SEC Unveils Plan to Let Companies Move to Semiannual Reports (2)

US companies could choose to report earnings semiannually instead of quarterly under a proposal released by the Securities and Exchange Commission, potentially reducing how much information publicly traded firms must share with investors.

The SEC has mandated quarterly reports, known as 10-Qs, for more than half a century in a bid to provide more transparency. While this proposal would drop that requirement for publicly traded companies, firms might choose to continue issuing earnings releases and performance outlooks every three months.

“Today’s proposed amendments, if ultimately adopted, would provide companies with increased regulatory flexibility,” said SEC Chairman Paul Atkins in a statement.

Paul Atkins, chairman of the US Securities and Exchange Commission

Photographer: Ian Maule/Bloomberg

Atkins had vowed to fast-track the semiannual disclosure plan after President Donald Trump called to end mandatory quarterly reporting. Historically, agency rulemaking can take around 18 months to two years to complete.

Under the proposal, companies that elect to file semiannual reports would file one such report and one annual report for each fiscal year in lieu of three quarterly reports and one annual report. An agency official said nothing in the proposed changes would disrupt companies’ ability to continue quarterly earnings calls and guidance.

Read More: End Quarterly Earnings Reports? Here’s the Debate: QuickTake

“There’s a universe of companies for whom this will be attractive, but at least initially it’ll be more small to mid-cap companies,” said Erik Gerding, a partner in Freshfields’ capital markets group who previously led the SEC Division of Corporation Finance.

Proponents of the measure, including Nasdaq Inc., have said it could save publicly traded companies time and money in addition to allowing managers and boards to focus on longer-term results rather than hitting quarterly financial targets.

But critics argue there is the potential for companies to bury bad news and that less frequent reports could increase the risk of insider trading. Companies may favor keeping quarterly reporting because it offers executives more frequent trading windows, Gerding said. Those windows are linked to plans for corporate executives to help avoid insider trading allegations.

Some investors have also been reticent about the idea of losing data from issuers, particularly as the SEC looks to trim the scope of disclosures currently required of companies.

The Investment Company Institute, an industry group, emphasized the quality of the information is more important than the frequency of reports.

“It is important to strike a balance between reducing unnecessary compliance burdens and preserving the quality disclosure framework that underpins investor confidence,” ICI said in a statement.

The regulator’s proposal is the first step in a more “comprehensive effort to review and reshape the current SEC rules governing public companies with respect to their ongoing reporting obligations and their ability to raise capital in the public markets,” Atkins said in his statement.

Managed Funds Association President Bryan Corbett said the SEC should review changes to the overall disclosure regime “holistically to avoid creating information gaps that harm investors and market efficiency.” MFA is a trade group representing hedge funds and private equity.

The agency will take public feedback on the semiannual reporting proposal for 60 days.

(Updates with SEC background comment and additional information starting in eighth paragraph.)

To contact the reporter on this story:
Lydia Beyoud in Washington at lbeyoud2@bloomberg.net

To contact the editors responsible for this story:
Megan Howard at mhoward70@bloomberg.net

Elizabeth Wasserman

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