The SEC is set to fast track President's Donald Trump's proposal to allow firms to report on a semi-annual basis, instead of submitting quarterly reports.
In a column for the Financial Times, SEC Chair Paul Atkins wrote, "The government should provide the minimum effective dose of regulation needed to protect investors while allowing businesses to flourish. And for that reason I am fast-tracking President Trump’s proposal to equip companies with the option to report on a semi-annual basis, rather than locking them into the current quarterly reporting regime."
Atkins explained that this concept is hardly new. Quarterly reporting did not start in the US until 1970, which, he said, is over 35 years after the creation of the regulator. Even at the moment, Atkins said some firms are already allowed this flexibility.
For instance, foreign firms that are listed on US exchanges have to report semi-annually, although some of them are still reporting earnings results every quarter. Furthermore, since the UK went back to semi-annual reporting in 2014, some of the big firms have chosen to continue to report quarterly.
According to Atkins, It is time for the SEC to let the market have a say in the best reporting frequency based on factors such as a firm's industry, size, and investor expectations.
"Mandatory quarterly reporting is hardly a cornerstone of the dynamism that distinguishes our capital markets. Giving companies the option to report semi-annually is not a retreat from transparency," Atkins stated, adding that instead, it puts a fresh focus on market-driven disclosure practices that are favoring the company interests and their investors over regulatory requirements that are prescriptive.
Central to the SEC’s mandate is the principle of materiality. The US Supreme Court defined the term 50 years ago when Justice Thurgood Marshall explained that materiality is an objective thought tied to how a reasonable investor would view information in order to make solid investment decisions.
Marshall explained that, without materiality, shareholders may be hidden by "an avalanche of trivial information” that is not helpful to their decision-making process.
Applied in terms of corporate disclosure, this means the SEC should only require companies to supply information under the objective standard of whether a reasonable investor would see it as important to an investment decision.
According to Atkins, rules written for shareholders who are looking to make social change happen or have motives that are not related to maximizing the financial return on their investment have failed this test while also failing their own investors.
This is why, he said, "political fads or distorted objectives" should not drive disclosure.