Wall Street’s top regulator pledged to fast-track Donald Trump’s proposal to end quarterly reporting for most companies, the president’s latest foray into a long-running debate over transparency in American capitalism.
Paul Atkins, chairman of the Securities and Exchange Commission, said the proposal will give companies the option to report on a semi-annual basis and many firms might still choose to publish quarterly results.
“Giving companies the option to report semi-annually is not a retreat from transparency,” Atkins said in a column for the Financial Times. “It is time for the SEC to remove its thumb from the scales and allow the market to dictate the optimal reporting frequency based on factors such as the company’s industry, size and investor expectations.”
Trump floated the idea of jettisoning quarterly reporting earlier this month, though it wasn’t the first time he’d proposed such an idea. The SEC vetted the idea after Trump raised it during his first term in office, but momentum faded when no consensus emerged.
Even quick SEC rulemakings rarely take less than a year from start to finish and under normal procedures regulators would typically first draft ideas behind the scenes. Proposals could include dropping the quarterly reporting mandate entirely or giving companies the option of reporting twice a year, potentially depending on market value.
The SEC mandated for companies to report every quarter in 1970, part of its decades-long push to increase transparency following the stock market crash in 1929. Critics have argued that such reporting has its downsides. The practice increases costs, pushes companies to focus on the short term — hampering investment and innovation — and can lead to overreactions by investors, opponents say.
“The government should provide the minimum effective dose of regulation needed to protect investors while allowing businesses to flourish,” Atkins said in the FT. Trump’s proposal, he said, “puts a renewed focus on market-driven disclosure practices that favour the interests of companies and their investors over prescriptive regulatory mandates.”
But those in favor of quarterly reporting have said the transparency helps investors and eliminating the practice could lead to companies burying bad news.
“While the goal would be to get investors and companies to become more long-term focused, it would increase uncertainty in the equity market and could lead to a lowering of valuations,” Brian Nick, head of portfolio strategy at Newedge Wealth, said earlier this month.
While many of the world’s largest economies operate on a quarterly disclosure basis, some only require semi-annual reports, including France and the United Kingdom. And even if the requirement to file quarterly reports was eliminated, companies could still choose to continue to issue earnings releases.
Atkins has previously said it is a good time to review how individuals receive information, noting in a CNBC interview many investors get more information from earnings calls rather than quarterly reports.
The SEC chief has frequently criticized an overload of disclosures for companies, and the agency has already taken steps to review rules for disclosures on executive compensation.
