Pssst! Can you keep a secret?

The playing field for investors may still be slanted toward stock market insiders.

Federal regulations that are supposed to prevent stock analysts from getting their hands on information ahead of investors contain a loophole that could still give them an edge.

And some appear to be diving right for it.

Regulation FD took effect last Monday, but an exclusion will let companies share information with analysts if the analyst agrees either in writing or orally to keep it under his hat.

“I think it defeats the whole purpose of Regulation FD,” says Jim Ackor, an analyst with Boston regional brokerage Tucker Anthony Sutro Inc. who is based in Portland, Maine.

“If the goal is to level the playing field for access to information, here they have a clause that essentially would still give analysts an edge,” he says.

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But some observers argue that simply having information isn’t the problem.

“The problem with selective dissemination is not solely the fact that someone has received information, but rather that they act on it,” says Yoon-Young Lee, a partner at the Washington law firm Wilmer Cutler & Pickering.

“If you tie up the person who receives the information, you don’t have the abuses that the regulation is intended to address,” says Ms. Lee.

While some observers say confidentiality agreements could lessen the fear companies now have of talking to analysts, it’s questionable whether analysts would sign such a contract.

“I think they would turn it down,” says Chuck Hill, research director for First Call Corp., a Boston-based securities research firm. “Suppose they find out the information from elsewhere? Their hands would be tied from doing anything with it.”

Mr. Ackor, however, says he would sign a confidentiality agreement if asked.

“It’s not like I’ve ever taken a piece of inside information to my trading desk, or called my clients anyway,” he says.

“There were insider trading rules designed a long time ago to address that.”

Ms. Lee says some of her clients whose work forces include analysts are considering drafting their own agreements to have better control of what they end up agreeing to.

Chilling effect

Regulation FD came about because of complaints to the Securities and Exchange Commission that firms were giving analysts non-public corporate data. They purportedly passed that information to favored clients who could buy or dump stocks ahead of the public.

The regulation generated heated opposition from virtually all corners of Wall Street over fears it could create a “chilling effect” on the flow of corporate information.

But the final ruling included exclusions.

Company communications with lawyers, accountants, investment bankers and credit rating agencies are covered, as well as anyone else “who expressly agrees to maintain the information in confidence,” according to the regulation.

And therein lies the rub.

“I think [the exclusion] would work in a situation where the analyst agrees to a 24-hour embargo because [the company] plans to make a full public disclosure at that point,” says Richard Levine, an assistant general counsel at the SEC.

“The company could tell analysts beforehand to give them time to think about it, but they would have to wait until the public disclosure to act on it,” Mr. Levine says.

A confidentiality agreement also would allow companies to evaluate, in hindsight, conversations with analysts to determine whether anything material was disclosed.

That, says Mr. Ackor, ultimately could hinder the number of analysts that company executives talk to – which, in turn, could limit the flow of information to investors.

“What if you’re a CEO or CFO at a large company and you have 15 or 20 analysts following you?” Mr. Ackor asks. “Would general counsel have to evaluate each conversation? That’s about as cumbersome as things can get. The result will be CEOs and CFOs being more selective about who they talk to.”

Stuart Kaswell, general counsel for the Washington-based Securities Industry Association, says he fears analysts would be forced to sit on crucial information that investors have a right to know.

He concedes, however, that they may have little choice.

“They may decide that getting embargoed information is better than not getting it at all,” he says. “And given the legal landscape, they may have to accept that difficult choice.”