The Securities and Exchange Commission is preparing to drop a requirement that's shaped how public companies operate for over half a century: quarterly earnings reports.
The proposal, which could be published as soon as next month according to sources familiar with the matter, would make quarterly reporting optional rather than mandatory. Companies could choose to report results twice a year instead of four times.
Before you panic about losing transparency, here's what's actually happening.
The rule isn't killing quarterly reports altogether. It's making them voluntary. Some companies will keep reporting every quarter because investors demand it. Others might jump at the chance to reduce disclosure frequency.
This isn't a new idea. Donald Trump floated it during his first term, and it went nowhere. This time, both the president and SEC Chairman Paul Atkins have publicly supported the concept. The push gained momentum last September when the Long-Term Stock Exchange formally petitioned the SEC to eliminate the quarterly requirement.
Proponents argue less frequent reporting could boost the shrinking number of U.S. public companies. One reason companies cite for staying private is the time and cost of quarterly reporting. If you've ever wondered why fewer companies are going public, compliance costs are a big part of the answer.
But here's the part that should make retail investors nervous: Europe tried this in 2013, and the results are mixed at best. The U.K. also dropped quarterly requirements about a decade ago. Many European companies still report quarterly anyway because investors expect it.
The real question is whether reducing transparency actually helps companies think long-term, or just gives management more room to hide problems for six months instead of three.
If they can't explain it simply, they're probably hiding something. And six-month gaps between earnings give companies a lot more time to hide.
The proposal will go through a public comment period before the SEC votes on it. There are no guarantees this actually happens, but the fact that it's gotten this far tells you something about the regulatory environment.
For retail investors, this matters. Quarterly earnings are how you know if the thesis for owning a stock is still intact. Stretching that to every six months means you're flying blind longer between updates. Sure, companies file other disclosures, but earnings reports are the main event.
Bottom line: if this goes through, expect more volatility when earnings do come out, because there's twice as much time for surprises to accumulate. And if you're investing in individual stocks, you'll need to pay closer attention to the companies that actually choose to go semi-annual.
The SEC is reportedly talking to major exchanges about adjusting their rules. Once the proposal is published, we'll see who actually supports this beyond the executives tired of quarterly calls.
