided as a result of Reg FD.  It 

           9      is a very small percentage, but this is hardly 

          10      surprising. 

          11                 We didn't expect people to access 8-Ks, 

          12      we didn't expect them to make great use of the 

          13      webcasts or to pore through balance sheets, for that 

          14      matter.  48 percent of all investors rely on the 

          15      media, some combination of newspaper, radio, 

          16      television, magazine.  And the remainder are largely 

          17      those who rely on traditional analysts and brokers 

          18      for their financial advice, financial planners.  

          19      Now, the problem with this is that we have now come 

          20      to a situation where the arrival of raw information 

          21      is divorced from the analysis, and there is a 

          22      significant difference.

          23                 And I am not here to bash the media, I 

          24      think there are certain elements to the media that 

          25      are thoughtful, that provide some content and 

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           1      analysis to it.  Particularly, I will mention the 

           2      television media, it is much poorer, the type of 

           3      flow of information than we had in the past.  And 

           4      they are what impacts people first. 

           5                 It could also be argued that the need for 

           6      brevity, the sound byte world could benefit more 

           7      from providing information rather than analysis or 

           8      financial advice.  It also disadvantages individual 

           9      investors whom rely principally on this medium.  You 

          10      may have leveled the playing field in terms of the 

          11      provision of the access information, but it is like 

          12      Yogi Berra said, "If people don't want to go to the 

          13      ballpark, you can't stop them."

          14                 Now behaviorists point out that the 

          15      individual investor is already besieged by the 

          16      ubiquity of information flows and they increasingly 

          17      resort to mental shortcuts, which tend to accentuate 

          18      overreaction and underreaction to recent price moves 

          19      and the arrival of new information.  To cope with 

          20      this information overload, investors increasingly 

          21      respond more to how information is presented or 

          22      framed than the content or the underlying 

          23      significance of the information itself.  We are 

          24      encouraging short termism. 

          25                 Closely related to this framing is 

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           1      anchoring, which says that in the absence of better 

           2      information or the lag until analysis is provided 

           3      after the release of new information, that what you 

           4      have, the current information is the correct one. 

           5      The more you face too much conflicting information, 

           6      investors assume current prices are correct.  So 

           7      each new high or new low is anchored by its 

           8      proximity to the last observation, and more distant 

           9      history becomes irrelevant.  So increasingly a 

          10      disproportionate weight is given to recent moves and 

          11      extrapolation of recent trends becomes the dominant 

          12      insight. 

          13                 I think what this is doing is leading to 

          14      a less-informed, more-superficial investment 

          15      decision process to the detriment of the very 

          16      individual investors who Reg FD was designed to 

          17      empower.

          18                 COMMISSIONER HUNT:   I think that's a 

          19      thoughtful articulation of the SIA's position. 

          20                 And, again, I tend to agree with you, Mr. 

          21      Fernandez, that one could clearly argue that there 

          22      is an information overload for the unsophisticated 

          23      investor with all of the broadcasts and TV programs, 

          24      but that still doesn't deter me from thinking that 

          25      if you give equal access to the information, the 

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           1      analysts can still do their jobs, the sophisticated 

           2      individual investor or small investor who is able to 

           3      use and analyze that information is able to do it, 

           4      and I think there clearly will be some people, as 

           5      you posit, who pick this information and are going 

           6      to use the shortest term, most recent -- I don't 

           7      know how you can humanly avoid that, but I still 

           8      think that making the information equally available 

           9      is something for this Commission to strive to do.

          10                 MR. FERNANDEZ:   I agree with you 

          11      wholeheartedly.  And I think that is why the issue 

          12      that we should be addressing here isn't the issue of 

          13      volatility, it isn't even the differential impact.  

          14      It is how can we make these better?

          15                 I think consistently on the first three 

          16      panels, we have heard that there are several things 

          17      that need to be done:  Define materiality a little 

          18      better, provide some guidance, limit collateral 

          19      liability.  Why don't we address these now?

          20                 To me, I have a problem with the 

          21      materiality standards.  To me, it is a "gotcha" 

          22      standard.  It is a "gotcha" standard in the sense of 

          23      how do you determine what is material.  If it has a 

          24      price impact, you can only determine that at the 

          25      close.  And until you go out and proceed on 

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           1      enforcing egregious situations, nobody really has a 

           2      good understanding, and it is a terrible way to 

           3      proceed in terms of defining a Regulation and 

           4      fleshing it out on the basis of enforcement actions. 

           5                 COMMISSIONER HUNT:    We are not going to 

           6      define this rule through enforcement actions, I 

           7      don't know how many times we have to say that. 

           8                 We may have to define materiality more 

           9      narrowly or in a finer way.  That's something we 

          10      probably need to think about, but we are not going 

          11      to define this rule through enforcement actions.  

          12      Enforcement doesn't even want us to do that.

          13                 MR. BLUMSTEIN:   But you folks have been 

          14      out asking analysts questions about who told you 

          15      what, when.

          16                 COMMISSIONER HUNT:  Have you seen an 

          17      action that the Commission has brought?

          18                 MR. FERNANDEZ:   On the first two panels, 

          19      it was stated here that people are waiting to see 

          20      the definition provided through the enforcement 

          21      actions.

          22                 CHAIRMAN UNGER:   Commissioner, you and 

          23      Frank are discussing information, and you say yes, 

          24      there will be value added by analysts, but investors 

          25      have the information at the same time.  But that's 

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           1      only true if the information out there is still 

           2      coming and it is still valuable information. 

           3                 And that is one thing that I don't feel 

           4      like I have gotten a good grasp on yet.

           5                 COMMISSIONER HUNT:   Certainly we have 

           6      heard some talk today, Madam Chair, about -- 

           7      although less than I thought we would hear -- on the 

           8      chilling effect of Regulation FD. 

           9                 People have talked about maybe the 

          10      quality, I don't think many people have complained 

          11      about the quantity of information that is out there.  

          12      But, clearly, if the chilling effect is there, as 

          13      maybe you are positing, maybe that is something that 

          14      the Commission or staff will have to look at 

          15      further.  And I am not closing my mind to it at all, 

          16      I just think it is something we need data on, have 

          17      more talks like this.

          18                 It may turn out that unintended 

          19      consequence is occurring, I just want to see all the 

          20      data so that we can make a reasonable decision on 

          21      whether that is true or not.

          22                 CHAIRMAN UNGER:   Let's gather it now.

          23                 MR. BLUMSTEIN:   I am not trying to 

          24      debate it, I think you are focused on the right 

          25      thing, which is, are companies really helping to 

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           1      understand their businesses?  They are overwhelming 

           2      us with numbers out five decimal places, but when it 

           3      is time to really give analysts a sophisticated  

           4      understanding of their strategy and industry 

           5      dynamics, that's our fear. 

           6                 That's where companies are saying, "We 

           7      are afraid to talk about that now.  We will just 

           8      read you the last press release," and that's it.

           9                 COMMISSIONER HUNT:   I think some 

          10      off-the-record comments I have heard today is that 

          11      all these people who were going to chill have been 

          12      giving very conservative advice up until now, but as 

          13      they get more comfortable with the rule, perhaps 

          14      they will loosen up a bit and their clients will 

          15      feel more free to have more wholesome discussions.  

          16      But it may take a while for that to work out.

          17                 CHAIRMAN UNGER:   I would like to know if 

          18      you have any views about what we can do about it? 

          19                 MR. BLUMSTEIN:   I think it is what you 

          20      have already heard today, for the rule to be clearer 

          21      to issuers as to what is allowed and what is not 

          22      allowed.

          23                 My fear is that they don't understand 

          24      what is allowed and they see enforcement officers 

          25      out asking a lot of questions about who said what to 

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           1      whom, and the reaction is, "Let's just clam up, we  

           2      can't get in trouble if we clam up."

           3                 COMMISSIONER HUNT:   But I hope you have 

           4      heard in our public statements and public comments 

           5      that there is no intention to be Draconian about 

           6      honest mistakes that issuers make.  There is no 

           7      sense of, "Well, you thought you were being honest 

           8      and fair, but you made a mistake, we are going to 

           9      haul you up, and do whatever Draconian thing we can 

          10      do to you in federal court."   That has not been our 

          11      attitude.

          12                 MR. BLUMSTEIN:   I hear you, I am not 

          13      sure the issuers do.

          14                 CHAIRMAN UNGER:   I am afraid this is the 

          15      wrong panel.

          16                 MR. FERNANDEZ:   Right.  It is the 

          17      issuers.  And I think they need to understand that.  

          18      And I know you have said this, and I have followed 

          19      your statements, but for some reason there is -- 

          20                 COMMISSIONER HUNT:     Maybe we need to  

          21      abolish the Enforcement Division?

          22                 CHAIRMAN UNGER:   In the short term, what 

          23      can we do?  Obviously, we are trying to convey a 

          24      sense that we don't intend to enforce the rule 

          25      before we make clear what the rule is, but I don't 

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           1      know how we get to that point.  And in terms of what 

           2      information you need to perform --

           3                 MR. BLUMSTEIN:   How about some examples 

           4      of what is okay?  We have heard instances, for 

           5      example, of a company who will say, "We were going 

           6      to give a plant tour to really show you how we make 

           7      the goods, et cetera, so that you really understand 

           8      the efficiencies of what we are trying to create, 

           9      what our competitive edge is.  But we are nervous 

          10      about Reg FD, so we are not going to do that."  So 

          11      maybe, you know, there is a list of what is sort of 

          12      not allowed.  Maybe a little bit more of a list that 

          13      says what is okay.

          14                 MR. HILL:   I think that not only should 

          15      we be saying what is okay, but encouraging companies 

          16      to do it and say they have a duty, really, to make 

          17      these kinds of meetings available to the 

          18      professional investment community.

          19                 COMMISSIONER HUNT:   Well, many people 

          20      have talked about best practices this morning, I 

          21      think that might be a good idea. 

          22                 I think we need to sit down with the 

          23      staff and see if we can devise some reasonable and 

          24      sensible set of best practices, some more wholesome 

          25      guidance.  I think we are going to think very hard 

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           1      to define "materiality" better.

           2                 We made a conscious decision not to 

           3      create a new definition because there is so much 

           4      literature out there on materiality, but there has 

           5      been a lot of talk today that maybe in this context 

           6      there needs to be a better definition of 

           7      materiality. 

           8                 Again, you know, this is six months.  We 

           9      may have a long way to go, we may have to do some 

          10      revisions.  Nobody thinks it is written in stone, so 

          11      we are thinking about it all the time, how we are 

          12      going to try and improve it.

          13                 MR. HILL:   I do think one improvement 

          14      that can be made is that if you are going to put 

          15      something out only in the 8-K or on the web, that it 

          16      be accompanied by a press release. 

          17                 We have seen some situations where Friday 

          18      evening, after the market close, it slips out an 8-K 

          19      or whatever.  And individual investors, in 

          20      particular, don't have access to the 8-K readily.

          21                 COMMISSIONER HUNT:  I have learned a lot 

          22      from this panel.

          23                 CHAIRMAN UNGER:   One thing I wanted hear 

          24      from the analysts, there has been some mention of 

          25      the adverse impact or disadvantage to small and mid 

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           1      cap companies, and I was wondering if any of the 

           2      analysts here today have dropped coverage of any of 

           3      the companies as a result of that.

           4                 MR. BOYLE:   No.

           5                 MR. BLUMSTEIN:   No.

           6                 MR. BERRY:   No.

           7                 COMMISSIONER HUNT:   But you do have a 

           8      sense the Pfizers and the Intels of the world have 

           9      not been negatively impacted by this, but there is a 

          10      perception, at least, or a feeling that the smaller 

          11      cap companies may find this more difficult?

          12                 CHAIRMAN UNGER:   I should probably ask 

          13      the foundation question:  Do any of you cover small 

          14      and mid cap companies?

          15                 MR. BOYLE:   Yes.

          16                 MR. BERRY:   We have situations where a 

          17      company might be followed by us and two other firms, 

          18      you know, it is a pretty narrow crowd there.  And 

          19      under the current regime, we have full-scale 

          20      conference calls and there is an awful lot of 

          21      apparatus.  It seems silly. 

          22                 Again, I understand what we are trying to 

          23      accomplish, but it seems like we are going through 

          24      hoops, getting ourselves involved and it doesn't 

          25      seem very practical.  We are playing to a very small 

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           1      audience here, and I think the costs of setting this 

           2      up probably are not --

           3                 MR. BOYLE:   It is just another 

           4      regulatory expense for the small companies. 

           5                 COMMISSIONER HUNT:   We were very aware 

           6      of the possibility that the operation of FD -- we 

           7      went through a lot of iterations of this rule before 

           8      we promulgated the final rule.  We were very 

           9      conscious of the fact that there might be more 

          10      impact on the smaller companies than we wanted.

          11                 We, I think, always had the supposition 

          12      that the big boys could take care of themselves on 

          13      Wall Street, and it wouldn't be the end of western 

          14      civilization as we know it for the General Motors 

          15      and IBMs of the world, so we were concerned about 

          16      the smaller companies.  And we continue to be 

          17      concerned and to monitor how it affects the smaller 

          18      companies where most of the jobs are created and all 

          19      that.  And if it has to be modified, it has to be 

          20      modified.

          21                 MR. BLUMSTEIN:   You have to be careful 

          22      in making a generalization about big companies, it 

          23      hasn't made any difference; and small companies, it 

          24      made a difference.  I think we have to be careful 

          25      about using generalizations, I think we probably 

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           1      could come up with for you instances of big 

           2      companies cutting back on their disclosure.

           3                 COMMISSIONER HUNT:     To the extent, we 

           4      have some of those people who are going to chill.   

           5      I am sure that is true.

           6                 CHAIRMAN UNGER:   We have ten minutes 

           7      remaining on this panel, and I really would like to 

           8      give each of the panelists a minute and a half -- we 

           9      will start this way -- to sum up or to make any 

          10      points that haven't been raised that you think are 

          11      important, typically, if it deals or addresses how 

          12      we can change, fix, rescind Regulation FD, whatever 

          13      your views are on that, I would appreciate it. 

          14                 MR. LANGEVOORT:   Let me speak very 

          15      quickly. 

          16                 My guess is six months is far too short 

          17      for the adjustment period.  What I do think would be 

          18      helpful in the next year to help the comfort level, 

          19      especially for smaller companies, is for the 

          20      Commission to give additional guidance that ties the 

          21      notions of materiality with intent.  That looks at 

          22      Reg FD as dealing with purposeful, selective 

          23      disclosure, and bring together guidance in that 

          24      area, gets away from inadvertence, the marginal 

          25      materiality, those kind of things.

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           1                 MR. BOYLE:   I agree.  I think it is too 

           2      soon to judge.

           3                 I think that from PR's standpoint it is 

           4      pretty popular in the individual investor market, so 

           5      I don't think you can rescind it actually.  And I 

           6      think the fundamental basis behind it appeals to 

           7      almost everybody in the market, fairness.  How can 

           8      you object to fairness?

           9                 And I would encourage the Commission to 

          10      focus on the fullness of disclosures going forward, 

          11      and that is a very long conversation.

          12                 MR. FERNANDEZ:   I think we are going to 

          13      continue to work trying to flush out these issues.  

          14      We do acknowledge that there is differential impact 

          15      even amongst large firms.  But it does seem to have 

          16      disadvantaged small and medium-sized companies, 

          17      particularly those issuers who were served by our 

          18      own small and mid-sized firms. 

          19                 They generally tend to service those 

          20      within their geographic or regional area.  They tend 

          21      to only have one or two analysts covering them.  And  

          22      you don't see the dropping of coverage, what you see 

          23      is the issuer falling silent.  That the firm has to 

          24      work harder, the small regional firm.  And so I 

          25      think this, unintentionally, is leading to an 

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           1      additional concentration and a disadvantage of those 

           2      probably who needed the levelling of the playing 

           3      field as much as anybody. 

           4                 I guess the other point I would like to 

           5      make is to think about this and less about the  

           6      short-term impact, because it is true, we will learn 

           7      to live with this one way or another.  But we need 

           8      to think about the long-term implications, both the 

           9      change and the dissemination process.  And the 

          10      larger issue about how market data is treated.  This 

          11      is one more market data and its dissemination. 

          12                 Very little was made about the 

          13      simultaneous end of the 15-Minute Rule, which used 

          14      to give the financial media time to sit back and 

          15      write something thoughtful and get it in front of 

          16      the editor.  It is a race to the post just to blurt 

          17      out something.  We have had enough studies out there 

          18      about the cost of living, about uninformed 

          19      decision-making, and that, I think, is what concerns 

          20      me most, is that we have changed the landscape 

          21      broadly for a long, long time to come, without 

          22      understanding the consequences. 

          23                 MR. BERRY:   The concern really is that 

          24      fair disclosure will obviously mean less disclosure.  

          25      We have talked about having some mass market 

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           1      information being very well disseminated at the 

           2      expense of more nuanced information, particular 

           3      lines of questioning individual analysts might like 

           4      to do, and losing the forum to do that. 

           5                 And I think the markets, in the 

           6      aggregate, are missing something as a result.  The 

           7      practical matter is there is a range of 

           8      conversations, disclosure practices from company to 

           9      company, pre FD, and there still is.  So we all 

          10      learn to adjust to various degrees of helpfulness or 

          11      lack thereof from the companies.  You can get used 

          12      to anything, I suppose. 

          13                 I think what would be most helpful is 

          14      just to try to conserve having nuanced conversations 

          15      about the business, the things that would not be 

          16      deemed material but that can help you develop 

          17      confidence and understanding and textualize 

          18      information that comes out subsequently and the 

          19      context and the nuance of that so that the analysts 

          20      can analyze that.

          21                 CHAIRMAN UNGER:   Thank you, David.

          22                 Chuck?  

          23                 MR. HILL:  Being a good capitalist, I 

          24      think competition in the marketplace is a good 

          25      thing.  I think that will help alleviate some of the 

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           1      problems in the sense that there are some companies 

           2      out there that are successfully working within the 

           3      frame work of FD and still communicating well with 

           4      the investment community. 

           5                 And I think as other companies see that 

           6      they are getting more attention by doing this, many 

           7      of those will follow the line.  We will never get 

           8      all of them.  We didn't before FD, they communicated 

           9      properly.  But we think we are off to a good start.

          10                 CHAIRMAN UNGER:   Thank you, Chuck.

          11                 Michael?

          12                 MR. BLUMSTEIN:   I think you heard the 

          13      others say, and maybe I will put it a little 

          14      differently, let's not confuse that noise with 

          15      substance.  And we really do need a better 

          16      understanding of materiality. 

          17                 And I just do want to emphasize the point 

          18      again, that you do have to remain focused on the 

          19      long-term education of the next generation of 

          20      analysts.  We do believe that analysts have long 

          21      been part of the grease that make our markets work 

          22      so well. 

          23                 CHAIRMAN UNGER:   Thank you.

          24                 Adam?

          25                 MR. LASHINSKY:   A system had arisen 

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           1      where the public trust was being violated.  I think 

           2      we've lost sight of the fact that there are costs 

           3      associated with being an issuer, but there are 

           4      benefits as well.  Namely, the ability to raise 

           5      money in the public markets.   So FD is working well 

           6      in that it has put a serious stop to selective 

           7      disclosure. 

           8                 An observation:  I find the SIA's claim 

           9      that information overload or uninformed 

          10      decision-making began in October 2000 to be an 

          11      interesting one.  I know you didn't say that --

          12                 MR. FERNANDEZ:   I didn't say anything 

          13      like that.

          14                 MR. LASHINSKY:   The point is that, that 

          15      phenomenon predates Regulation FD by a lot. 

          16                 Before FD, the SEC was behind the curve 

          17      on the sorts of practices that were hurting the 

          18      public investor.  That situation remains in the case 

          19      of IPO road shows which Regulation FD doesn't touch 

          20      on.  And I think this regulation is taking a huge 

          21      step forward in stopping that type of behavior.  

          22                 CHAIRMAN UNGER:   Thank you.

          23                 Patricia?

          24                 MS. WALTERS:   To end on an upbeat note, 

          25      if there is such a one, I think the caution for the 

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           1      Commission is to not equate better access with 

           2      better disclosure. 

           3                 Certainly, the changes in openness of 

           4      conference calls and the increases in webcasts have 

           5      helped both the investment community as well as the 

           6      individual investor.  There certainly are subsets of 

           7      the investment community that are happier under Reg 

           8      FD than previously, some smaller buy side firms 

           9      would not have had any easier access to conference 

          10      calls than individual investors, and those that I 

          11      have spoken to are very happy under the current 

          12      environment.

          13                 There are others who are more 

          14      quantitative in their focus on analysis, heavy 

          15      reliance on databases.  And their comment is they 

          16      know that the databases have got all the available 

          17      information in. 

          18                 On the other hand, I think that also we 

          19      should be looking at the access and the comments 

          20      that have been made today about the numbers of 

          21      people listening to conference calls.  I am not as 

          22      worried about educating new generations of analysts 

          23      as I am about educating the hordes of investors who 

          24      are listening on conference calls and to webcasts.  

          25      And my suspicion, and we will only find this over 

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           1      time as we see whether or not these numbers are 

           2      maintained, is that people who are currently 

           3      participating seem to believe that they are going to 

           4      get one of these tidbits of information that 

           5      Commissioner Hunt said this morning, that would have 

           6      analysts racing out to trade. 

           7                 Conference calls are not quite as 

           8      entertaining as CNBC, and over time, investors will 

           9      learn -- hopefully, not to their detriment, by 

          10      trading on what they might consider to be material 

          11      information when it actually wasn't, that there 

          12      needs to be, and I don't know whether the Commission 

          13      is the appropriate body to undertake this, but some 

          14      education of investors that earnings guidance, 

          15      earnings forecasts, whether it comes from an 

          16      analyst, whether it comes from a company, is not how 

          17      one makes investment decisions.

          18                 In some sense, that's the challenge I 

          19      think that the Commission faces, in having opened 

          20      up, whether it is too sophisticated or 

          21      unsophisticated knowledge for unknowledgeable 

          22      investors, this wealth of information.

          23                 So I disagree with Adam.  I think there 

          24      is a responsibility when you provide people with all 

          25      this extra information to teach them how to use it.

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           1                 COMMISSIONER HUNT:     Thank you all.

           2                 CHAIRMAN UNGER:   I would like to thank 

           3      this panel, as with other panels, but even more so 

           4      because we never really heard from the analysts 

           5      before, so I do really appreciate you coming and 

           6      joining us today. 

           7                 As you know, the Commission has had a 

           8      long-standing respect for the role that analysts  

           9      play in ferreting out information and it will 

          10      continue with that respect.  And we appreciate your 

          11      input into a rule that very much impacts the way you 

          12      do business. 

          13                 Again, I think to recap what we have 

          14      talked about, and I am hearing the same things again 

          15      and again from the panelists, which is very helpful.  

          16      Of course, the really big things, like materiality, 

          17      guidance, and for best practices and for safe 

          18      harbors.  But it is important that we hear from each 

          19      of the panelists with their own perspectives.  It is 

          20      helpful to us in terms of identifying what we need 

          21      to take a look at.

          22                 So, thank you.

          23                 CHAIRMAN UNGER:   Thank you.

          24                 (Recess taken.)

          25                 (Whereupon, at this time, Commissioner 

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           1      Hunt left the Roundtable discussion.)

           2                 CHAIRMAN UNGER:  I have been joined by 

           3      the Division of Corporation Finance Director.  

           4      Commissioner Hunt had to go and he didn't want me to 

           5      sit up here all by myself, so David Martin has been 

           6      kind enough to join me. 

           7                 And this time I think we will start from 

           8      this direction with Tom, and just give a brief 

           9      opening comment or two.

          10                 MR. GARDNER:   I am Tom Gardner, 

          11      co-founder of the The Motley Fool, an on-line site 

          12      that aspires to provide information and a framework 

          13      and a platform for analysis to individual investors 

          14      and people who are not yet investing in the stock 

          15      market but are learning to invest and paying down 

          16      their credit card debt on a regular basis. 

          17                 So our service runs more broad than just 

          18      the securities markets, but we have a particular 

          19      interest in Regulation FD because we have a very 

          20      strong commitment to maintaining the public nature 

          21      of public markets.  And I think what is at issue 

          22      here, the simple question we can ask ourselves is, 

          23      is this a public market or a series of private 

          24      markets and what are the differences between the 

          25      two?  

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           1                 So, hopefully, I will add some value to 

           2      this afternoon's conversation. 

           3                 MR. MARKESE:   I am John Markese, I am 

           4      president of the American Association of Individual 

           5      Investors.  We are non-profit, educational, we have 

           6      been around since about 1978, and we probably have  

           7      over a million members over the years.  We like to 

           8      think through all the AAI journals in doctors' 

           9      offices and dentists' offices around the globe, I 

          10      think we have touched billions.  At least I would 

          11      like to think that. 

          12                 We are here to educate.  I haven't met an 

          13      individual investor yet who isn't delighted with 

          14      Regulation FD, unless their day job is corporate 

          15      insider or analyst.  We meet quite a few new 

          16      investors who were shocked to find out that there 

          17      wasn't a Regulation FD until recently.  So I am all 

          18      for it. 

          19                 And the two reasons we used to hear about 

          20      why we didn't have it was, "It just can't be done."  

          21      Well, technology has overcome that question.  And 

          22      the second one was, "Well, individual investors 

          23      simply won't understand, they need analysts to tell 

          24      them what to think and to make decisions."

          25                 I have listened to quite a few of the 

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           1      panels, and I think most of the analysts are 

           2      underselling the intelligence of the individual 

           3      investor.  And I am sure Tom would agree that a lot 

           4      of them, in the words of the The Motley Fool, are 

           5      foolish, meaning bright and interested in the 

           6      information. 

           7                 And they want valuable information. And  

           8      valuable information is information that comes 

           9      meeting timeliness.  So I can't argue against 

          10      financial disclosure in any way, other than we 

          11      should have had it sooner.  A couple of points that 

          12      I think I would like to make that I would like to 

          13      see discussed.  One is the whole idea of 

          14      materiality.  And I think we have discussed it to 

          15      death, and, frankly, we can chase this one around 

          16      the block forever.  We all know what it is, it is 

          17      just hard to define.  And I don't think that is 

          18      going to be fruitful. 

          19                 Making a special definition of 

          20      materiality for Regulation FD, I think, is a waste 

          21      of resources and effort.  That would be, I guess, my 

          22      major point. 

          23                 And, secondly, in terms of disclosure, 

          24      individual investors now have more information than 

          25      they ever had, not less.  And I think the analysts 

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           1      are telling you that they have less.  That is simply 

           2      not true.  And, remember, because the analysts get 

           3      the information and it is perhaps an inside or 

           4      non-public event disseminated to the public, that 

           5      doesn't make it even quality information then.  You 

           6      simply have to pick the right analyst also, it is 

           7      like picking the right stocks.

           8                 So I think we are far further ahead as 

           9      far as the individual investor, and I would like to 

          10      see us not go back.  I would suggest the safe 

          11      harbor.  For instance, let's consider if it is a 

          12      public forum that has been announced, that is being 

          13      webcast, it had a scheduled time and something was 

          14      said that is of a material nature, however we define 

          15      that, then that's fine, it is out in the public 

          16      environment. 

          17                 So we can do things, I think I heard best 

          18      practices.  I think that is great idea.  So I am all 

          19      for Reg FD and I would like to see us fine tune it, 

          20      but not much more.

          21                 CHAIRMAN UNGER:   Thank you.

          22                 George? 

          23                 MR. JOHNSON:  I am George Kim Johnson, 

          24      general counsel to Colorado Public Employees 

          25      Retirement Association.  We represent investments on 

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           1      behalf of about 250,000 public employees in the 

           2      State of Colorado, and manage about $30 billion of 

           3      their money.  About 70 percent of that market value 

           4      is in equity securities and a large bulk of that is 

           5      passively managed.  Most of the rest is managed by 

           6      in-house portfolio managers.

           7                 Because we are a retirement plan and our 

           8      investment strategy is liability driven, we take a 

           9      very long-term view.  I think in some ways we may 

          10      be, as institutional investors of public retirement 

          11      funds, somewhat unique in that regard.  We have some 

          12      experience with the regulation in Colorado, but I 

          13      have also talked to some of my colleagues and others 

          14      at public retirement funds and some other sources.  

          15      And basically we have, I think, four observations to 

          16      share.

          17                 First, from our portfolio managers' 

          18      standpoint, they have noticed a difference in the 

          19      information supplied to them by many companies, but 

          20      the difference is not so great that -- they are 

          21      still capable of doing their job and doing it well.   

          22      They attribute most of the change to uncertainty on 

          23      the part of the companies who are providing 

          24      information.  Their view is that likely, over time, 

          25      through whatever mechanism, however it may be 

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           1      accomplished, that the uncertainties will be reduced 

           2      and they do not see a long-term issue. 

           3                 Some institutional investors who have 

           4      direct meetings with corporate management on 

           5      governance issues were concerned that this might 

           6      have a chilling effect.  In talking to the 

           7      California Public Employees Retirement Association, 

           8      since the effective date, they have had 18 meetings 

           9      with companies, the topic has only come up in two of 

          10      the meetings and it was resolved to everybody's 

          11      satisfaction before the meeting was started.  So 

          12      this has turned out not to be a significant problem. 

          13                 In talking with corporate counsel, again, 

          14      we hear the word "uncertainty."  It is not that we 

          15      have found them unwilling to provide accurate, 

          16      timely, complete information; they just don't feel 

          17      that they know what the rules are. 

          18                 From the enforcement side, we in the 

          19      public pension fund area receive almost daily 

          20      communications from members of the plaintiffs' bar 

          21      in the way of securities class actions, offering to 

          22      do their job as private enforcers.  We have had no 

          23      calls to date offering to bring an action against a 

          24      company for failing to comply with Regulation FD.  

          25      So at least one group of enforcers does not see that 

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           1      there is any problem in that area.

           2                 I think to sum it up, our view is that in 

           3      the short term, we think that the uncertainty is 

           4      going to produce some differences in the way that 

           5      information is supplied to the analysts or the 

           6      portfolio managers, but we believe in the long term, 

           7      the implementation of the regulation does provide 

           8      both a broader and more comprehensive base of 

           9      information for the market. 

          10                 And, secondly, if, particularly on the 

          11      individual investor side, if there is a perception 

          12      of fairness in the market, fairer access to capital 

          13      is not limited or affected by special access on the 

          14      part of large investors, that this will be to the 

          15      good of the market.  And so if, indeed, the 

          16      uncertainty issues can be resolved, we see no 

          17      particular problems with this. 

          18                 CHAIRMAN UNGER:   Thank you.

          19                 Greg? 

          20                 MR. HYMOWITZ:   My name is Greg Hymowitz, 

          21      I am the founder of Entrust Capital, we manage 

          22      roughly a billion and a half dollars in public 

          23      equity markets for individual investors.

          24                 I guess I am sitting next to a bunch of 

          25      lawyers, so I still feel a little comfortable 

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           1      because I used to be a lawyer, but then I went into 

           2      the investment business, and I guess I wear many 

           3      hats because I was listening to the last panel and 

           4      they talked a lot about CNBC and the commentators 

           5      and what happens on the television and radio 

           6      networks, and I also wear that hat, too.

           7                 Hopefully, I guess, I will bring the 

           8      perspective of what it is really like to live with 

           9      FD on the front lines as an investor, as someone who 

          10      is speaking to companies every day, someone who is 

          11      dealing with the IR professionals every day, someone 

          12      who is going to one-on-one meetings, someone who is 

          13      taking factory tours.  A lot of the issues that you 

          14      talked about earlier, I think clearly FD has changed 

          15      the dynamics between the institutional investor, 

          16      like myself, who is managing money on behalf of the 

          17      individual whose whole purpose, whose whole job is 

          18      to ferret out value added information for his 

          19      clients in order to make wise investment decisions. 

          20                 So, hopefully, I will be able to bring a 

          21      perspective throughout this hour on what it is 

          22      really like to live with this thing on the front 

          23      lines. 

          24                 CHAIRMAN UNGER:   Thank you. 

          25                 Alan? 

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           1                 MR. CLEVELAND:   I am Alan Cleveland, I 

           2      am outside legal counsel for the New Hampshire 

           3      Retirement System, also a public pension fund.  We 

           4      are an old fund, we are invested in public 

           5      securities, our culture and our charter is that of 

           6      transparency, disclosure and accountability.  And we 

           7      expect to find that in our markets as well as in the 

           8      companies in which we invest.  

           9                 We are in favor of Regulation FD because 

          10      the objective, and I don't think anybody can object 

          11      to the purpose of Regulation FD, which in point of 

          12      fact is to make markets more transparent, more 

          13      accountable and fair.  

          14                 We are in favor of Regulation FD for the 

          15      same reason that we testified in support of the 

          16      independent auditor rules that the SEC promulgated 

          17      recently, and that is a concern of managed earnings.  

          18      Managed earnings is the theme of this market, and 

          19      for a long time it was warned that the chickens 

          20      would come home to roost with managed earnings, and 

          21      the chickens are coming home to roost now.

          22                 The environment is such at this point 

          23      that we think it is difficult, if not absolutely 

          24      impossible, to gauge the effect of Regulation FD in 

          25      a sharp bear market we are seeing now.  It is not 

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           1      surprising that companies are talking to their 

           2      lawyers a lot more now as to what disclosure they 

           3      ought to be getting or not getting.  I think a lot 

           4      of that is motivated not so much by Regulation FD as 

           5      a deep concern for the deterioration of the business 

           6      models. 

           7                 I think if Regulation FD had been 

           8      promulgated in October of 1997, we wouldn't have 

           9      near the angst that we are have having now.  And I 

          10      echo what Kim Johnson stated, as a lawyer, we have 

          11      given very little, if any, attention to Regulation 

          12      FD as imposing any liability on the companies who 

          13      are with us.  We think that, for the most part, it 

          14      is more offering guidelines to companies and 

          15      analysts than it does have any sanctions attached to 

          16      it. 

          17                 We have received no inquiries from 

          18      plaintiffs' lawyers eagerly waiting on the sidelines 

          19      to bring actions against companies or analysts.  It 

          20      just isn't there. 

          21                 Again, we think that the materiality 

          22      aspect is a little, perhaps overblown is too strong, 

          23      but certainly premature.  Materiality is clearly 

          24      that fact which will affect the stock price.  To go 

          25      beyond that, I think is counter-productive.  The 

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           1      element of materiality is fundamentally fact driven, 

           2      and it is almost impossible to establish a set of 

           3      factual guidelines that establishes materiality 

           4      beyond the stock price. 

           5                 We think Regulation FD should run a 

           6      little bit more.  We are in a difficult market.  It 

           7      is a volatile market.  I don't think Regulation FD 

           8      contributed enormously to that volatility.  What has 

           9      contributed to the volatility is the fact that we 

          10      have over-valued assets to an enormous degree that 

          11      are now being run out of the market.  And what we 

          12      ought to do is we have to monitor Regulation FD 

          13      pretty closely for a number of months more and watch 

          14      matters and see how things proceed.  

          15                 CHAIRMAN UNGER:   Thank you.

          16                 Eric? 

          17                 MR. ROITER:   Thank you.  I am Eric 

          18      Roiter, general counsel of Fidelity Management 

          19      Research in Boston. 

          20                 I think when you speak about Regulation 

          21      FD, at least from my view, I speak about two 

          22      different rules.  There is Reg FD, the conceptual 

          23      rule, and Reg FD, the operative rule or the rule as 

          24      observed in practice. 

          25                 From the standpoint of Reg FD, the 

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           1      conceptual rule, it is hard to, I would concede, 

           2      really impossible to quarrel with the objectives of 

           3      the rule that underlie more disclosure, parity of 

           4      access to information, fairness, and greater 

           5      confidence in the integrity of the markets.  No one 

           6      can oppose these objectives.  

           7                 Regulation FD, the operative rule, is the 

           8      somewhat different and more complicated matter.  

           9      For, in practice, Reg FD does pose some problems and 

          10      complications. 

          11                 First, in concept, the rule contemplates 

          12      the promotion of more public disclosure and, at the 

          13      same time, preservation, if not advancement, of the 

          14      mosaic theory for analysts and open access for 

          15      analysts.  The mosaic theory in the conceptual rule 

          16      of Reg FD is alive and well, but in practice, 

          17      issuers guided by their outside counsel do not quite 

          18      see it this way. 

          19                 For various reasons, these issuers 

          20      operate under a version of Reg FD that pushes them 

          21      toward open webcasts and open conferences and away 

          22      from one-on-one meetings with analysts.  These 

          23      issuers see the SEC's rule as a zero sum equation.  

          24      The more public access and public disclosure a 

          25      company provides, the less opportunity need be given 

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           1      to analysts for one-on-one meetings.

           2                 One might ask, why should this not be 

           3      seen as a good result?  If a company is holding open 

           4      webcasts and conference calls, why can't research 

           5      analysts simply pose their questions in that forum?

           6                 There are at least two answers to this 

           7      question.  One fairly obvious, the other a bit less.  

           8      The obvious answer is that every analyst who wants 

           9      to ask all of his or her questions will not have a 

          10      chance to do so given time and other constraints.  

          11      This is not so much different from a presidential 

          12      news conference.

          13                 The other reason is that analysts, even 

          14      if given an opportunity to ask all of his or her 

          15      questions in a public forum, will not do so; at 

          16      least buy side analysts will not do so.  And this 

          17      reflects the fact that the very questions posed by 

          18      insightful, well-prepared and skilled analysts have 

          19      value.  At times, I would submit, even greater value 

          20      than any particular answer that a company executive 

          21      may provide. 

          22                 I would also say that Reg FD, the 

          23      operative rule, also blurs the distinction between 

          24      what is material and what is not material.  And I am 

          25      not here to propose that the SEC define materiality.  

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           1      I do have a separate solution that, if we have time, 

           2      I will pose to you. 

           3                 In practice, the gap between materiality 

           4      for an individual investor and materiality for an 

           5      institution, arguably is narrowing, given the vast 

           6      amount of information now available to all investors 

           7      over the web, and the immediacy of access to that 

           8      information.  As materiality for individual 

           9      investors and institutional investors approach 

          10      convergence under Reg FD, the operative rule, some 

          11      of the issuers are becoming increasingly reluctant 

          12      to make distinctions between the two. 

          13                 I would also add that another difference 

          14      between Reg FD, the conceptual rule, and Reg FD, the 

          15      operative rule, turns on the scope of materiality, 

          16      and the concept of Reg FD draws a contrast between 

          17      what is material and what is interstitial 

          18      information.  The latter ramps up the mosaic, coming 

          19      in bits and pieces to present a full picture to the 

          20      analyst.  

          21                 But Reg FD is leading issuers to blur the 

          22      distinction between material and immaterial,  

          23      treating virtually any relevant piece of information 

          24      as material if it relates in any way to the 

          25      company's current fiscal quarter. 

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           1                 I think I will stop here.  I do have some 

           2      specific suggestions that the Commission might 

           3      consider, but that is some of the concerns that I 

           4      wanted to articulate at the outset.

           5                 CHAIRMAN UNGER:   I guess one of the 

           6      fundamental questions that we have been asking today 

           7      is whether investors, and I know you represent 

           8      investors in different ways, are getting more 

           9      information as a result of Regulation FD, and, if 

          10      so, is it better information than you were getting 

          11      before?

          12                 So, if you have view on that?

          13                 MR. ROITER:   I would say that, based on 

          14      our discussions with our analysts and our portfolio 

          15      managers, that there has been a deterioration in the 

          16      quality of information that we can see.

          17                 As I say, there may not be a chilling 

          18      effect with Reg FD, but I think there is certainly 

          19      an orchestrated effect with Reg FD.  And we have 

          20      seen greater orchestration and greater scripting of 

          21      one-on-one meetings, if I can coin a phrase.  And if 

          22      a question is asked that has not been anticipated in 

          23      advance by the shareholder relations people at a 

          24      given issuer, then no executive officer is prepared 

          25      to make a judgment on his or her feet, that a given 

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           1      question that had not been anticipated should be 

           2      answered.

           3                 CHAIRMAN UNGER:   Why do you think that 

           4      is?

           5                 MR. ROITER:   Because the risks and 

           6      rewards of making a judgment on your feet about 

           7      whether some item of information is material or not 

           8      are certainly tilted in favor of competence 

           9      circumspect.  And the Supreme Court recognized that 

          10      in Dirks as well. 

          11                 I know Dirks has been criticized by other 

          12      panels today.  I happen to think that Dirks is a 

          13      correct ruling, recognized a very different context 

          14      in which non-lawyers on their feet without the 

          15      benefit of consultation, without the benefit of 

          16      deliberation, must make judgments.  And the Supreme 

          17      Court, I think, made the correct decision in Dirks, 

          18      that you cannot hold an issuer's management to the 

          19      same standard that you might in a given SEC filing 

          20      that has the benefit of deliberation with lawyers 

          21      and others. 

          22                 CHAIRMAN UNGER:   Do you have something 

          23      to add, Greg?

          24                 MR. HYMOWITZ:   Yes.  I think you have to 

          25      separate the timing, the timing of when the 

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           1      information comes.  Clearly, information on 

           2      conference calls and earnings release conference 

           3      calls, the quality of the information has not 

           4      changed dramatically.  I would say it is relative to 

           5      the state that it has always been.

           6                 The difference, though, is the 

           7      information that people like myself try to ferret 

           8      out in due diligence in between the conference calls 

           9      clearly has changed, and I think mainly it is 

          10      because, and here there is differences between 

          11      issuers, but clearly it is because a lot of IR 

          12      professionals aren't sure what they can say and what 

          13      they can't say.

          14                 But I think there has to be an 

          15      appreciation for the fact that there are tens of 

          16      thousands of people like myself out there who are 

          17      charging the investor a fee, and sometimes a 

          18      significant fee, to add value.  We are not going to 

          19      be doing our job too effectively if we do not 

          20      attempt in every legal way we know how to access 

          21      more information. 

          22                 And what FD has done, quite frankly, and 

          23      this brings up a whole host of other problems, but 

          24      what FD has done, quite frankly, is because of who 

          25      it covers, it forces guys like myself to go and to 

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           1      go further down the food chain, even though 

           2      obviously those people have their own laws that 

           3      cover those people, but it still creates an 

           4      incentive to go to trade shows and the conferences  

           5      that no individual investor is ever going to go to, 

           6      but this is what I get paid to do, to go to the 

           7      trade shows and the conferences and go and ask the 

           8      salespeople and stuff like that, "What is going on, 

           9      what are you seeing?"

          10                 And the risk, I think, that poses, is 

          11      that sometimes the people low down in the food chain 

          12      are not really aware what they should be saying and 

          13      what they can't be saying.  We often hear of 

          14      situations where someone will say something and the 

          15      information will then be debated, whether or not 

          16      this is material, whether or not people have to 

          17      restrict themselves for the insider trading rules.

          18                 So I think, clearly, the timing is what I 

          19      think needs the focus.  It is in between the 

          20      conference calls there has clearly been a chilling 

          21      of information, simply because no investor is going 

          22      to want to go to a one-on-one meeting unless the 

          23      information that they are going to receive is 

          24      important.  I am not going all the way out to 

          25      Cincinnati to a factory tour unless I think I am 

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           1      going to pick up something material and valuable.  

           2      Otherwise, why waste my time? 

           3                 And I think that's one of the issues as 

           4      far as the quality of the information flow.

           5                 CHAIRMAN UNGER:  For building the mosaic.   

           6      The legal theory is that no one piece of information 

           7      is necessarily material, but that taken in totality, 

           8      that's material.  So in the course of some of the 

           9      other panels, people were saying "Aren't there 

          10      things that we still can do without rising to the 

          11      level of materiality in terms of imparting 

          12      information?"

          13                 And I am wondering if there are some 

          14      things that can be done that people would benefit 

          15      from in terms of having more information available 

          16      that is good information, without rising to the 

          17      level of materiality? 

          18                 MR. ROITER:   One thing that would be 

          19      helpful is for the Commission to consider the 

          20      approach that had been earlier proposed in the 

          21      aircraft carrier rules, and that is, whether you 

          22      want to call it material or not, and I would not use 

          23      that standard, I would say that materiality exists, 

          24      there is a huge body of case law under 10(b)(5) and 

          25      under the statutes and provisions of the securities 

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           1      laws, but to recognize the dynamics of give and take 

           2      and on-your-feet conversations as a policy matter.  

           3      Rule 10(b)(5) remains there and the standard of 

           4      materiality still remains for what could constitute 

           5      breaches of 10(b)(5), but we are going to come up 

           6      with a more carefully crafted rule that uses a 

           7      different approach.  And that would be an approach 

           8      along the lines of the aircraft carriers' proposal, 

           9      where you actually have identified the kinds of 

          10      events, the kinds of transactions that ought to 

          11      trigger prompt, simultaneous notice and disclosure 

          12      to the public at large. 

          13                 Secondly, I think what would be helpful 

          14      is if the Commission could reiterate and strengthen 

          15      the distinction that is hinted at in the releases 

          16      between the retail investor, the individual 

          17      investor, on one hand, and the professional investor 

          18      and institutional investor on the other.  It is not 

          19      that the institutional investor can't learn 

          20      something that it is dispositive in a one-on-one 

          21      meeting.  It is that piece of information, while 

          22      dispositive to the trained analyst that has invested 

          23      a great amount of time and effort to understand the 

          24      company, could very well be material to the 

          25      professional investor or the institutional investor, 

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           1      but not to the individual, to the retail investor. 

           2                 And if the SEC could underscore that 

           3      distinction, I think that could be helpful and could 

           4      promote greater interchange between the 

           5      institutional investor analyst and management.

           6                 MR. LANGEVOORT:   Could I jump in with an 

           7      academic-sounding comment?

           8                 Back when a lot of other countries and 

           9      markets were debating their own insider trading laws 

          10      and drafting them, everyone started the proposition 

          11      that the word should be "material" because that is 

          12      what the U.S. used, and the fear was expressed 

          13      around the world that that word was too expansive, 

          14      too overloaded, ignored the kinds of nuances that 

          15      Eric is talking about. 

          16                 And many markets, many countries have 

          17      chosen words and phrases like "price sensitive 

          18      information," "facts of special significance," a 

          19      series of words that, first of all, that tie the 

          20      notion of materiality to an awareness by the 

          21      speaker.  You know when you say it that it could 

          22      move markets.  And, secondly, it gets away from the 

          23      hundreds and hundreds of cases on this subject and, 

          24      again, focuses in on what insider trading and 

          25      selective disclosure is all about, which is trying 

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           1      to introduce a basic degree of fairness.

           2                 A basic degree of fairness means don't 

           3      intentionally give something to somebody else that 

           4      is clearly of value when you withhold it from 

           5      somebody else.

           6                 CHAIRMAN UNGER:   So how would you do 

           7      that?  Identify specific types or categories of 

           8      information?

           9                 MR. LANGEVOORT:   No, I wouldn't do that.  

          10      I disagree with Eric on that one because I think the 

          11      list would grow too long.

          12                 And I am not saying I would adopt this, 

          13      but I would consider rephrasing "materiality" into 

          14      some other phrase that connotes an awareness by the 

          15      speaker that this is a fact of special significance.

          16                 CHAIRMAN UNGER:   What would that be?

          17                 MR. LANGEVOORT:   You are aware when you 

          18      are speaking that you are giving something that, if 

          19      it made it out into the marketplace, would have an 

          20      immediate impact on the market price. 

          21                 MR. GARDNER:   Let me just add, that I 

          22      think it is wonderful that companies' executives and 

          23      investor relations departments are hesitating before 

          24      they speak today.

          25                 As an individual investor, I may not get 

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           1      paid by someone to manage money for them, but I pay 

           2      myself to manage my own money, and if I am willing 

           3      to make a trip to Cincinnati, how offensive would it 

           4      be to me as a potential or existing shareholder in 

           5      that company to know that I was not invited into 

           6      that conference?  That a private conversation was 

           7      going on between a select group of either high net 

           8      worth money managers or analysts at big firms?  

           9                 I guess I sat through the last panel and 

          10      asked myself, "What is an analyst?  Why can't I be 

          11      one?"  And I am glad that we are excited about 

          12      training the next generation of analysts.  I might 

          13      suggest a four-year course in ethics as a great 

          14      introduction. 

          15                 Let's not forget that analysts today are 

          16      not a public service, they do not provide a public 

          17      service.  Analysts are working for firms that they 

          18      have responsibilities to.  And if I were, for the 

          19      fun of it, to say for a little exercise, "Anyone in 

          20      the room who thinks that analysts are not impacted 

          21      by the underwriting business at their firms, please 

          22      stand up," and I know that probably we are shy, and 

          23      maybe there are one or two people out there that 

          24      don't think that the analyst is impacted by the 

          25      other businesses at the big investment firms, but if 

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           1      you do believe that they are impacted, if you are 

           2      sitting down because you do believe it, then that 

           3      analyst is not an objective source to be a filter 

           4      for information for individual investors or of any 

           5      investor, except for the clients that they serve.

           6                 And if that's the case, then I find it a 

           7      violation of the public markets to suggest that we 

           8      have to protect or in some way provide a 

           9      preferential treatment for someone who is managing 

          10      money or working as a professional investor or for 

          11      an individual investor like myself or someone else 

          12      who might be a heck of lot smarter than me and 

          13      willing to travel to the conferences and willing to 

          14      sit in on conference calls and actually may possibly 

          15      be smarter than the analysts at the firm in  

          16      assessing that company's merits over the long term. 

          17                 MR. MARKESE:   Two things I have heard 

          18      that I would like to comment on.

          19                 One is, I guess I haven't thought that it 

          20      would lower fees, that's great.  So Reg FD is going 

          21      to lower fees, too.  I don't think the community 

          22      would do that, but there is a thought there.

          23                 Secondly, I think Eric was saying that we 

          24      have different standards of materiality for 

          25      knowledgeable investors and individual investors.  I 

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           1      think that if we perpetuate the idea that 

           2      materiality is somehow different for analysts than 

           3      it is for the rest of the investors, then we are 

           4      right back to selective disclosure again, so I think 

           5      we are underselling the individual investor.

           6                 MR. HYMOWITZ:   Can I just address what 

           7      Tom said?

           8                 I am not exactly sure of the connection, 

           9      I mean I understand what you are trying to say, but 

          10      I am not exactly sure what the connection between 

          11      the analyst community and the individual investor 

          12      community holds.  I think that it is nice to think 

          13      that the individual investor is going to get on a 

          14      plane to visit a factory and is going to spend 24 

          15      hours a day sloshing through Qs and Ks, that's 

          16      great. 

          17                 I just don't think in reality, the 

          18      company, any company, whether it be the largest 

          19      company in the world or the smallest company in the 

          20      world, is going to have the time or the resources to 

          21      devote to every single individual that calls them.  

          22      So, therefore, I guess if you want to solve the 

          23      problem, what you are going to have to do to even 

          24      the playing field completely, which I think is a 

          25      noble thing, I am not saying the playing field 

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           1      shouldn't be even, I think the only way you are 

           2      going to have to do it is to cut off the information 

           3      to the institutional investor.  Because there is no 

           4      way the resources exist for these issuers to speak 

           5      to every individual. 

           6                 And, clearly, the institutional investor 

           7      gets some value out of having one-on-one discussions 

           8      with the companies that present.  I mean, the whole 

           9      problem, which I didn't hear on the panel, was the 

          10      investment banks have all these conferences.  The 

          11      people that go to MotleyFool.com are not invited to 

          12      Goldman Sachs, Morgan Stanley, et cetera's 

          13      conferences. 

          14                 Right after those conferences, there are 

          15      one-on-ones, so unless the SEC is going to dictate 

          16      to all the sell side firms and the major banks that 

          17      from now on they have to open up their doors to 

          18      every single person who wants to go, and I think you 

          19      do away with one-on-ones, I just don't think it is 

          20      realistic to think that the individual investor and 

          21      the institutional investor are ever going to have a 

          22      level playing field. 

          23                 So I think, therefore, you have to strive 

          24      to put some parameters around the materiality.  And 

          25      I will just make one suggestion:  If so much of the 

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           1      focus was on managed earnings and earnings leaking 

           2      out to the favored analyst, who we call on the 

           3      Street the axe in the stock, that is one thing that 

           4      FD has done very quickly, there is no longer an axe 

           5      in the stock, an axe being the analyst who sort of 

           6      had the "in" with the CEO and was able to 

           7      effectively get the information out to the Street 

           8      first.  That is effectively gone, which I think is 

           9      actually a good thing.

          10                 I think that maybe you limit materiality 

          11      to or around earnings issues, because other than 

          12      earnings issues, I think it is very debatable what 

          13      someone will really trade on.  And that is the other 

          14      part of it, what is reasonably conceived to be 

          15      trade-worthy, and it depends on what kind of an 

          16      investor you are talking to.  So maybe you focus it 

          17      more on earnings and around things that touch 

          18      earnings issues, as opposed to many other things you 

          19      pick up on a plant tour or a factory tour. 

          20                 MR. CLEVELAND:   There is still a lot of 

          21      disappointment, particularly in the last year, with 

          22      the analysts, because I think a lot of investors 

          23      assume that the analysts were working for them.

          24                 I was struck by a comment earlier this 

          25      afternoon, "Why would the Commission care what 

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           1      analysts do, we are working for somebody," and I 

           2      guess, in this instance, it was an investment bank.

           3                 CHAIRMAN UNGER:   I think it was, "Why do 

           4      we care whether there are good analysts or bad 

           5      analysts?" 

           6                 MR. CLEVELAND:   We care, and I am sure 

           7      the Commission cares, because we want to have good 

           8      analysts, or at least we want a set of circumstances 

           9      where bad analysts get weeded out.  I mean, if there 

          10      is a broad coefficient of variants as to what 

          11      analysts conclude from information, then the 

          12      analysts that are more right than wrong will survive 

          13      and those that are more wrong than right will go by 

          14      the wayside.

          15                 Investors were really disappointed this 

          16      morning at the talk about hanging out lawyers.  I 

          17      happened to pick up a Financial Times editorial from 

          18      March 20, 2001, "Shoot All The Analysts."  Well, the 

          19      temperature should probably drop a little.  I mean, 

          20      I think everybody is trying to do the right thing, 

          21      we are just not sure who is working for who.  Right 

          22      now, I think most investors have concluded that the 

          23      analysts are not working for the investor.  I think 

          24      that is a conclusion you can come to.

          25                 There is a concern about the dearth of 

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           1      information that is out there.  Well, if management 

           2      of companies are not calling their chosen analysts 

           3      to give them the information that they used to, 

           4      great.  Regulation FD then is working.  So if the 

           5      spigot is shut off, super.  That's the view of this 

           6      investor.

           7                 And I think that the analysts probably 

           8      are trying to get back to the fundamentals of how 

           9      you dig up the information.  There is something 

          10      called "Securities Analysis," this text, the Bible, 

          11      which I brought a copy of right here.  It is not 

          12      that difficult to read.  It requires a lot of 

          13      attention, but I think a lot of analysts are, in 

          14      fact, trying to get copies, because I did a little 

          15      survey watching, using the Internet, what the price 

          16      of Securities Analysis is going for because it is 

          17      out of print. 

          18                 And there are a number of editions, there 

          19      is the '34, '51 edition, the '62 edition and the '88 

          20      edition.  And it is incredible, the '51 edition has 

          21      been creeping up in price, so that the average right 

          22      now for this text right here, is about $550, which 

          23      ranges from about $950 to the lowest I think I could 

          24      find was 400.

          25                 The '62 edition goes for $105 to $275.  

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           1      The '88 edition, which is the last edition, the 

           2      fifth edition, I could only find two, at $200 and 

           3      $205.  The 1934 edition -- if this is on your 

           4      shelves, folks -- sold for $1,500, and the book 

           5      seller is indicating it is very interested in taking 

           6      more because there is a demand for this book.  And 

           7      there one listed for, unsigned, uninscribed 1934 

           8      edition, $30,000.

           9                 This tells me that the analysts are there 

          10      desperately looking for guidance on how to do 

          11      securities analysis, okay, and I think they are 

          12      going to be working a lot harder and I think they 

          13      are getting back to fundamentals, and I think that 

          14      is a good thing.

          15                 CHAIRMAN UNGER:   The fundamentals go  

          16      back to 1934? 

          17                 MR. CLEVELAND:   Well, to 1988.

          18                 CHAIRMAN UNGER:   I think what we are all 

          19      talking about, just to tie up the threads of  this 

          20      conversation -- which I feel like you don't need me 

          21      here, it has been a very good conversation and we 

          22      will continue it -- is the integrity of market 

          23      information and access to that information and how 

          24      Reg FD might open up the access, but what does it do 

          25      to the integrity or the quality of the information, 

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           1      and is there anything more we need to do to refine 

           2      the rule to have both, access and quality, and is 

           3      that the case, that we need to do something?

           4                 So maybe with that in mind...

           5                 MR. JOHNSON:   Actually, the thing that 

           6      caught our attention or the reason we originally 

           7      supported this rule was that it talked about the 

           8      very term, "selective disclosure."  It didn't talk 

           9      about access to information. 

          10                 Access has a lot to do with the diligence 

          11      of the person who is out trying to get the 

          12      information.  And once that person gets the 

          13      information, the use they make of that information, 

          14      their skill, their judgment, their experience that 

          15      is brought to bear on that information will mean 

          16      that even though the playing field is level, the  

          17      score is going to be a lot different at the end of 

          18      the day.

          19                 And we don't think that that whole arena 

          20      should really be addressed by this.  We would like 

          21      to see it back in the fundamental issue that we 

          22      perceive, and that is, are there disclosures of 

          23      information that are made on a selective basis for 

          24      purposes that have not to do with the integrity of 

          25      the market, but to give unique advantages to unique 

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           1      and distinct groups?  So that if, indeed, a company, 

           2      let's say, is willing to have people come look at 

           3      its factory and talk to its managers, I guess we 

           4      would be concerned if they have a select group of 

           5      analysts who are the only ones invited. 

           6                 I don't think they need to be perturbed 

           7      or overwhelmed by individual investors coming in 

           8      hordes to do it, but quite frankly, I think if the 

           9      individual investor wanted to do that, I think it 

          10      would be good for the company to disclose to them, 

          11      on a non-selective basis, anything they disclose to 

          12      anyone else who has the diligence and the skill to 

          13      come get that information and make use of it. 

          14                 So it seems to me that the discussion, at 

          15      least from our standpoint, is going a lot further 

          16      afield than the fundamental reason that we 

          17      originally supported this, which is to protect the 

          18      integrity of the market by making sure that there 

          19      are not special arrangements or special bits of 

          20      information that go to special recipients.  And I 

          21      think a lot of the difficulties that we are having 

          22      in seeing this rule implemented relate to some of 

          23      these other issues, and not just to that fundamental 

          24      thing that attracted our support in the initial 

          25      phase.

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           1                 CHAIRMAN UNGER:   Which was the nexus of 

           2      the information and the trading, or just the 

           3      informational advantage? 

           4                 MR. JOHNSON:   Well, from the information 

           5      comes the trading.  I think that is what happens.  

           6      If someone is out there looking for material 

           7      information, shame on them.

           8                 MR. HYMOWITZ:   That's exactly, though, 

           9      in a way, what would have to happen in a one-on-one 

          10      meeting, right?  You know, the large -- Fidelity, 

          11      who will have no problems getting any meeting they 

          12      want, so let's be frank about that.  Fidelity calls 

          13      up a company, "I want to have a one-on-one meeting 

          14      after the Merrill Lynch conference," I doubt very 

          15      much the Fidelity portfolio manager or analyst is 

          16      going to waste their time unless they thought they 

          17      were going to come away with some material 

          18      information. 

          19                 MR. GARDNER:   But I really have to say, 

          20      I believe in a public market, that the 

          21      responsibility of those overseeing and guiding that 

          22      market is to make sure that the information is a 

          23      commodity that is available to all people.  Because, 

          24      otherwise, you will have, as you had certainly prior 

          25      to Reg FD, companies say, "You have been a good 

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           1      analyst, you have interpreted our position well and 

           2      you will be invited into the circle to get 

           3      information." 

           4                 "You have not been a great analyst, you 

           5      will not be invited in the circle to get that 

           6      information."  And so unless you actually 

           7      standardize the communication of information, you 

           8      are going to have people who get an informational 

           9      advantage by playing the company in a way that the 

          10      company wants them to. 

          11                 That's why we have less than one percent 

          12      of all recommendations from analysts as sells. 

          13      That's one of the reasons.

          14                 MR. HYMOWITZ:   Tom, can I just step in 

          15      for a second? 

          16                 You use the terms "investor" and 

          17      "analyst" interchangeably, and I think there is a 

          18      big difference.  An analyst works for a sell side 

          19      firm, Goldman, whoever, name one.  I just keep using 

          20      Goldman because I used to work there.  But analysts 

          21      work for a sell side firm.  Investors, there's tens 

          22      of thousands of registered investment advisors out 

          23      there that are not what you are perceiving to be 

          24      analysts. 

          25                 I think there are very different sets of 

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           1      behavior that each operates under, and it should be 

           2      noted that they are very different from analysts.

           3                 CHAIRMAN UNGER:   Tom, it sounds like you 

           4      are talking about a distinction about analysts, 

           5      though, not between analysts and investors; is that 

           6      right? 

           7                 MR. GARDNER:   I don't see a legal 

           8      distinction between analyst and investor.  I don't 

           9      see why an analyst should get an advantage.

          10                 CHAIRMAN UNGER:   No, but you were just 

          11      saying that, "You have been a good analyst, 

          12      therefore, you are being invited in for this 

          13      session."  And "You haven't," but you weren't 

          14      distinguishing between investors and analysts, were 

          15      you? 

          16                 MR. GARDNER:   In that case I wasn't, but 

          17      I still would suggest that all of these analysts are 

          18      investors, they all should have access to the 

          19      information, whether or not they have said, "This 

          20      stock is a sell," and they are an analyst at 

          21      Goldman, or they are an analyst on a website.

          22                 MR. ROITER:   Well, I think we have 

          23      enough real issues here.  It is helpful to try to 

          24      identify false issues and false choices.  And it is 

          25      really a false issue to talk about access for 

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           1      individual investors and access for professional or 

           2      institutional investors.  If companies wish to post 

           3      tours of their plants and offices and specify a 

           4      given day during the quarter for investors to come 

           5      to their headquarters or plant, that's fine.

           6                 Another false choice, I think, is you 

           7      have to either be fundamental in your analysis or 

           8      talk to management.   We try to do both.  Our 

           9      approach is to perform fundamental analysis, and 

          10      when we speak with management, the last thing our 

          11      people are looking for is a tip on what the quarter 

          12      looks like.  We are trying to assess the quality of 

          13      management.  And that's accomplished when you have a 

          14      face-to-face meeting. 

          15                 We have no quarrel with providing full 

          16      and limited access to all investors to information 

          17      from the issuer, but the SEC itself in Reg FD and 

          18      the Supreme Court itself in Dirks, recognized that 

          19      the interchange between an issuer's management and 

          20      professional analysts involves a value creation on 

          21      the part of the analyst.

          22                 There is such a thing, we think in 

          23      theory, of work product of an analyst.  And before 

          24      Reg FD, our analysts did not ask questions in open 

          25      conference calls.  Even though the public wasn't 

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           1      invited, other analysts were there.  And on the buy 

           2      side, we have a single mission, we don't think we 

           3      have any conflicts.  We are trying to do the best 

           4      job we can to get as much information that is 

           5      relevant to an investment decision as we can. 

           6                 That includes doing all the fundamental 

           7      analysis that we can and it also includes testing 

           8      our own understanding with management, and assessing 

           9      the quality of management.  And we feel duty-bound 

          10      as a fiduciary to obtain and use that information to 

          11      benefit our clients, who happen to be small 

          12      investors.

          13                 CHAIRMAN UNGER:   Can we move off this 

          14      topic for a couple of minutes?

          15                 There was some information that I thought 

          16      would be helpful to this discussion, which is:  What 

          17      is the type of information that you consult in terms 

          18      of advising your clients?  What are your most 

          19      favorite sources of information?

          20                 MR. HYMOWITZ:   I'm sorry, what was the 

          21      favorite source of information for us as investors 

          22      that we like to see from companies that make 

          23      investment decisions? 

          24                 CHAIRMAN UNGER:   Yes.

          25                 MR. HYMOWITZ:   Well, I guess, the 

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           1      typical way we look at investments is, you know, you 

           2      get a thousand ideas a year.  When an idea hits our 

           3      radar screen and rises to a level that it is time to 

           4      do due diligence, we usually, unfortunately, Tom, 

           5      call the company up and say, "We would like to come 

           6      down and see you."  And companies love to hear that.  

           7      What company wouldn't want someone who possibly 

           8      manages a fair amount of money to come down and take 

           9      a look at the company and buy the stock?

          10                 And we pretty much go through what any of 

          11      you could imagine you look for:  What's the 

          12      business, is it defendable, is there a moat around 

          13      the business?   I think it is the trading.  We are 

          14      not traders, we are very long-term investors.  We 

          15      are much like, not as big as Fidelity, but we think 

          16      like Fidelity.  We also try to sneak into 

          17      management's head, get inside management's head. 

          18                 We only own in one of our portfolios 25 

          19      names, so you can only imagine that we spend 15 

          20      hours a day, six days a week trying to learn 

          21      everything we can about those 25 names.  So if you 

          22      think about what we are doing when we are not in 

          23      earnings season, we are not on the earnings calls.  

          24      All the time is spent trying to learn information 

          25      that gives you just the slightest edge on making a 

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           1      judgment about the business. 

           2                 So whether it is going to a trade 

           3      conference, whether it is speaking to the IR people 

           4      on a biweekly basis.  A typical conversation with 

           5      the IR person you have known for a couple of years  

           6      goes something like this, "Hi, Tom, how are you?  It 

           7      is Greg from Entrust.  How is business?" 

           8                 Now, if he answers that question, is that 

           9      a reaffirmation of guidance?  I don't know.  Before 

          10      FD, companies would typically say, "Business is 

          11      okay.  You know, it is a little slow in the 

          12      northeast because of the weather."  I think the 

          13      problem is, very clearly, that companies are not 

          14      sure what they are allowed to say to you anymore in 

          15      between conference calls.  I think it is really that 

          16      simple, they are just not sure.

          17                 And while some companies may have 

          18      promulgated policies, many companies are waiting to 

          19      see some kind of enforcement action or something 

          20      else from the SEC that gives them some clue of how 

          21      they should behave, for the moment.  And I think it 

          22      is too early to tell, but for the moment, many, many 

          23      companies have effectively shut down the 

          24      communication or the quality of the communication 

          25      has deteriorated significantly in between earnings 

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           1      calls.  That is just the reality of the situation.  

           2      I speak to companies every single day, and it is 

           3      clear that, as an investor, you just get less 

           4      information.

           5                 Now I just add one thing.  That's for a 

           6      guy who is managing a million dollars.  I am not so 

           7      sure that Putnam and Fidelity have the same problem.  

           8      I would suspect, competence in this business for a 

           9      decade, that they don't.  As a matter of fact, 

          10      Putnam is running ads now that the reason why you 

          11      should invest with them is because of all the 

          12      meetings they go to and the plant trips they go to, 

          13      so if it wasn't adding value for them, I don't see 

          14      why they would be advertising it.

          15                 MR. ROITER:   To answer your question, I 

          16      think when we meet with management, what we try to 

          17      do is understand the industry they are in, the 

          18      competition they face, the long-term prospects they 

          19      have, the business models they have.  And whether 

          20      they meet quarterly earnings targets or not is 

          21      really not on the radar screen because we are not 

          22      interested in trading in or out on a quarterly 

          23      basis. 

          24                 I would say that there are a couple of 

          25      practical things that the Commission could consider.  

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           1      Reg FD does have a sudden death element to it if you 

           2      make intentional disclosure of material information 

           3      in a selective setting.  There is a great deal of 

           4      consternation over what constitutes "intentional."  

           5      It is as amorphous as "materiality."

           6                 If the SEC were to adopt an amendment to 

           7      the rule that said "We are not going to get into 

           8      questions of intent.  We are saying that if you meet 

           9      with analysts and you disclose something that meets 

          10      our standard, whether it is the materiality standard 

          11      or some other standard, you have a period of time to 

          12      get it out to the public."  And I would suggest that 

          13      it be somewhat longer than 24 hours.  I would give 

          14      companies until mid afternoon on the following day.

          15                 If you have a one-on-one meeting with 

          16      analysts in the morning, say, 8 o'clock or 8:30, and 

          17      you are faced with the prospect of assessing the 

          18      materiality of that information, that can send 

          19      companies into near panic.  They may not be able to 

          20      contact their lawyers during the course of a single 

          21      day.  If you gave people a little bit more time into 

          22      the next day, so that they would be able to actually 

          23      step back and consider the import of what they 

          24      disclosed in the analysts meeting, so long as they 

          25      get it out in whatever you feel is a means 

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           1      reasonably calculated to disseminate the information 

           2      to the public by, say, 2 o'clock the following day, 

           3      I think that would do a great deal to relieve some 

           4      of the chill and some of the orchestration that goes 

           5      along with meetings. 

           6                 MR. MARTIN:   Eric, can I ask you a quick 

           7      question?

           8                 Prior to FD, what were the consequences 

           9      in those one-on-one meetings, if, in fact, material 

          10      information was given to the visitee?

          11                 MR. ROITER:   We would make the judgment 

          12      whether that information was material, and even 

          13      though we would have a defense under Dirks if there 

          14      was no personal benefit involved, as a prophylactic 

          15      measure, we would put a Chinese Wall around the 

          16      analyst and wait for the information to be made 

          17      public.

          18                 We would defend the ability to use that 

          19      information because we would say it didn't 

          20      constitute a violation. 

          21                 MR. MARTIN:   But you make the judgment 

          22      as to whether it was material at the time you were 

          23      given it or the next day?

          24                 MR. ROITER:   It would take sometimes 24, 

          25      36 hours.

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           1                 MR. MARTIN:   When the market moves?   

           2                 MR. ROITER:   No, the information well 

           3      may not have come out by that time.

           4                 CHAIRMAN UNGER:   Who makes that 

           5      determination, though?   That is an interesting 

           6      question.

           7                 MR. ROITER:   It is part of my job.

           8                 MR. HYMOWITZ:   The way we handle it is 

           9      very simple.  I mean, often you are in meetings and 

          10      -- before FD, you would be in a meeting and ask 

          11      management a question, and we will look at each 

          12      other, my partner and I will just give each other a 

          13      look, like, "That is strange that this guy, or this  

          14      woman, is saying this to us."

          15                 And we would leave the meeting and we 

          16      would realize that it is questionable.  And what we 

          17      do is call our outside counsel --

          18                 CHAIRMAN UNGER:   Not your broker?

          19                 MR. HYMOWITZ:   No. 

          20                 We would call our outside counsel and 

          21      explain to them the information, and then typically 

          22      what we do, just to err on the conservative side, we 

          23      restrict ourselves and we just would not trade in 

          24      the stock, buying or selling the security.

          25                 MR. MARTIN:   But prior to FD, would you 

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           1      have guessed that most of those issuers were, in 

           2      fact, competence trained in school not to give you 

           3      material information in those meetings?

           4                 MR. HYMOWITZ:   I think the information 

           5      -- look, the reality of the situation is if you get 

           6      a piece of information like that, it tends not -- I 

           7      don't think that information or if you get into a 

           8      situation like that, I don't think it is 

           9      inadvertent. 

          10                 I think sometimes these companies have 

          11      incredible amounts of pressure on them.  They are 

          12      sitting in front of a large shareholder and they say 

          13      something like that, "You know, the weather," I 

          14      don't want keep using the weather, that is the 

          15      excuse everyone else uses.  But they will say 

          16      something like, "You know, the quarter is looking a 

          17      little weak."  That is what we get, "The quarter is 

          18      looking a little weak." 

          19                 And you will walk out of the meeting and 

          20      you will say, "This guy, or this woman, effectively 

          21      said something to us he or she should not have said, 

          22      what are we going to do?"

          23                 And we will get on the phone with 

          24      counsel, and counsel will say, "That rises to 

          25      materiality, I don't want you trading on that until 

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           1      they announce earnings."  And we restrict ourselves 

           2      and sometimes it costs you a lot of money.  Often it 

           3      costs you a lot of money.

           4                 MR. MARTIN:   It would have seemed, 

           5      though, in that situation you acknowledge the issuer 

           6      probably didn't do the right thing, as evidenced by 

           7      the fact that you went to your counsel.

           8                 MR. HYMOWITZ:   I think it is clear any 

           9      time there is a question, they tend not to do the 

          10      right thing. 

          11                 But that's very different than what we 

          12      were talking about earlier, which is there has been 

          13      a real chilling effect on the quality and the 

          14      quantity of information.  Let me explain one thing, 

          15      when you are talking about material, I am assuming 

          16      you are talking about material as it violates 

          17      insider trading rules, not material as in, you know, 

          18      learning that a certain chip is selling well.

          19                 That's material information to me.  (A) I 

          20      don't think it violates insider trading rules; and 

          21      (B) I don't necessarily think that I am going to 

          22      necessarily trade on that.  So there is material as 

          23      in material inside information, and then there is 

          24      just material information. 

          25                 CHAIRMAN UNGER:   There is material 

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           1      non-public information and material public 

           2      information. 

           3                 MR. HYMOWITZ:   That's right, exactly.

           4                 MR. CLEVELAND:   I will dissent from 

           5      Eric's suggestion.  It really makes me 

           6      uncomfortable, the idea that there would be a safe 

           7      harbor for insider trading for any length of time. 

           8                 MR. ROITER:   I didn't say that a safe 

           9      harbor would still apply.

          10                 MR. CLEVELAND:   Well you have to be very 

          11      careful with respect to that rule because what I 

          12      heard --

          13                 MR. ROITER:   With Reg FD?

          14                 MR. CLEVELAND:   Right, it is not always.

          15                 Frankly, I like Greg's response better.  

          16      Theoretically I think I like it better.  How it 

          17      works out in the real world may be something 

          18      different. 

          19                 Again, to get to a point which I wanted 

          20      to get back to earlier, but it has come around 

          21      again, about the quality and the amount of 

          22      information that is coming out being as rich as it 

          23      used to be.  I think we ought to be very careful, 

          24      again in this environment, to reach that kind of 

          25      conclusion.  We are in an extraordinary environment 

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           1      right now, and to attribute anything to Regulation 

           2      FD, I think it is extremely difficult to sort out 

           3      what we are seeing and trying to develop some kind 

           4      of a cause and effect that was observed earlier on 

           5      the previous panel.

           6                 I don't think we could do that.  I don't 

           7      think we should do that, and I would urge that we 

           8      resist the temptation to tinker with the rule 

           9      without really knowing what we are observing.  I 

          10      think time is, if we let time go by --

          11                 MR. MARTIN:   This is the quality of the 

          12      disclosure from my son.  When his report card is 

          13      bad, it is also very poor. 

          14                 MR. CLEVELAND:   I agree with you 100 

          15      percent on the effect it has on the market.  Quite 

          16      frankly, the argument before about whether FD causes 

          17      volatility, I agree with you 100 percent, it is way 

          18      too early to tell.  And my bet would be that it 

          19      doesn't affect the volatility of the market.  

          20      However, it is not too early to tell that the amount 

          21      of information investors are getting in between 

          22      conference calls is less.

          23                 CHAIRMAN UNGER:   So my fundamental 

          24      question for this panel, and I think now we have 

          25      about eight minutes left, I think we should take 

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           1      time to sort of sum up and make any points you want 

           2      to make, is whether FD is benefitting investors, 

           3      bottom line.

           4                 Let's start with Eric.

           5                 MR. ROITER:   I say the results are mixed 

           6      and it is too early to tell.  The purpose of Reg FD 

           7      is salutary and give it more time. 

           8                 I think the rule is in need of some 

           9      adjustment and it is not a zero sum equation.  The 

          10      rule can be fashioned somewhat differently to 

          11      benefit both individual investors and institutional 

          12      investors. 

          13                 And I think, just to respond very briefly 

          14      to my suggestion, Rule 10(b)(5) will remain in 

          15      place.  If there is insider trading or any other 

          16      fraud violation, you are still vulnerable.  But what 

          17      it does do is give management a little time to make 

          18      a considered assessment of the import of what they 

          19      say. 

          20                 We are seeing a disturbing development 

          21      among a very small number of issuers that are pre- 

          22      conditioning attendance of our analysts at 

          23      one-on-one meetings with an undertaking to maintain 

          24      confidential all information that is conveyed at a 

          25      one-on-one session, with no distinction to 

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           1      materiality at all.

           2                 We are uniformly resisting that.  We 

           3      think it is bad, it is a bad consequence and it is 

           4      against public policy because it does choke off the 

           5      access that I think the SEC contemplated analysts, 

           6      particularly buy side analysts, would continue to 

           7      have after Reg FD.

           8                 CHAIRMAN UNGER:   Thank you.

           9                 Alan?

          10                 MR. CLEVELAND:   Regulation FD, I think 

          11      that the purposes of the Commission, and I think it 

          12      is unarguable with respect to whether these things 

          13      ought to be subject to a cost benefit analysis.  I 

          14      don't think transparency is subject to a cost 

          15      benefit analysis.  A level playing field is not 

          16      subject to a cost benefit analysis.  Accountability 

          17      is not subject to a cost benefit analysis.

          18                 And I think those are the primary 

          19      elements.  The time has long since passed where 

          20      those are debatable issues, I think those are 

          21      fundamental principles.  Regulation FD, the purpose 

          22      of it, is to serve those principles, and that's 

          23      good. 

          24                 With respect to the nuancing or the 

          25      refining of the rule, again, I won't take any more 

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           1      time to be redundant, but I think, really, it is too 

           2      early to tell, particularly, in this kind of a 

           3      market which is an amazing, extraordinary market.  

           4      We have seen just the S&P 500 alone within the last 

           5      year, six movements that should not occur but once 

           6      every 120 years.  We have seen six of them. 

           7                 This is a very strange market and it is a 

           8      very scary market.  And I don't think we ought to be 

           9      changing Reg FD as written based on what we are 

          10      observing because, frankly, I don't think there are 

          11      too many folks out there that know with certainty 

          12      what we are, in fact, observing.

          13                 CHAIRMAN UNGER:   Thank you.

          14                 Greg?  

          15                 MR. HYMOWITZ:   I guess I watch the 

          16      markets every day, and I really don't see why we 

          17      should even note the volatility of the markets 

          18      recently as it relates to this.  I really think it 

          19      is one of communication.  I speak to so many 

          20      companies every single day, and I think it is fairly 

          21      obvious, at least from my vantage point, that 

          22      companies are talking less to investors. 

          23                 And I think that hurts, quite frankly, I 

          24      think it hurts Tom's clients because the 

          25      information, whether you think it gets put out all 

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           1      at once or it filters down through myself or other 

           2      analysts, it clearly hurts everybody.  Companies are 

           3      reluctant to talk, at least talk in between 

           4      conference calls. 

           5                 And I think, to Tom's earlier point, you 

           6      also have to realize there is a stratification 

           7      between the institutional investors themselves.  

           8      Unfortunately, I do not have as much pull as 

           9      Fidelity.  And when Fidelity or Putnam calls up and 

          10      says they want a one-on-one or they want to speak, 

          11      believe me, these conversations are taking place and 

          12      I am sure they are not wasting their time.   So they 

          13      are learning stuff that, unfortunately, Entrust 

          14      Capital or Tom's clients will never be able to 

          15      learn.

          16                 And I just think that if you think you 

          17      are going to be able to squelch those kinds of 

          18      conversations, then, really, quite frankly, much of 

          19      the investment management business is going to have 

          20      to change.  Because to John's point, you are right, 

          21      I am going to have to charge lower fees because I am 

          22      going to be adding no value.  And many people will 

          23      -- you know, Vanguard will be the ultimate 

          24      beneficiary because people will just start indexing 

          25      because, quite frankly I will add no value. 

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           1                 And I agree with Alan that it is way too 

           2      early to tell the effects on the market, and I 

           3      assume we never really will be able to tell the 

           4      effects  on the market.  But I think it is very easy 

           5      to tell the effects on communication between 

           6      companies and I think both the individual investor 

           7      and the institutional investor are getting hurt here 

           8      because companies are not sure what they are able to 

           9      say.  And I think that to the extent you can put 

          10      bookends around the concept of materiality as it 

          11      relates to FD, I think would be very helpful from 

          12      the issuer's perspective, and I think all individual 

          13      investors and institutional investors will be well 

          14      served.

          15                 CHAIRMAN UNGER:   Thank you, Gregg.

          16                 Kim?

          17                 MR. JOHNSON:   I should disclose one 

          18      other fact, that is, that six years ago CERA's 

          19      assets were worth $14 billion, they are now worth 

          20      $30 billion, and almost all of that, more than 99 

          21      percent of that can be attributed to the fact that 

          22      we basically own the market.  The market did it, not 

          23      our CEO.  We own 2500 domestic stocks, and as they 

          24      went up, we went up.

          25                 With that bias in mind, I will comment, 

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           1      in the short term, our observations are that there 

           2      have been some potholes in the implementation of 

           3      this Regulation.  It could probably use some fine 

           4      tuning, and that will probably come with time in any 

           5      case.  What we think is far more important is that 

           6      any rule which offers the prospect that the market 

           7      as a whole will operate more fairly and more 

           8      efficiently, and perhaps just as importantly, will 

           9      be perceived by the broad range of investors to 

          10      operate fairly and efficiently, is the kind of 

          11      market we want and we are prepared to support by 

          12      some patience, and if necessary, fine-tuning, which 

          13      we think may contribute to that environment.

          14                 CHAIRMAN UNGER:   Thank you.

          15                 John? 

          16                 MR. MARKESE:   Thank you. 

          17                 I have to say that I think my observation 

          18      of the ability of individual investors who want to 

          19      make their own decisions on stock selection has gone 

          20      up dramatically with Rule FD. 

          21                 I would like to think that we are going 

          22      to go forward and get more information.  I think the 

          23      firms that are not talking as much now are in 

          24      transition, frankly, hiring IR firms to put in place 

          25      procedures and policies and teaching people there, 

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           1      getting it all nailed down.  And, frankly, I think 

           2      this too shall pass.

           3                 I have to say that I think analysts and 

           4      individual investors who want to make their own 

           5      decisions are really doing the same work.  They 

           6      think differently but they are really doing the same 

           7      job.  And they may not have quite the same access, 

           8      but they are doing the same fundamental analysis. 

           9                 So I think we should make sure we don't 

          10      make distinctions going forward about materiality 

          11      levels, or in the interest of analysts or the 

          12      institutional investors and the individual 

          13      investors, I think they all should be the same.

          14                 CHAIRMAN UNGER:   Thank you.

          15                 Tom? 

          16                 MR. GARDNER:  I guess I would like to 

          17      reiterate -- or maybe this is the first time that I 

          18      have said it today, that we live in a country with a 

          19      wonderful public market system and the work that the 

          20      SEC has done in the past five years, ten years in 

          21      this country has made extraordinary strides in 

          22      opening the marketplace up to every investor, 

          23      regardless of the size of their account, whether 

          24      they are making their first investment in a dividend 

          25      reinvestment plan with $50 or whether they are a 

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           1      retired UPS employee with $50 million of UPS stock, 

           2      or whether they are an analyst or a mutual fund 

           3      manager managing a tremendous amount of money for 

           4      other individual investors.

           5                 I have been slightly irascible as a fool 

           6      today, which should not really be in my nature.  But 

           7      I feel a responsibility because I know that the 

           8      investors that we reach on our site and the various 

           9      services including our radio program, there have 

          10      been very active calls on the subject broached 

          11      today.  I know that it is almost unanimous that 

          12      individual investors are very much in favor of 

          13      Regulation FD.

          14                 I will reiterate what John said, I have 

          15      had a number of investors say to me that they were 

          16      surprised that in America it didn't already exist.  

          17      So I am certainly not opposed to the fine-tuning of 

          18      Regulation FD.  All I would ask is that the 

          19      participation of individual investors be a critical 

          20      part of the fine-tuning of Regulation FD.  After 

          21      all, the individual investing in America is by far 

          22      the most substantial amount of money that is 

          23      invested in equities from one year to the next. 

          24                 I hope we don't move into a world where 

          25      money buys you private information in a public 

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           1      market.  I don't think any of us want to find that 

           2      true about our market system, or frankly, any market 

           3      system that we invest in in the world.  I am just 

           4      going to read in closing two quotes.  One from 

           5      probably a real small investor and one from a real 

           6      big investor, both of who seem to come to similar 

           7      conclusions.  And I will just emphasize, and really 

           8      respectfully say we have a high level of integrity 

           9      and diligence sitting on the panel today, but I 

          10      don't think we should legislate based on the 

          11      assumption of that high integrity and diligence 

          12      which we have seen this afternoon. 

          13                 The two quotes I will read are one from 

          14      the small guy who said, "For gosh sakes, keep full 

          15      disclosure.  As individual investors, we should not 

          16      be penalized with selective or late information.  A 

          17      level playing field for everybody.  The market is 

          18      not a private playground for the professionals.  

          19      Tighten up on Regulation FD, don't loosen it.  Some 

          20      information is still getting out before public 

          21      disclosure."

          22                 And the second quote from a much bigger 

          23      -- somebody who shares a lot of interest with small 

          24      investors, comes from Warren Buffet's letter to 

          25      shareholders on March 10th, "The fact that this 

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           1      reform," in reference to Regulation FD, "The fact 

           2      this reform came about because of coercion rather 

           3      than conscience should be a matter of shame for CEOs 

           4      and their investor relations departments."

           5                 I don't think that there are any easy 

           6      answers to Regulation FD, but I sure am proud that 

           7      we are here today asking the tough questions about 

           8      it, and I hope that more and more people will become 

           9      involved in this issue because I think it is 

          10      critically important to the nature of our public 

          11      markets. 

          12                 CHAIRMAN UNGER:   Thank you, Tom. 

          13                 Donald? 

          14                 MR. LANGEVOORT:   I think simple 

          15      economics teaches us that the chill that is felt 

          16      now, and I am sure is felt, is going to be resisted 

          17      by the issuer community.  They have to tell their 

          18      stories, they are going to find ways. 

          19                 And best practices are going to lead the 

          20      way.  As some company gets more comfortable with 

          21      one-on-ones, or pushes a little bit the definition 

          22      of materiality and doesn't find the Commission 

          23      cracking down on them, I think others are going to 

          24      follow.  And I think that process, with a 

          25      permissive, reasonable, interpretive enforcement 

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           1      posture by the Commission, will within the next year 

           2      get us to a place where investors are better off. 

           3                 CHAIRMAN UNGER:   David had one thing to 

           4      add.

           5                 MR. MARTIN:   Just as a clear

           6      post-script, I have been here all day with Amy 

           7      Starr, who  is sitting back there, and in our office 

           8      we take telephone calls on this Regulation.  And I 

           9      want to encourage everyone that if there are 

          10      interpretations or matters of confusion in the 

          11      Regulation, we would like to take your questions. 

          12                 I think that I have learned a lot more 

          13      this afternoon, and if there are some ways we can 

          14      give some guidance on the telephone, that may help 

          15      nuance the reaction and the reception to the rule.  

          16      So I would like to continue to do that, even short 

          17      of surveys or written best practices or even 

          18      provisions to the rule down the road. 

          19                 CHAIRMAN UNGER:   And your number is?

          20                 MR. MARTIN:     942-2900.  And we will 

          21      call you right back. 

          22                 CHAIRMAN UNGER:   I would like to thank 

          23      this panel as well, not only for the insight and the 

          24      comments you have given, but also for your patience 

          25      for the somewhat tardy schedule that we have had.  I 

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           1      apologize for that. 

           2                 I will not make my usual observations 

           3      because in the interest of time and in the interest 

           4      of our final panelist, Herb Wander, who is going to 

           5      make the observations, not only about this panel but 

           6      about the entire day.  And I would like to invite 

           7      Herb to come down now before everybody leaves, 

           8      because I think he is going to add a lot of value to 

           9      clarifying and maybe crystallizing a lot of the 

          10      thoughts that we have heard today.

          11                 CHAIRMAN UNGER:   I will invite Herb to 

          12      introduce himself and to go ahead and make 

          13      observations about what we have heard today and to 

          14      put it all into perspective as a lawyer.

          15                 MR. WANDER:   Thank you very much. 

          16                 I appreciate the opportunity to speak 

          17      before this Roundtable this afternoon on this 

          18      crucial issue to the capital markets of the United 

          19      States. 

          20                 A little background, I have been 

          21      practicing law for some 40 years.  I have never been 

          22      a member of the SEC.  We represent all sorts of 

          23      financial clients such as issuers, hedge funds, buy 

          24      side analysts, sell side analysts, investment 

          25      bankers.  You name it, we represent them, so our 

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           1      views and my experience has been on all sides of 

           2      this particular question. 

           3                 I think one of the things that I will 

           4      start off by saying is that it probably is too early 

           5      to make any final judgments, although I think it is 

           6      good to stop, look and listen and find out what is 

           7      going on in the marketplace today.  I am going to 

           8      raise three issues, and if I have time, one more.

           9                 The three issues are, that this 

          10      regulation is very broad.  It is much broader than 

          11      has been discussed here and I think we haven't had 

          12      markets -- we have volatile markets but we haven't 

          13      had the kind of market that really tests whether the 

          14      rule works or not.  And I will discuss that in a 

          15      minute. 

          16                 Second, I want to really deal with the 

          17      issue of materiality.  I have my own judgments on 

          18      that and some suggestions.

          19                 Finally, a more mundane subject, we do 

          20      need to update, which I think is very important if 

          21      we want the rule to function more effectively for 

          22      the capital market. 

          23                 Let me start off by saying that in the 

          24      Dirks case -- and, by the way, I was a witness for 

          25      the Commission in the Dirks case, so I am familiar 

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           1      with it.  In the Dirks case, the Supreme Court said 

           2      "No" to the SEC and, in effect, said the SEC's 

           3      position rests on the erroneous theory that the 

           4      antifraud provisions require equal information among 

           5      all traders.

           6                 And I think the SEC has been shaken under 

           7      that rule.  I think before the Dirks case, it wanted 

           8      to oppose that rule and it has been trying over 

           9      these many years to, I think, find some way to get 

          10      around that prohibition by the Supreme Court in the 

          11      Dirks case.  And Regulation FD gave, I think, the 

          12      Commission the opportunity to do this, and it really 

          13      has a wide net, much broader than I think anybody 

          14      thinks.

          15                 For example, we are now just finding out 

          16      that it deals with shareholder meetings.  What can 

          17      you say in shareholder meetings if you don't have it 

          18      in a webcast?  I was even asked a question by one 

          19      general counsel, "We have a practice of coming out 

          20      with our year-end earnings release, then we send out 

          21      our annual report to shareholders and then we file 

          22      our 10-K maybe a week or two later.  Can I send my 

          23      annual report out to shareholders without filing it 

          24      with the SEC?"

          25                 The answer is probably "No," because the 

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           1      annual report contains the M&A, which is a much 

           2      broader discussion of the business than would appear 

           3      in the earnings release for the last part of the 

           4      year.  Reg FD applies in the M&A situation and Reg 

           5      FD applies in both public and private offerings.  We 

           6      have not seen a robust public offering market yet, 

           7      and I think it is yet to be determined whether FD 

           8      will really work whereby you get an exemption for 

           9      road shows from FD in public offerings.  So I think 

          10      it is way too early to tell.  We haven't had enough 

          11      experience yet, we don't know all the implications 

          12      of the rule. 

          13                 Well, I think what happened with the 

          14      adoption of FD was that this was a way to, in 

          15      effect, I think, extend the reach of the securities 

          16      laws, level the playing field, commendable 

          17      discussion.  And what happened was, I think where it 

          18      fell a little off kilter, as I think every panel 

          19      discussed today, was in trying to define 

          20      "materiality." 

          21                 I have done considerable thinking about 

          22      defining materiality, and thought if there is a 

          23      better way, as Don suggested, to define materiality, 

          24      or Eric or some of the earlier speakers.  And, 

          25      frankly, where I think it fell off track is two 

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           1      places.  One, the definition should have stopped 

           2      with the definition that materiality is a 

           3      substantial likelihood that a reasonable investor 

           4      would consider the information important in making 

           5      an investment decision, period.

           6                 And what happened was, in the release, 

           7      the SEC, trying to be helpful, came up with a whole 

           8      series of examples and then with its famous 

           9      paragraph dealing with lower than, higher than or 

          10      the same as the Street estimates.  That is where I 

          11      believe it got into the problem area that has caused 

          12      everyone so much difficulty, and that is trying to 

          13      define the more specific terms of materiality. 

          14                 I think it can't be done, and I will use 

          15      as my text for that the Supreme Court's decision in 

          16      the Basic case.  If any of you were around at the 

          17      time, you knew there were great arguments.  People 

          18      wanted a specific rule, a bright line test on what 

          19      materiality was.  And the Basic case was one 

          20      involving a merger, and people were saying, "That's 

          21      a bright line test, we should use that."

          22                 And the Supreme Court clearly said that 

          23      there is no bright line test, it depends on all the 

          24      facts.  And it reiterated this definition of 

          25      materiality in Northway.  People were very 

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           1      disappointed with that.  Lawyers, clients, issuers, 

           2      everybody was disappointed, "I want more 

           3      specificity." 

           4                 Well, the problem is, the more 

           5      specificity you get, the tighter it gets.  The 

           6      Commission is not going to give you carte blanche, 

           7      and they are going to want to have in their 

           8      enforcement arsenal enough tools to fight fraud and 

           9      to fight over-reaching.  And so they are not going 

          10      to give you the kind of specificity that you want 

          11      and, therefore, my strong suggestion is that you 

          12      take the definition as it was given by the Supreme 

          13      Court in the Basic case, in the Northway case, in 

          14      other cases, and learn to live with it. 

          15                 And, in fact, we have lived with it.  If 

          16      you look at the cases since Basic, everybody was 

          17      worried, I will never be able to get a summary 

          18      judgment anymore, it is always going to be a facts 

          19      and circumstances decision.  That hasn't been the 

          20      fact.  The courts have been very responsive to 

          21      factual settings in which people can determine 

          22      whether it is material or not material.  And lawyers 

          23      have learned to live with that and have counseled 

          24      their clients.

          25                 Now, we go through this list that is in 

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           1      the Release adopting FD, that has six -- seven  

           2      specific items about earnings.  And the list is sort 

           3      of comical, frankly.  I mean, I guess bankruptcy is 

           4      a material event.  Who could argue with that?  But 

           5      the first one is earnings information.  And when I 

           6      read this in August of last year, I double-colored 

           7      it because I had no idea what it meant.  I think it 

           8      tries to be too specific and it has counselors who 

           9      are counseling clients as to what materiality is 

          10      concerned about whether they can say anything or not 

          11      say anything. 

          12                 And then you go down to the paragraph 

          13      dealing with earnings releases, and right away, it 

          14      sets off red flags for lawyers who are paid to 

          15      counsel their clients and keep them out of trouble 

          16      and not get them to the edge of the line. 

          17                 Then the next paragraph deals with the 

          18      mosaic theory still exists.  Well, it has to because 

          19      the Supreme Court says so.  The fact is, I must tell 

          20      you, I defy anyone to tell me what is left of the 

          21      mosaic theory in light of the way materiality has 

          22      been defined in this release, coupled with, and let 

          23      me add this, SAB 99.  I think SAB 99 deserves 

          24      rereading by everyone, and I think, frankly, that 

          25      the Commission itself should reread SAB 99, should 

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           1      look at it and should really come back with a much  

           2      simpler, straightforward definition of materiality.

           3                 SAB 99 supposedly deals only with 

           4      financial statements, but as we know, the Second 

           5      Circuit has now approved it.  SAB 99 frankly deals 

           6      with misstatements, known misstatements, and do they 

           7      have to be corrected.  It is a different issue than 

           8      trying to counsel somebody about what materiality is 

           9      when they are going into the one-on-one conference.

          10                 And, finally, SAB 99 deals with, in my 

          11      opinion, a lot of intentional maneuvers to 

          12      manufacture earnings, to keep the stock price up, 

          13      which is a very different set of factors than 

          14      dealing with materiality, particularly in 

          15      one-on-ones where I think the crucial issue comes 

          16      up.  So, I think, unfortunately, after having given 

          17      a lot of thought to the subject, that we have to go 

          18      back to the very simple, straightforward definition 

          19      of materiality, leave it to the clients and the 

          20      lawyers and the SEC to ferret this out.

          21                 And, frankly, I am not so sure one good 

          22      case wouldn't help us all out.  I think if all of us 

          23      remember the Van Gorkom case, the decision by the 

          24      Delaware Supreme Court probably did more to add more 

          25      to be more attentive to the fiduciary obligations 

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           1      than all the rules and commentary on the fiduciary 

           2      obligations did. 

           3                 My final comment deals with the duty to 

           4      update.  Here again, in counseling people to provide 

           5      more information and more forward-looking 

           6      information, the problem is do I have to update it 

           7      or when do I have to update it? 

           8                 It would seem to me that the Reform Act 

           9      discussed this issue, and I am not certain what it 

          10      means, but I think it would be helpful if the SEC 

          11      said that if you tell people what your policy is, 

          12      and you don't manipulate that policy with respect to 

          13      updating, you will have a double benefit.  First, I 

          14      think it will clear up the confusion.  Particularly, 

          15      because there are differences between the circuit 

          16      courts in deciding what the duty to update is.  And 

          17      I am not only talking about the situation where 

          18      there was a purposeful error in the earlier 

          19      disclosure, but where things have changed since the 

          20      earlier disclosure. 

          21                 So we will have more certainty and I 

          22      think much more counseling in an effort to use the 

          23      forward-looking information.  And the double benefit 

          24      would be that you would have more forward-looking 

          25      information.  And one of the ways we try to counsel 

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           1      our clients about Reg FD is, in fact, to provide 

           2      more information in the quarterly earnings releases, 

           3      frankly, so that the analysts in one-on-ones can go 

           4      through more detail and drill down. 

           5                 I don't think asking the question, what 

           6      do you think the tax rate will be this quarter, or 

           7      what do you think the cap X's are going to be for 

           8      this quarter, necessarily is a material piece of 

           9      information that has to be disclosed.  You know, if 

          10      we have the broad definition of materiality, no 

          11      insider will ever be able to sell any stock, because 

          12      an insider always knows my cap X two years from now 

          13      will be X or Y or something else.  And that just 

          14      isn't realistic when you sit down and think about 

          15      it. 

          16                 Finally, I do think one of the things 

          17      that I have heard today, and I have heard before, is 

          18      one of the unfortunate results of Regulation FD is 

          19      that by saying it is not only the top executives 

          20      who, in effect, are identified to make disclosures, 

          21      that other people can make disclosures. 

          22                 What the Bar has done, and we have heard 

          23      it from a number of other people, is to clearly come 

          24      out and say, "These three people are the only ones 

          25      who can speak for the company," for fear that 

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           1      someone lower down might give away some material 

           2      information, they haven't been properly trained, 

           3      don't understand the rules.  And what that has 

           4      caused is, I think, a drying up of the information 

           5      you heard from so many of the panelists here today 

           6      because they can't go down to lower level people.  

           7      And, indeed, one of the interesting things that one 

           8      of my buy side analysts has told me is that they 

           9      can't go to competitors because the competitors have 

          10      also said, "Don't tell any information to any stock 

          11      professional, whether it is about our company or it 

          12      is about our competitor."

          13                 That, I think, needs some fixing to 

          14      enlarge the group of people that can be on the 

          15      firing line with respect to providing information to 

          16      investors generally. 

          17                 And that's essentially my remarks.

          18                 CHAIRMAN UNGER:   Do you want to add that 

          19      last point?  

          20                 MR. WANDER:   That was really the point 

          21      on the putting in the penalty box far more people 

          22      than I think anyone anticipated. 

          23                 CHAIRMAN UNGER:   Herb, I appreciate both 

          24      your observations and your staying power in terms of 

          25      today, as well as audience. 

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           1                 I just want to quickly thank Commissioner 

           2      Hunt and his staff, my staff for putting this 

           3      together, Mary Head and Rich Levine and Sharon, 

           4      David Becker, and thanks to all of the people who 

           5      appeared today and were very frank and outspoken in 

           6      their observations. 

           7                 I think today's discussion will really 

           8      give us a lot of things to think about in terms of 

           9      Regulation FD and what, if anything, we need to do 

          10      about it.  I do expect to release a report on 

          11      today's discussion and any recommendations that I 

          12      may have for improving the rule or modifying or 

          13      refining the rule as we discussed today.

          14                 So, again, thanks to everyone.  Thanks to 

          15      the webcasters.  And we are now adjourned.

          16                 (Time noted:   4:55 p.m.)

          17      

          18      

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          22      

          23      

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           1      

           2                    C E R T I F I C A T I O N 

           3       

           4       

           5                   I, MARGARET EUSTACE, a Shorthand 

           6      Reporter and Notary Public, within and for the State 

           7      of New York, do hereby certify: 

           8                   That I reported the investigatory 

           9      proceedings in the REGULATION FD ROUNDTABLE,

          10      on Tuesday, April 24, 2001 at the offices of the 

          11      Securities and Exchange Commission, 7 World Trade 

          12      Center, New York, New York, and that this is an 

          13      accurate copy of what transpired at that time. 

          14       

          15                                                    

          16                         MARGARET EUSTACE, Reporter 

          17      

          18      

          19      

          20      

          21      

          22      

          23      

          24      

          25      

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