Disclosure - DominionFX

What is disclosure (in investing)?
– Disclosure is the timely sharing of information that helps stakeholders — especially investors — assess an organization’s finances, operations, risks, and governance. For public companies, disclosure aims to put all investors on roughly equal footing by preventing insiders from profiting on material information that others don’t have.

Why disclosure matters (short history and purpose)
– U.S. disclosure rules grew out of the 1930s securities laws enacted after the 1929 crash and were strengthened over time (for example, by the Sarbanes‑Oxley Act of 2002). Regulators require companies, brokers, analysts, and fund managers to reveal material facts so markets can price securities fairly and investors can make informed choices.

Key definitions
– Material information: any fact a reasonable investor would consider important to an investment decision.
– Insider information (material nonpublic information): material facts that are not publicly available and are known by company insiders; trading on this information is illegal.
– Prospectus: disclosure document given to potential investors during an initial offering that summarizes business, risks, financials, and management.
– Form 10-K: an annual SEC filing that provides audited financial statements, risk factors, management discussion and analysis (MD&A), and other required disclosures.
– Form 10-Q: a quarterly SEC filing with unaudited financials and updates on operations.
– Form 8-K: a current report filed to announce major events (e.g., acquisitions, changes in officers, material agreements).

Main SEC‑required disclosure documents
– Prospectus and registration documents (for companies going public).
– Form 10-K (annual report filed with the SEC and provided to shareholders).
– Form 10-Q (quarterly updates).
– Form 8-K (current reports for material events).
– Industry- or activity-specific items may also be required (for example, some filings include sections on mine safety or other niche disclosures depending on the business).

Common types of financial disclosure
– Annual reports (comprehensive audited reports).
– Quarterly reports and earnings releases (regular operational and financial updates).
– Regulatory filings (10-K, 10-Q, 8-K and other SEC forms).
– Management discussion & analysis (MD&A): qualitative context for the numbers.
– Risk factors and legal proceedings: potential exposures and uncertainties.
– Related-party transactions and executive compensation: governance-related disclosures.
– Market‑risk disclosures: quantitative and qualitative statements about exposures (currency, interest rate, credit, etc.).

What to look for — a short checklist (when reading company disclosures)
1. Financial statements (income statement, balance sheet, cash flow) and the related notes.
2. MD&A — management’s explanation of results, trends, and outlook.
3. Risk factors — new or growing risks vs. past filings.
4. Material events (Form 8-Ks) since the last periodic filing.
5. Related‑party transactions and officer/director holdings.
6. Executive compensation and governance practices.
7. Contingent liabilities and legal proceedings.
8. Market‑risk sensitivity and hedging policies.
9. Accounting policies and estimates that materially affect reported results.
10. Auditor’s opinion (for indications of qualifications or going-concern notes).

Step-by-step: how to read a 10-K efficiently
1. Start with the “Risk Factors” and “Management Discussion & Analysis” to get the narrative context.
2. Scan the financial statements for big year-over-year changes.
3. Read the notes to the accounts for accounting policies and one-off items.
4. Check related-party disclosures and executive compensation for conflicts of interest.
5. Review recent 8‑K filings to capture material events after the 10‑K date.
6. Compare with prior filings to see trend changes (new risks, restatements, etc.).

Worked numeric example: counting required periodic filings in a typical year
– Minimum expected SEC filings for a U.S. public company in a calendar year:
– 1 Form 10-K (annual)
– 4 Form 10-Qs (one for each quarter)
Total = 5 filings.
– If the company reports 3 material events during the year that each require an 8‑K, add 3 more filings: 5 + 3 = 8 total SEC filings that year.

Real‑world illustration (paraphrased example)
– Large public companies routinely disclose both quantitative and qualitative risks. For example, a 10‑K may highlight the company’s exposure to cybersecurity risks (the possibility of customer data being exposed), state that certain industry‑specific disclosure items are not applicable, and list market‑risk factors such as foreign-exchange or interest-rate exposure. That mix of narrative and numbers helps investors judge both likelihoods and potential financial impact.

Consequences of failing to disclose
– Failure to make required disclosures or to timely inform the market about material facts can produce regulatory penalties, enforcement actions, civil litigation, and reputational damage. Regulators monitor selective disclosure and insider trading to protect fair market access to material information.

Practical checklist before trading on news

1) Confirm the information is public
– Check primary sources first: company press release, SEC filing on EDGAR (10‑Q, 10‑K, 8‑K), or a direct regulatory filing. Third‑party summaries (blogs, tweets) are secondary.
– Verify time stamps and distribution channels. If a release appears only on a message board or in a private chat, treat it as nonpublic.

2) Decide whether the information is material
– Material information: a fact a reasonable investor would consider important in making an investment decision (definition: materiality). Materiality is context‑dependent. Small operational updates for a large diversified firm are often immaterial; an earnings surprise for a microcap can be material.
– If you’re unsure whether something is material, err on the side of caution and do not trade.

3) Ensure you do not possess MNPI (material nonpublic information)
– MNPI = material information that has not been made public. Trading while aware of MNPI can violate insider‑trading rules.
– If you learned the news because of a job, contractor work, a family member, or a private conversation, do not trade until the information is clearly public and widely disseminated.

4) Corroborate the news
– Look for the same item on multiple reputable outlets (company site, EDGAR, major financial newswire).
– Confirm figures (EPS, revenue, regulatory decision) by opening the original filing or PDF.

5) Check timing and market structure risks
– Did the information come out during regular trading hours, in premarket, or after the close? Price discovery and liquidity differ across those sessions.
– Beware of wide spreads, low volume, and high volatility immediately after a release — slippage can erode expected gains.

6) Assess immediate market reaction and liquidity
– Observe how the market responds for a few minutes. Large trades and fast moves may indicate information has already been absorbed.
– For illiquid stocks, consider limiting size or using limit orders.

7) Use risk controls and execution rules
– Set entry and exit points before placing a trade (limit orders, stop orders).
– Size the trade relative to your portfolio and the stock’s average daily volume (e.g., avoid >1–2% of ADV unless you’re prepared for market impact).

8) Record a contemporaneous trade log
– Save the source URL, screenshot or filing, timestamp, rationale for the trade, and the order details. This helps demonstrate a good‑faith compliance process if questions arise later.

Worked numeric example (illustrative, not investment advice)
– Situation: You see a company press release at 08:31 ET before the market open that quarterly EPS = $0.30 vs. analyst consensus $0.20.
– Quick checks:
a) Public? Press release appears on the company’s investor site and an 8‑K is on EDGAR at 08:29 ET → public.
b) Material? EPS surprise = (0.30 − 0.20) / 0.20 = 50% — likely material, especially for a small or midcap.
c) Liquidity check: average daily volume (ADV) = 1 million shares; current premarket quote indicates a bid/ask of $10.00/$10.50.
– Execution plan:
– Limit order: buy up to 10,000 shares (1% of ADV) with a limit at $10.50 to control slippage.
– Stop/exit: plan to reassess at +10% or −6% from entry; document reason for each threshold.
– Rationale record: saved press release URL, EDGAR 8‑K link, time stamps, rationale (EPS beat likely to cause re‑rating), and risk controls (size, limit order).

Short practical rules of thumb
– Don’t trade on rumors or unverified social posts.
– Wait until a company’s statement is posted on its investor relations page or filed on EDGAR.
– If you have any personal connection that could have given you privileged access, stop and consult compliance or legal counsel.
– Use limit orders and keep position size small versus liquidity in the minutes after major news.

Regulatory and legal reminders (brief)
– Regulation FD (fair disclosure) prohibits selective disclosure by issuers; but individual traders are still subject to insider‑trading laws if they trade on MNPI.
– Firms and individuals can face enforcement, fines, and criminal liability for trading on material nonpublic information.

Selected references
– Investopedia — Disclosure: https://www.investopedia.com/terms/d/disclosure.asp
– U.S. Securities and Exchange Commission — Spotlight: Regulation FD: https://www.sec.gov/spotlight/regulation-fd
– U.S. Securities and Exchange Commission — What is “material”? (background on materiality): https://www.sec.gov/answers/mat.htm
– FINRA — Insider trading: https://www

FINRA — Insider trading: https://www.finra.org/investors/insider-trading
U.S. Department of Justice — Insider Trading: https://www.justice.gov/criminal-fraud/insider-trading
Cornell Legal Information Institute — Insider trading (overview of law and concepts): https://www.law.cornell.edu/wex/insider_trading

Brief educational disclaimer: This summary is for general educational purposes only and is not individualized investment, tax, or legal advice. If you face a specific compliance or legal question about material nonpublic information (MNPI) or trading, consult your firm’s compliance officer or a qualified attorney.