Regulation FD of the SEC came into effect in 2000. This standard requires firms that release material information that may affect their share price to release it to all investors simultaneously. The purpose is to stop “selective disclosure,” whereby managers release information, such as changes in earnings forecasts, to a select group of analysts and institutional investors, relying on these persons to convey the information to the market.

Required
a. Explain the market failure that has led to this new standard.
b. Describe the effects on market liquidity of selective disclosure. Why is liquidity important if securities markets are to work well?
c. While research suggests that Regulation FD has been at least partially effective in level-ling the playing field for outside investors, it is unclear whether or not its benefits out-weigh its costs. Describe and explain sources of increased cost to firms and/ or society resulting from this regulation.