11.2 Disclosure of price-sensitive information: the U.S. approach

Chapter 2 provided an outline of how the equivalent of the Dutch duty of listed issuers to disclose price-sensitive information is regulated in the federal securities legislation of the USA. The principal feature of that regulation worth noting is that the federal securities legislation, unlike our legislation, does not impose a permanent or continuing duty on issuers to disclose material non-public information without delay. Remarkably enough, the contrary is the case: The starting principle of the federal securities legislation is a general rule of nondisclosure. It was found that the federal securities legislation places particular emphasis on compliance by issuers with detailed and, moreover, exhaustively described reporting requirements, which must be filed with the US Supervisor, i.e. the Securities and Exchange Commission (SEC), from time to time. It was not until the enactment of the Sarbanes-Oxley Act that the focus shifted slightly towards continuing real-time issuer disclosures by means of current reports.

There are various exceptions to that general rule of nondisclosure, as a result of which the fundamental difference with the European approach towards the duty of disclosure of price-sensitive information is less substantial than might be thought. In particular, the requirement underlying the anti-fraud provisions of the Securities Exchange Act that statements should not be misleading will in practice prevent issuers from withholding relevant business information for an extended period of time. In addition, the completeness requirement obliges issuers to offer an insight into all their affairs. Surprisingly, the US stock exchange rules and regulations do not seem to play a significant role where the duty to disclose price-sensitive information is concerned.

As stated, it is assumed that the anti-fraud provisions of the Securities Exchange Act cause that issuers have an affirmative duty to disclose in order to prevent investors from being misled. As the benchmark for that disclosure duty, the Supreme Colin of the United States unequivocally designated the effect that the information is likely to have on the investment decisions of an imaginary investor, acting reasonably. In any event, no direct link is made with the effect that disclosure of the information could have on the price of the securities issued by the issuers. In the event the actual occurrence of an event to be disclosed is uncertain, for example the final outcome of merger negotiations, the question whether the investment decision of a reasonable investor would be influenced by new information should be answered taking two factors into account. These factors are: (i) the degree of likelihood that the uncertain event will eventually materialize (probability) and (ii) the relative impact that the event will have on the issuer (magnitude). Although issuers have called for more guidance on the contents of the concept of material non-public information, the SEC has been reluctant to provide it.

The implications of the duty to disclose material non-public information are addressed in this study on the basis of two examples: bad news and negotiations.