The SEC’s new leadership is swinging the axe at quarterly reporting. Chair Paul Atkins wants to kill the 10-Q ritual and move issuers to semiannual updates. Issuers cheer the lighter burden. Investors wonder what fresh hell this will bring.
It seems efficient on paper. Management will have more time to "concentrate on long-term strategy" and compliance costs will be reduced with fewer filings. In other words, there will be fewer disclosures to stumble over when the outcomes fall short. Lawyers lose billable hours while businesses gain breathing room.
I believe the situation is way different for investors. Price discovery slows and volatility increases since there are only two hard checkpoints per year. In between updates, analysts will be working nonstop. While hedge funders scan alternative data to anticipate earnings patterns, retail will bear the brunt of the hardship initially and hurt the average small investors.
Regulators are selling this as modernization, pointing to Europe’s semiannual model. But there are reasons why U.S. markets have thrived because of it's transparency and liquidity. Diluting it raises the risk of bigger surprises, bigger gaps, and sharper crashes (These events hurt the small investors who are already disadvantaged).
My Thoughts: If you think the quarterly earnings is messy, wait until it only happens twice a year.
