With the possibility of eliminating mandatory quarterly reporting moving to the top of the SEC’s agenda, this Debevoise memo discusses some of the potential pros and cons of moving to a semi-annual reporting regime.

On the positive side, the memo cites the possibility of a greater long-term focus for public companies, lower regulatory compliance costs, and potential alignment with non-US jurisdictions and with the obligations of foreign private issuers.  On the negative side, the memo cites the possibility of decreased transparency and lower information quality, and the absence of uniform standards for more frequent reporting.

This excerpt raises the possibility that public companies may, ironically, find themselves with more frequent public reporting obligations if quarterly reports were eliminated:

Quarterly information released by companies serves to prevent fraud and market manipulation. A broad range of investors rely on quarterly reporting to cleanse material nonpublic information in connection with their asset-management and trading. Less frequent reporting could lengthen trading blackouts and reduce trading activity generally unless companies disseminate regular, voluntary financial and other updates.

To prevent this, lenders and the markets in general could push for a greater transparency and frequency of cleansing disclosures than Form 8-K—which is generally filed only when specifically triggered—presently affords them. For example, investors and lenders may advocate for an immediate reporting regime, similar to the Market Abuse Regulation in other jurisdictions, pursuant to which issuers would have to monitor continuously and proactively for inside information and be ready to disclose such information via a regulatory news service without delay.

If this sounds familiar, it may be because Dave raised this possibility when he blogged about the potential move to a semi-annual reporting system last month. Also, be sure to check out Liz’s recent blog on what this all may mean for securities lawyers.

– John Jenkins