This week, I am at the American Bar Association Business Law Section’s Fall Meeting in Toronto, and there has been a lot of discussion at the meeting about President Trump’s Truth Social post earlier this week calling on the SEC to adopt rules that change the frequency of periodic reporting from quarterly to semiannual. As I noted in this blog, the possibility of making this type of change to the SEC reporting system was considered during the first Trump administration, but no changes were ultimately made to SEC requirements. It appears that the SEC is now prepared to reconsider the issue – this CFO Dive post notes that the following statement on the topic was received from the SEC:

“At President Trump’s request, Chairman [Paul] Atkins and the SEC are prioritizing this proposal to further eliminate unnecessary regulatory burdens on companies,” according to a statement sent to CFO Dive late Monday by an SEC spokesperson. The spokesperson in an interview Tuesday declined to comment further on what steps need to be taken by the SEC to change the quarterly reporting requirement.

The dialogue about this topic and the potential for the SEC’s renewed focus on a potential rule proposal prompted me to take a spin through the comment file from 2018-2019, and the input was decidedly mixed. Here are some highlights:

1. As might be expected, there were some reporting companies (such as this example) that were in favor of a shift to semiannual reporting, focusing on the cost savings and the ability to provide material information to investors through other communications such as earnings releases and Form 8-K filings.

2. One company suggested that the Commission consider a “triannual” reporting framework, where companies would report to the SEC every four months, instead of every three months.

3. Accounting industry commenters (such as this one) noted that companies may continue to seek auditor review of quarterly financial statements even if they do not have to file a Form 10-Q on a quarterly basis because of investor demands for that information and the need for such information when conducting securities offerings. It was also noted in comment letters that a shift toward earnings releases would complicate the ability of auditors to provide negative assurance to underwriters.

4. Investors (such as this one) expressed concern with the possibility of moving to a semiannual reporting framework, noting that a reduction in the frequency of financial information would make it difficult to manage their investment portfolios, and that earnings releases and quarterly reports provide different and valuable pieces of information.

5. Some commenters (such as this one) noted that less frequent reporting would be likely to increase the risk of insider trading, and as a result companies may be forced to reduce the length of their open trading windows.

6. One commenter suggested that the SEC conduct a pilot program that would allow a select group of companies to opt-out of Form 10-Q reporting so the agency could collect data about the approach before making any changes.

7. Some commenters (such as this one) suggested that the SEC consider revisiting the information required in quarterly reports, rather than changing the frequency of filing such reports.

8. Commenters (such as this one) suggested that the SEC consider pursuing a scaled approach to the issue, moving to semiannual reporting for smaller companies.

9. Many commenters (such as this one) resisted any suggestion that the SEC should adopt specific regulations concerning earnings releases and guidance practices, beyond the existing requirements in Item 2.02 of Form 8-K.

10. Not surprisingly, commenters expressed concerns about the problem of short-termism, but commenters were often skeptical as to whether a change in the frequency of periodic reporting would have any impact on a short-term focus by companies and investors.

Based on the comments and the SEC’s questions that prompted those comments, it is unlikely that any change in the frequency of periodic reports will mean a significant change in the frequency of financial and other information being provided to the market. We can envision a “private ordering” approach to periodic disclosure, where the earnings release will become the vehicle for updating investors and permitting companies to open their trading windows, repurchase their own shares and conduct securities offerings. This approach would likely put more pressure on current reporting, where companies may choose to file more Form 8-K filings or issue press releases to communicate material developments that they might have waited to report in the Form 10-Q under today’s reporting regime. Consistent with some of the items on the Commission’s regulatory agenda, the SEC might consider a scaled approach, where it reduces the quarterly reporting burdens for smaller companies, while retaining quarterly reports for larger companies. With all of that in mind, let’s sit back and see where this potential proposal goes from here!

– Dave Lynn