Key insights
- The SEC proposed allowing US companies to opt out of quarterly earnings reports, potentially shifting to twice-annual filings. Proponents argue it reduces short-termism and costs, while opponents fear decreased transparency and increased volatility. The impact on US equities is slightly negative, as reduced information flow could increase uncertainty and risk premiums.
By Suzanne McGee, Douglas Gillison and Anirban Sen
WASHINGTON, May 5 (Reuters) - Wall Street's top regulator on Tuesday proposed ending quarterly earnings reporting requirements for U.S.-traded companies and allowing them to switch to twice-annual reports.
President Donald Trump raised the idea during his first term and it re-emerged as an administration priority last September.
The Securities and Exchange Commission wants to give publicly traded companies the option to file their earnings twice annually, a move that would end a 55-year-old requirement that U.S. public companies share detailed financial results four times a year, within 45 days of the end of their fiscal quarters.
"The rigidity of the SEC’s rules has prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs and investors," said Paul Atkins, chair of the SEC, in a statement on Tuesday.
The move is supported by a number of corporations and investment banks such as JPMorgan Chase, which argue that quarterly reporting places an onerous and costly burden on businesses.
They say it also fosters corporate short-termism at the expense of long-term planning and is one factor behind a sharp decline in the number of publicly traded firms in the U.S. over the last decade.
Some investors, however, contend that the quarterly earnings requirement makes markets more transparent and less volatile, setting the stage for a financial industry tug-of-war as formal comments on the proposal stream into the SEC over the coming 60 days.
Companies will not necessarily take immediate advantage of the permission to switch to semiannual reporting, according to asset managers.
The change would require some index providers to update the methodology for constructing investment benchmarks. While the Nasdaq 100 does not require its constituents to report earnings every quarter, there are quarterly reporting rules governing the Standard & Poor's 500 stock index.
Nasdaq said in a white paper published last year that quarterly reporting is especially burdensome for small and medium-sized companies that must allocate a disproportionate amount of time and resources to tackle the red tape.
(Reporting by Suzanne McGee in Providence, RI, Douglas Gillison in Washington, DC and Anirban Sen in New York, Editing by Edmund Klamann)