SEC’s Proposed Move to Semiannual Reports Portends Wider Shakeup

Overhauling financial disclosure rules from historic quarterly reports wouldn’t just ease workflows and costs inside public companies—it would fundamentally change how US markets and finance sector work.

The Securities and Exchange Commission is weighing a shift to semiannual reporting, agency Chairman Paul Atkins said Friday amid a growing campaign for the change. Proponents, led by President Donald Trump, bill twice-a-year reporting as a way to save public companies time and money and incentivize private companies to join their ranks, while opponents say the move would hurt transparency.

Nixing quarterly reporting, which has been around since 1970, would bring changes outside of cost savings and more opacity: Much of the country’s financial system, for better or worse, is built around reporting every three months. Changes to that schedule would potentially shake up how companies set up insider-trading windows, how analysts spot trends and make recommendations, and how traders and the broader market factor earnings into stockpicking, experts say.

Insider Trading

Companies adopt policies in their bylaws regarding when company insiders, from executives to rank-and-file employees, can trade company shares. There’s usually a blackout period where trading is prohibited before companies file their quarterly reports. That window reopens after earnings are released.

In a semiannual system system, companies would have to determine how long windows can legally stay open while insiders are sitting on non-public information for longer periods, said Kady Ashley, head of the mergers and acquisitions group at Skadden, Arps, Slate, Meagher & Flom LLP’s Washington office.

It’s possible that semiannual reporting would minimize trading opportunities, so in-house counsel might face more pressure to find ways to open those windows more often, Ashley said. Company attorneys could respond by releasing some form of a quarterly earnings report or update that would meet requirements to open trading, she said.

“Employees have a lot of their wealth tied up in stock, and when you are very restrictive about when they can access that wealth, it can create issues,” she said.

Companies would likely continue to closely watch their quarterly financials, regardless of whether they reported those results. That fuels worries about insiders having more opportunities to hold and act on information that’s not publicly available, according to comments made to the SEC from the Council of Institutional Investors in 2019, when the first Trump administration was considering a move to semiannual reporting.

Investment Analytics

For equity analysts, timely data is critical, said Paul Beland, global head of research in investment intelligence firm CFRA’s wealth management division. Going from quarterly to semiannual data would raise risks for investors because they’d be operating off less information, he said.

Revenue isn’t the important part of quarterly reports, Beland said. Rather, analysts look at more granular data, like retail companies’ same-store sales, to get ahead of trends that are still materializing. Company leaders also answer questions during earnings calls, which can help with forecasting.

“Everything that is published in those quarterly results goes into our models,” Beland said. “Less is not more here.”

Conversely, semiannual reporting would give analysts more time to do deeper dives on companies, engage more with management, and emerge with better research, said Dominic Pappalardo, chief multi-asset strategist for Morningstar Investment Management LLC.

“I don’t think that spreading out that information flow is necessarily bad from their point of view,” he said of his team of about 100 analysts.

Stock Volatility

Semiannual reporting could also cause more stock price volatility as the market reacts to reports after longer periods without information, Beland said.

This increased volatility could lead analysts to lower company valuations, he said. Analysts forecast a company’s future cash flows into perpetuity, and more risk and volatility would lead to an increased discount rate—which signals less confidence in an investment. Beland said.

Volatility is a concern, Pappalardo said. But it’s possible that semiannual reporting could actually lead to less volatility because the market wouldn’t react every few months to new information, he said. Besides, analyst stock price predictions move around more than the stock price itself, he said.

“Like anything, it kind of depends who you are and what your current circumstances are,” Pappalardo said.