alt Hacker NewsUS SEC preparing to scrap quarterly reporting requirement
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One of my favorite stories about logistics and quarterly earnings deadlines (from when I worked at a pharmaceutical company:
"In our business, a truckload of various drugs can easily reach $10-$15 million. Now, if that truck arrives at the depot at 11:59pm March 31st then it's first quarter earnings. If it arrives at 12:01am April 1st then it's second quarter earnings.
$15 million is a BIG shortfall, even for us, so you better believe those truck drivers will roll the stop signs, blow red lights etc to make sure that truck arrives before 11:59pm"
This seems like bad news for regular investors, and good news for insiders.
Reporting is burdensome, sure, but being listed on public exchanges is not a requirement.
24/7 trading sounds like a nightmare. “Your retirement savings crashed 30% because there wasn’t enough liquidity to cover a 3am panic over non-news”.
curious what happens to 13F filings if quarterly earnings reports go away. the 45-day window post quarter-end is baked into the same reporting cycle. seems like SEC would have to rethink that too, or we lose a big chunk of the institutional transparency picture
Why yes, I love having less information to critical financial decisions on.
I wonder who this benefits, the people with non public information, or the every day person?
Interesting timing given the SEC is also considering changes to 13F disclosure windows. Less frequent earnings could mean more information asymmetry for retail investors - institutions with proprietary data will have even more edge.
When you wonder how much damage one person can do in 4 years...
If you want to discourage short-term thinking, make the vesting period longer on executive stock grants. Making companies' performance less transparent just opens up more opportunities for insider trading.
Well, this is going to make insider information a lot more powerful...
You've got 364 days in between the truth, and if you think a company is fudging it's numbers you've got to wait another 365 before anything else comes out.
This is an awesome move. They’re not saying the reports go away—just moving them to every six months. After hating how each company runs on an internal quarterly cycle, I have to welcome it despite how the change originated. Six months is still short from the perspective of perverse incentives, but if you free up one week of charade from execs every 13 weeks, maybe they can focus better.
And it’s not just execs, but the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports. Of course, internally executives should be tracking performance daily, but the quarter-end panic could lessen. If you have a bad quarter, you’re not penalized as much if the surrounding months are good.
And anyway, if there is a material adverse change the companies should be expected to disclose, like they are expected now.
Ps: I posted the same on Reddit a couple of hours back. Not AI but if you do find the account don't mention them online in the same sentence.
There is a great book called “The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America” by Alex Berenson. In it he outlines various frauds and market calamities: WorldCom, Enron, 2008. He makes the point that earnings per share often times comes down to cents and a single cent of earnings can make a stock rocket or plummet. Thus there is often complicated and opaque financial gymnastics to adjust EPS to meet expectations. It’s a great read.
Isn't the solution to a rare task being painful to make the task frequent? What if we required daily/weekly fiscal reporting? Would that even be feasible? I guess it would force complete automation, which might make it much more difficult to change things and reduce company agility. Would be fun to hear the opinion of someone actually involved with the process.
This means that employees would only be able to sell their stock 2 windows a year where they currently can sell 4 windows a year, correct?
The SEC is not the only one who gets a say. Their are rules that SEC does not require that have been required for certain exchanges or indices. For example, no dual class shareholders or certain board compositione have been required for listing.
Let's have an exchange or heck , even an ETF require quarterly reporting. I would invest in that and I am sure many wouldn't. It will trade at a premium or it won't.
Isn't the quarterly report one of the specific things that AI was sold as making much easier to compile and distribute? I have a strong concern about this happening under the current admin.
This idea goes back several years, and Barry Ritholtz had thoughts on it back in 2015:
> Back to quarterly earnings. Why do we even require them in the first place? The answer is that thanks to the transparency provided by regularly reported earnings and profits, investors can make informed decisions about which stocks to own or avoid. Owners of public companies have hired managers to run the businesses for them, and they want to see with some consistency how healthy the companies that they own actually are. If there are issues with how the business is being managed by the hired corporate executives, the owners want to know sooner rather than later -- and to have a chance to make course corrections. Quarterly numbers allow that to happen.
* https://web.archive.org/web/20151008083649/http://www.bloomb...
* Via: https://ritholtz.com/2015/08/worst-idea-ever/
And in 2018 he suggested going in the opposite direction—more frequent—to even daily reporting:
> This is exactly backward: More frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often—meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
> That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
> Twice-a-year earnings reporting will make the event so momentous, with such focus on it, that any company that misses analysts’ forecasts will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
> This is counterproductive.
> My proposal: Report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update. Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.
> Once financial reporting becomes daily, the short-term earnings obsession will all but disappear. In its place will be a focus on broader profit trends and deeper analytics.
[…]
> The bottom line is so obvious: To make quarterly earnings less important, we should be exploring ways to report results more often, not less.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
It would be interesting to see if reducing reporting requirements allows more startups to go public earlier in their journey, hence opening up more opportunities for public to participate in the upside!
What company doesn’t produce monthly financial statements, let alone quarterly. I could understand this for small caps.
I also don’t see how less granularity in financials is a good thing, yes if you have bad quarter that bad (but at least you can make it up the next quarter vs a bad six months likely introduces more volatility (I think?). Also I think one of the biggest complaint is “short termism” in markets, but I hardly think that will make much of a difference.
I hear there's no legislation called "Protecting Unified Monetary Products & Distributing Usury Monetary Profits."
In this new legislation, some stocks will not be associated with any corporations. There will be no reporting requirements. The stock will move as the market dictates.
And people who have more money than you can buy access to trade it seconds faster than you can.
Good luck everyone! I hope the PUMP & DUMP bill works out!
The rug pull on our 401ks has begun
Finally, free market. /$
The fact that this is optional means it will still happen, simply because of the signaling doing it quarterly will provide.
Does anyone have any guesses about how most companies would react to this? Will most keep publishing quarterly reports, will most switch to semiannual reports, or will it be a 50/50 split? Or are the major stock exchanges likely to continue mandating quarterly reports?
> The U.S. Securities and Exchange Commission is preparing a proposal to scrap the requirement for companies to report their earnings every quarter and giving them the option to share results twice a year
So, at least twice a year would still be mandatory until this change.
so all EDGAR APIs need to be updated to support either 10-Q or 10-H per firm?
ultimately supply and demand should result in less demand for the stock of companies that do not provide adequate transparency about results.
Supporters of the idea would likely say: "But considering that stock price crashes result in government bailouts, why bother reporting bad news since it just panics everyone and necessitates a bailout that shouldn't have been necessary."
European companies report every 6 months and it doesn't seem to do any harm
Twice a year is the current requirement in the UK and still provides a regular cadence.
Oh things must be about to get bad
... has argued the change in requirements would discourage shortsightedness from public companies while cutting costs. Skeptics, however, caution delaying disclosures could reduce transparency and heighten market volatility.
It's a conundrum, for sure. But as much as it pains me to agree with Donald Trump on anything, I think this may be the right thing to do. Something that could help reduce the short-term thinking that is so prevalent in American business today sounds like a win to me. But I won't deny that there are tradeoffs.
That's disrespectful to investors.
Persons affected by the market deserve quarterly earnings reports; which should be trivial given sufficient accounting systems.
Last year, I heard about this maybe coming, and here it is.
On the positive side, it removes a lot of burden from the companies as making those earnings reports 4 times per year is no joke. A lot of effort goes into it.
On the other hand, earnings reports are the only times, 4 times per year to be specific, where we can clearly see real numbers and how the company is doing vs what the company is "selling" to the public. So this inherently damages transparency, no doubt about that.
Also, rememebr all those insider trades the politicians love to do? Well, now it will be even harder to monitor.
Congratulations to the CEOs of fraudulent companies.
> Trump, who first floated the idea in his first term as president, has argued the change in requirements would discourage shortsightedness from public companies while cutting costs.
Having less information does not change one's time horizon. It just means large investors paying for proprietary data will have more edge.
While this will hopefully stop incentivizing companies to focus on super short term results its also going to increase the amount of financial reporting fraud because the remaining reports will become even more important.
This certainly has nothing to do with money furnace AI companies incoming IPO and iminent private credit crash.
That was easy.
I could give the benefit of the doubt to any other administration doing it.
This one? I really have a hard time thinking it's nothing else then another grifting scheme.
If you have earnings too frequently, it encourages companies to become hyper focused on earnings and make less long term investments. But if there is too much gap in between earnings, there is potential for grifting. What to do?
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It seems like people in power in the US are competing to make as much damage as possible to systems that brought them so much wealth.
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Simultaneously they are opening up 0DTE options on certain stocks starting with large market caps but don't be surprised when this expands. Currently this was limited to large etfs like SPX. They are also extending trading hours towards 24/7 and eventually 365.
How they square increasing liquidity with delaying information is insane.
I know there is a lot of manipulation to make quarterly numbers and the tax code is convoluted but if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense. And over time would learn the flow of the company and be able to make informed predictions on the overall health of the company. More information is usually better than less with very few exceptions.
If they want to delay the earnings call to every 6 months to talk about the business I have no problems with that.