GoKawiilThe Securities and Exchange Commission officially proposed last week to weaken the quarterly reporting standards for publicly traded companies. So far, public comments submitted to the financial regulator about the idea are overwhelmingly negative. But the best objection was filed yesterday by the popular subreddit, WallStreetBets.
The community of “approximately 18 million retail investors on Reddit” argued in the unsigned letter that quarterly financial filings — known as 10-Q filings — are “the single most important leveling mechanism between retail and institutional investors in U.S. equity markets.”
“Institutional investors have expert networks, channel checks, alternative data, satellite imagery of retailer parking lots, credit card panel data, and direct management access through conferences and one-on-one meetings that cost more than most of our portfolios. We have the 10-Q,” the letter reads.
While the SEC isn’t doing away with 10-Qs, the regulator’s proposal suggests that companies will be able to elect every year whether they want to file an annual report and three quarterly reports (as is the case now) or simply one annual report and one semi-annual one. The rule change is particularly relevant as SpaceX — which is expected to allocate unprecedented IPO share to retail investors — along with a string of other buzzy and high-profile AI and tech startups begin queuing up for IPOs.
WallStreetBets argues this will not only decrease the level of real-time visibility into the financial health of a publicly traded company — also referred to by the Commission and in this letter as “issuers” — but that it will actively hurt the wallets of retail investors:
The Commission’s release talks about reducing costs for issuers. We would like to know what the Commission thinks the cost is to a retail investor of holding a position for six months without a single mandatory disclosure from the company. The answer is not zero. The answer is the spread between what insiders know and what we know, multiplied by every share we own during the gap. Someone is going to capture that spread. We have a guess about who it will not be.
The SEC has justified its proposal by claiming semi-annual reporting would reduce cost and time burdens associated with creating a 10-Q every quarter. It also says this move will help companies focus more on long-term growth versus hitting Wall Street analysts’ quarterly estimates.
WallStreetBets thinks these ideas are bunk:
We also want to register, respectfully, our objection to the suggestion that quarterly reporting is a burden the Commission can lift to help companies focus on the long term. The companies we trade are not being held back from greatness by the obligation to file four reports a year. Apple files a 10-Q every quarter and has nine hundred billion dollars in cash equivalents. Nvidia files a 10-Q every quarter and is worth more than the GDP of most G20 countries. The entire S&P 500 files a 10-Q every quarter, and the S&P 500 is at an all-time high. If quarterly reporting is crushing American capitalism, American capitalism is hiding it well. We have looked.
The retail trading subreddit is not alone. The SEC's arguments have been soundly rejected by more than 120 people in the first week of the 60-day public comment period. That group includes a number of retail investors, some of whom submitted anonymously, but also certified financial planners, hedge fund managers, and even one former SEC attorney (who, to be fair, also used the opportunity to promote his book).
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