Investors strongly oppose Trump SEC’s proposal to weaken reporting requirements

A Trump administration proposal that would allow publicly traded companies to stop issuing quarterly financial reports has drawn extraordinary opposition from investors, including some of Wall Street’s largest firms, as critics warn the change could leave ordinary shareholders with less information about the companies they own. Investors overwhelmingly oppose SEC plan to weaken reporting requirements

More than 225,000 public comments were submitted to the Securities and Exchange Commission on the proposal, according to Better Markets, a nonprofit financial reform organization campaigning against the change.

The group said about 99% opposed allowing companies to report financial results only twice a year.

Better Markets said the response was the largest for a rulemaking proceeding in the SEC’s 92-year history.

The SEC proposed the change this spring after President Donald Trump called for abandoning mandatory quarterly reporting, arguing that less frequent reports would reduce costs and allow corporate executives to concentrate on long-term management rather than short-term results.

Under the proposal, publicly traded companies could choose to stop filing the Form 10-Q reports currently required after the first three quarters of their fiscal years. Companies electing the alternative would instead provide a semiannual report, leaving as much as six months between required comprehensive financial disclosures.

The proposal would not prohibit companies from continuing to report quarterly results.

SEC Chairman Paul Atkins has argued that giving companies greater flexibility could reduce regulatory burdens and discourage corporate executives from focusing excessively on short-term results.

Trump promoted the idea in a social media post, arguing that reporting every six months would “save money” and allow executives to focus on running their companies. Atkins subsequently said the issue was worth considering.

Opponents say the change could instead widen the information gap between ordinary investors and sophisticated Wall Street firms that have analysts, industry contacts and greater access to corporate executives.

“Taking away basic quarterly information means investors are blind for six months at a time,” Dennis Kelleher, co-founder and CEO of Better Markets, said.

Kelleher said institutional investors and corporate insiders would retain access to information unavailable to ordinary shareholders.

“If you’re a big dog, you’ll get the information anyway,” Kelleher said. “And insiders, who are trading in their own stock all the time, will have the information.”

Wall Street joins opposition

Resistance is not confined to consumer advocates or individual investors.

Before the proposal was formally issued, major financial firms including Citadel, Fidelity, Two Sigma and D.E. Shaw opposed moving to semiannual reporting. The Managed Funds Association, which represents hedge funds and other alternative asset managers, also opposed the change.

A survey cited by opponents found nearly two-thirds of investment analysts and portfolio managers favored retaining quarterly reports, while the SEC’s own Investor Advisory Committee has opposed eliminating the quarterly requirement.

Quarterly reports provide investors with standardized information about revenue, expenses, debt, cash flow, risks and other developments that can affect a company’s financial condition and share price.

Even investors who never personally read a Form 10-Q can benefit from the disclosures because analysts, investment managers and other market participants use the information to evaluate companies and set prices.

Kelleher said that process helps ensure stock prices reflect the best publicly available information about a company.

“Main Street investors, whether they read quarterly reports or not, are the real beneficiaries,” he said.

Quarterly reporting also predates the modern SEC.

By 1931, about 63% of companies listed on the New York Stock Exchange were voluntarily publishing quarterly earnings, according to historical research. The exchange generally required quarterly reporting beginning in 1939. The SEC mandated semiannual reports in 1955 and quarterly reporting in 1970.

The SEC is now considering reversing more than half a century of mandatory quarterly reporting.

Debate over corporate ‘short-termism’

Supporters of the change argue quarterly reporting can encourage executives to focus on producing immediate results rather than making investments that might take years to pay off.

Atkins has cited concerns about such “short-term thinking,” although he has acknowledged that some of the evidence is anecdotal.

The argument has circulated on Wall Street for years, but critics say it frequently confuses two different practices: quarterly financial reporting and quarterly earnings guidance.

Earnings guidance involves executives predicting future quarterly profits or other financial results. Those projections can create pressure on managers to hit short-term targets.

JPMorgan Chase CEO Jamie Dimon and Berkshire Hathaway Chairman Warren Buffett criticized quarterly earnings guidance in a 2018 Wall Street Journal opinion article, arguing that it can encourage unhealthy short-term decision-making.

But Dimon and Buffett explicitly distinguished earnings forecasts from mandatory financial disclosure and said their criticism should not be interpreted as opposition to quarterly reporting.

They described transparent reporting of financial and operating results as essential to public markets because it allows investors to evaluate corporate performance.

Supporters of the SEC proposal also argue companies could save money by preparing fewer reports. Some estimates suggest businesses switching to semiannual reporting could save about $200,000 annually in preparation, review and audit-related expenses.

They also note that other disclosure requirements would remain. Public companies would still have to report certain significant events through Form 8-K filings, comply with antifraud laws and follow rules restricting selective disclosure of material information.

Some proponents also point to markets in Europe and elsewhere where companies operate under less frequent mandatory reporting schedules.

Critics warn of information gap

Opponents counter that periodic financial statements provide something news releases and voluntary corporate announcements cannot: standardized financial information carrying legal obligations for accuracy.

Executives can face civil enforcement and, in some circumstances, criminal consequences for falsifying financial disclosures.

Critics say stretching the interval between those reports from three months to six could allow deteriorating finances, rising debt or other problems to remain less visible for longer periods.

Past corporate scandals involving companies such as Enron and WorldCom demonstrated the consequences when investors lack reliable information about deteriorating corporate finances. Opponents argue that reducing mandatory disclosure could make detecting similar problems more difficult.

Better Markets argues the effect would fall disproportionately on people whose retirement savings are invested in stocks through 401(k) plans, individual retirement accounts and mutual funds.

Large investment firms employ analysts who speak with executives, suppliers, customers and competitors. Ordinary shareholders generally depend on public information available equally to everyone.

The dispute therefore goes beyond how frequently corporations fill out government forms. It raises a fundamental question about how much information companies that raise money from the public should be required to provide to the people whose money they are using.

Record public response

The SEC’s public comment period has closed, leaving the agency to review an unusually large record before deciding whether to proceed.

Better Markets said more than 225,000 investors and other members of the public submitted comments and that approximately 99% opposed reducing reporting frequency.

The organization also challenged the SEC after discovering what it said was an incorrect email address listed on the agency’s comment portal. Better Markets warned that some comments might not have reached the agency and asked Atkins and Commissioners Hester Peirce and Mark Uyeda to correct the problem.

The SEC subsequently posted a correction on its comment page.

Federal agencies are required to consider substantive public comments when adopting regulations, although the volume of opposition alone does not determine whether a rule can proceed.

The comments can also become important if a final regulation is challenged in federal court. An agency generally must demonstrate that it considered significant objections and reasonably explained its decision.

The SEC has considered this idea before.

During Trump’s first administration, the agency sought public input in 2018 on reducing the frequency of corporate reporting. That initiative also encountered substantial opposition and was eventually abandoned.

The latest proposal now leaves the SEC with a choice between the administration’s push for deregulation and a remarkably broad coalition of investors arguing that when it comes to their money, less information is not necessarily better.