US SEC preparing to scrap quarterly reporting requirement
reuters.com
reuters.com
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.
I am also of the (perhaps wrong) opinion that the majority of the important stuff leaks anyways, just not on a level playing field.
If your competitors know that your Florida subsidiary is running inefficiently and being subsidized by your successful business elsewhere, they can target their own operations in Florida, undercut you more than you can possibly sustain, force you to exit that market entirely, so that they can monopolize there.
Of course I realize it's possible it might introduce systemic problems that I'm unaware of.
I think the problem is that people have gotten so used to seeing capitalism from the companies' perspective (i.e.: profits good), and forgot that it is supposed to be all about the collective good. So if you think sustained high profits are good... then you have missed the whole point (the market should always be driving them towards near-zero).
That’s why people hide information from bad bosses.
For example having daily morning 2 hour long stand ups provide more information for everyone involved. It's also worse for productivity and work atmosphere.
The company is employing additional resources (accountants) and distracting leadership (prepping talking points).
I'm not firmly in one camp or the other, but it is a substantial amount of effort to release on whatever cadence the SEC mandates.
It's not. That's why we have the rules that they are recinding, and why the US has long had among the the most transparent, safest, and liquid markets in the world.
Saying that 'it's always been this way' is a really concerted effort to bury one's head in the sand.
People will put up any defense against facing and acting on the reality of their situation.
One facet of the Trump administration that still manages to surprise me is now some action that is nakedly corrupt, or stupid, or destructive will be undertaken, and people will scramble to come up with explanations for why it might be done in good faith, or as part of some clever plan. We've been watching Donald Trump operate in national politics for over a decade (and seen him in business for far longer). Why on Earth would anyone ever give him the benefit of the doubt at this point?
Goodhart's law is knocking on your door right now.
I'm not advocating for a single metric that can be gamed. A business is fundamentally about dollars in and dollars out. Maybe add receivables in there and a few other metrics from the P&L. I'm not trying to be prescriptive here on purely cash in and out.
I do think there is a low friction way that companies could report daily certain metrics that over time would give their shareholders a sense of the company's health and trajectory.
If a 10 billion dollar company has a per-second dollar out/in rate of $1,000,000 due to actual organic business, a company with $2,000,000 can set up an LLC it buys and sells from, and legally 'swap' $1,000,000 a second back and forth in services "bought and sold" to mimic the appearance of the $10B company, to generate business interest/confidence/investment.
That's an extreme example, but the point is that real-time money flow has nothing to do with the actual 'health' of a company.
There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed.
For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading."
There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult.
You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want.
Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.
The line between legal and illegal business transactions can be murky as hell.
Does that clarify the situation?
However it's not at all uncommon for large sales agreements to come with additional strings attached. On its face I don't see how this example is any different.
If my company wanted to barter with another company to exchange equity for infrastructure how would you expect that to be reported? Did this situation differ from that expectation?
> What if Nvidia paid more for the stock than the chips were worth?
I'm not sure. It's an interesting question. Were the unit prices (ie chip and stock quantities) made public?
As I mentioned, I would have no problem if that's what happened. But it isn't. Nvidia recorded the cash as ordinary income. They did NOT record the stock as income. Cash has a clear value; stock does not. You keep reducing the transaction to its effective outcome, which is not where the problem lies, as I outlined above.
So your objection is the way in which they did the accounting? This is not an area I'm particularly familiar with. Does the way they went about it fall outside of the norm for the US? Or is your objection a more general one regarding the US regulations on the matter?
I understand you object but I don't quite follow why. When it comes to manipulating the OpenAI valuation couldn't Nvidia have intentionally overpayed for the stock in cash? Wouldn't that have provided the exact same quantity of capital, the exact same investment, the exact same valuation?
Maybe it would be different if their GPUs weren't in such demand but they are. Even in such a case, they could have structured the transaction as a series of smaller independent ones. Same ultimate outcome.
Yes, the accounting is the problem. As I said from the outset, if they actually just traded chips for stock, it would not be an issue.
If the valuation turns out to change in the future, that's the hardware seller's risk.
It's not the same thing as buying a $20 million banana from a bahamian llc secretly owned by yourself, which is fraud.
Sure, you could inflate your numbers a bit and likely get away with it. But it's still fraud (getting away with it doesn't make it not a crime) and you will likely be caught if you overdo it.
My personal opinion? The bubble burst will make 2007ff look harmless in comparison.
But it eventually comes out, so while you can do it short-term, it's a terrible long-term strategy. Your stock will eventually crash and burn if you do too much of it.
Companies know this, thus every action they perform that affects an externally visible number is calculated both for the actual intent of the action, and how that action effects the number and the consequent market behavior.
This is why you see all sorts of moves that aren't strictly helpful for the business itself like being overly picky about which fiscal quarter certain expenses are taken in, etc. The more numbers about a company that are publicly visible, the more the company has to play this game.
Of course, visibility for traders is important for market efficiency too. But there is a balance there where you don't want to turn the functioning of a business too much into a perceived popularity game where it spends too much of its effort just making the numbers "look right" orthogonal to what's best for the business's functioning.
Companies can already make press releases whenever they want yet non fraudulent ones fail to move the market in a predicable way. If someone is committing fraud I want to know about it instantly not in 3 or 6 months. This is just a gimme to Elon's scam empire from an organization he "has no respect for".
Wrt Shannon, the channel capacity today vastly exceeds that of 1934 when quarterly reporting became standard. Give me more data and a filter any day over a once every 6 month black box. 6 month reporting is undersampling.
/ES does not trade between 5pm and 6pm ET. SPX options aren't marked until 8:15 PM ET.
It's more plausible that large caps see MWF, then MTWHF possibly.
T+0 all-year-round trading is good in many ways bad in others —like losing the real investor liquidity spawning window at 09:30 EST as opposed to pure market making.
Quarterly earnings were already a bad fit for many businesses so I agree with the measure to do away with them in principle. Someone proposed real-time and I think that would be a net positive if not very feasible. Yearly is a good compromise.
Companies that are not profitable YoY usually have a story so they probably can avoid having to rob Peter to pay Paul.
Then again, maybe everyone adapts and yearlies turn into the next quarterlies.
A former manager used to run his own company, it was a satellite internet company sometime in the 2000s, they were going into the negative, so they had a big TV in the office, showing everyday what was coming in, and how much they made vs how much they owed. They did it to motivate everyone to go back into the green. Really interesting approach. Might not work at larger companies, but in a small shop where everyone knows everyone, it makes sense.
Those startups all had major financial problems within 6 months to 2 years. Management has strong incentives to hide bad information from employees.
Trying to connect the dots like you are attempting to, is a foolish game.
They aren't banning quarterly reporting, they'd just no longer require it.
this is why they've been lobbying for it, and with Trump in power they pushed and got it.
once it is gone none of them will do it, or at best will do it half-heartedly for a while.
5 years after its repeal there will be no large company doing it regularly
My guess is that most report quarterly, my question is what they report. But we will see.
"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"
Cool.
What company is this?
FOB Shipping Point (or Origin): Responsibility transfers to the buyer as soon as the goods leave the seller's premises. You book it when it leaves your loading dock.
FOB Destination: The seller retains risk and costs until the goods reach the buyer’s location.
The sale doesn't happen until the asset transfer occurs. Before that any cash you get from the sale is balanced by the liability to actually produce the good or refund the money. Or more likely you don't get any cash but can't record the bill as accounts receivable. It's not receivable until the transfer point is crossed.
If it is accrual-based acocunting, it takes place when the event legal triggering the change of ownership of goods in the transaction takes place, which depends on the shipping terms, which could be anywhere from when it is available for the buyer’s transport agent to pick up at the seller’s facility (EXW) to when it is delivered, unloaded, and at the buyers door (DDP) or any of a variety of places in between (FOB Origin, FOB Destination, and a bunch of other potential shipping terms with their own rules on when ownership—and responsibility—transfer from seller to buyer.)
- incoterms (https://www.dhl.com/content/dam/dhl/global/dhl-global-forwar...)
- cash flow statement v. income statement (accurals)
The best thing would be continuous daily or weekly reporting with no defined year end. Unfortunately the entire global system of tax and accounting is set up around annual reporting, so change is impossible.
You also get less frequent CPU usage % datapoints when you want to be sure about usage? That makes no sense at all.
Like why get hung up on these arbitrary cutoffs
What would you suggest? It sounds like you have a better system in mind already?
I've seen someone trying to explain to an investor that the numeric change between quarters wasn't meaningful. Investor seemed to understand explanation, but was clearly deeply unhappy about the chart not being tidy. People respond to that by trying to make the chart tidy, even if it means losing the company money at times.
That's not something I'd be proud of.
Substitute "telling the truck driver to run stop signs" with "order the factory to increase production", it's the same thing.
Then in Q2, you panic because you don't have enough inventory, so you order the factory to produce at 150% to catch up. Both 50% and 150% are inefficient factory states; if you weren't thinking about snapshot reporting you'd have just let it run at 100% and your Q1+Q2 results would be overall better.
I have personally seen this happen at a household-name Fortune 50 company. It's insane and causes real damage to the business in many ways.
In this particular example a single truckload would be less significant annually than quarterly though.
Reporting is burdensome, sure, but being listed on public exchanges is not a requirement.
Share buyers are clearly rewarding investing for the long term, even with quarterly reporting.
Where is the proof?
As long as CEOs and executives compensation is tied to stock performance, which is highly tied to news and short term results, basic economics and game theory suggests that short-sightedness is indeed encouraged.
This is especially problematic for businesses where plannings have to be done 4/5/6+ years in advance like auto industry, aircrafts or semi conductors.
It takes an awful lot of time and money to plan a new processor architecture and build an ecosystem around it, from chip manufacturing to packaging.
Go down that list and you can see almost all those businesses are ones that plowed and continue to plow billions of dollars into investments that will not pan out for many years.
I don’t think any of the top ones got to where they were with quarter to quarter goals.
They could stop, and switch to quarter to quarter decision making and juice their numbers even more. Maybe they will, and then eventually those businesses will drop in the rankings (IBM/GE/etc).
But the idea that quarterly reporting makes businesses short sighted is clearly false.
Leaders with short term motivations makes businesses short sighted (obviously). Sometimes, that’s justified because the business sector is winding down, sometimes it’s due to incompetence, and sometimes it’s due to greed.
At the end of the day most of these CEOs are valued by the stock price and they need to follow investors expectations which are very often short sighted.
Intel, Boeing and countless others are obvious examples.
All the companies you listed went the "let's cut personnel or bets even if we're making gazzilions to appease the stock market".
nonethewiser made the claim that if quarterly financials are required, then businesses will make short term decisions.
Disproving this only requires me to provide 1 example, although I provided quite a few examples of businesses that provided quarterly financials and still made long term decisions.
I never claimed that quarterly financials prevent short term decisions, so your counterexamples are disproving a claim I did not make.
> All the companies you listed went the "let's cut personnel or bets even if we're making gazzilions to appease the stock market".
It is possible for businesses to change from making long term decisions to short term decisions (and back), and it is also possible that cutting personnel was not done solely to appease the stock market due to fluctuations in demand for labor.
Now, with an admin that's disposed to deregulation, the usual approach to closing that gap is to loosen requirements on public companies. You don't see a lot of people advocating for closing the other half of the gap, where we increase the reporting requirements on private companies. Stricter requirements there seem justified if you look with a bit of realism at how many consumer-facing funds are holding little pieces of unicorns. A lot of people have a stake in SpaceX or Stripe, one way or another. I'd like to see at least a few proposals that make it less comfortable to stay private for so long.
And maybe more Enrons?
Note that FTX, for example, was privately held. If it had been born in the nineties, the norm would be for it to go public, and have at least a modicum of disclosure; staying private would have been weird, a red flag. Instead, "our generation's Enron" had no public markets oversight whatsoever, SOX or otherwise.
So yeah, it's necessary to find a balance. You are choosing between a little regulation on a lot of companies, or a lot of regulation on a smaller and smaller chunk of the economy each year.
It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.
The people and venture funds that officially owned FTX were a narrower group, and I assume they were all qualified investors. But the thing about our disclosure regime is that protecting the official owners of the company is only one goal, the one that serves as the pretext. Informally, various regs on public companies are designed to bring sunlight more generally, and to prevent a wider array of crimes and shenanigans than just defrauding the company's owners. Public companies also have rules and norms around governance which, had FTX been been subject to them, would have made a difference.
> It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.
Only if the intention was also, "...and public companies should be an ever-shrinking share of the economy". There are a number of reasons why one might not have intended that. Ordinary investors miss out on early growth, and the good side-effect of general sunshine and governance norms only covers a sliver of the economy, missing many of the most dynamic firms that could use some scrutiny.
One could make the valid point that those pension funds shouldn't have been (indirectly) invested in those privately-owned unicorns to begin with, but doing that would have most probably come with opportunity costs for those pension funds (as for some reason or another private big companies have been seen as bringing in more money for each dollar spent compared to big public companies, at least when it comes to the last 8-10 years).
As the OP implies, there needs to be some sort of balance between public and private companies, each of them need to be, in effect, more like the other in the eyes of the State/taxman, State-run regulators and the like.
Dare I say the special interests that ghost write the bulk of the text of any given legislation are specifically banking on those second and Nth order consequences.
The problem of growing private capital markets and liquidity has been an issue for ~20 years now.
(Nit: I believe that in venture contexts, LP = "limited partners". A "liquidity provider" usually means the same thing as a market maker, at which point you're talking about the secondary / listed / public markets.)
Aren’t there some factors that require a company to go public? For example, I think there’s a limit on the number of investors (1000?).
it used to be raise money. now that money is done privately. the result exacerbates the gap between private and public markets and ultimately between rich and poor. Private market participation is usually for accredited investors where you need $1m net worth.
Public markets are one of the best ways to create wealth in the US, if the historical record is any hint about the future. Fewer public companies gives regular investors less choice. So if you're a private company and you have 1/2 as many reports to file each year, well now you have a slightly less onerous reporting regime and slightly tilts in favor of going public.
Not anymore, private markets are quite illiquid right now.
What in heavens gave you that idea? A well developed public stock market is such a new (and American thing) and it still makes up a small amount of the capital raised by businesses.
Even within large public companies, there's significant use of bank/private debt.
I wonder who this benefits, the people with non public information, or the every day person?
Plenty of companies take on debt to pay dividends, e.g. just before going public.
Although I'm not sure what he's on either. Capitalists definitely own and exploit pretty much the entire world, with few exceptions.
Anywhere else you put money as an investment will barely match inflation.
If the stock market didn't exist you would have less opportunities to invest in well priced companies and people would be manipulated in investing in opaque, often ridden with accounting shenanigans things like private equity.
The more companies are public and subject to price discovery done by sophisticated players the better it is for uninformed players like normal investors but also less sophisticated informed players like pension funds.
This happens even with the stock market. See every financial crisis.
It's a nice dismissing soundbite but you're just missing the broader point and real issues coming with people's money being invested in non public entities.
Besides, just because some problems also happen with solution A doesn't mean they wouldn't be worse with solution B. You are not really making a point just dismissing the idea of a public market without understanding the value of it.
A sealed-bid uniform-price batch auction seems like the right action.
30 seconds seems reasonable, 1 minute better, and 5 minutes still better. In all honesty even going as long as 30 minutes should still facilitate all legitimate purposes.
There are exchanges out there that run continuously but with delayed information feeds.
Note that his half-jokey proposal for a total of 30 minutes of trading time a day is at this point a running theme. If my memory serves me correctly, he started talking about this phenomenon in the pre-plague years.
Everyone gets the benefit of fast-enough execution and strong liquidity.
Crazy high-frequency gamesmanship goes away. Smart quantitative plays are still possible.
Simple and effective. Relies only on laws of physics to create the delay.
There are also exchanges that run with "frequent batch auction" principles.[0]
0: https://econpapers.repec.org/article/oupqjecon/v_3a130_3ay_3...
You think some guy at a bank is trading for you.
In a hedge fund sure
Most people are in simple retirement year funds which have a set algorithm which decides by simply rebalancing to follow an index and appropriately mitigating risk by shifting some assets towards bonds.
There is no one trading on a whimsy. The mutual fund founding documents specify an exact time of day (or times) at which the fund gets rebalanced and it simply follows the algorithm..
The price shocks discussed here will not affect that
The problem of investment companies selling stupidly at 3am solves itself as they either learn or go bankrupt. And the counterparties making money off those dumb moves don't need to be 'connected'.
I'm saying that insider knowledge isn't necessary to make money in this kind of situation, and probably doesn't even help very much. If a bunch of people trade like idiots and cause wild swings when there's no liquidity, you can provide liquidity and make money.
Any overnight mispricing is going to become an arbitrage opportunity for market makers, hedge funds, and HFT firms...whom will then compete with each other to mine that arbitrage opportunity until profits go to zero, solving the market inefficiency and mispricing problem over time (and by over time, I mean like probably the first few nights and then it stops being an issue forever).
In other words, a liquidity-based mispricing that happens consistently every night is going to quickly stop being mispriced since its so predictable.
In case you aren't aware, a world outside the US exists on different time zones and also invests in US capital markets.
Having 24/7 trading a massive value-add for the entire world who also invests in US companies, which benefits US companies tremendously given they will continue sucking up the world's capital.
This is yet another reason why global companies will continue going public in US markets instead of their own. Meanwhile Europe will continue struggling to form a capital markets union over the next 50 years while they slowly translate legal documents back and forth to each other in 42 languages, growing the fine dining economy of Brussels more than their domestic economies.
The other way to think of it is that these parties are essentially middle men who make a cut of the difference whenever someone buys/sells far from market price.
Basically if you mis price something they screw you rather than the counter party who would be interested in taking the other side at market.
I think this is stupid and does not add value, but I don't think it's harmful. It's like the stocks equivalent of a junk flipper.
User error
It’s literally a “sell low” policy.
This policy change is to hunt profit from a safety mechanism used by retail traders.
It is something that should yield a lot of profit for 24 hour trading systems during a downturn.
Doing that literally any time in the last 30 years would have been a dumb idea if you weren’t retiring in the next year.
You would have gotten stopped out and then what? What magic crystal ball do you use to decide to get back in?
Look at the violent downturn during COVID. You would have been stopped out and then likely would have taken a loss and missed one of the largest bull markets in history.
Stop losses with or without trading are for day traders.
24/7 trading will definitely burn a lot of extra energy in datacenters, make some speculators a little richer, and make a LOT of retail investors nervous…
But what actual real-world problem will it solve?
I for one am skeptical that more liquidity is always good. I think that having achieved $0.01 spreads, we're well-past the point of diminishing returns with high-frequency trading.
I have seen a once-daily auction proposed, which seems like a sensible approach to me.
What solves the day trading problem is doing chunked actions at random small intervals (like between 2-7 seconds). Then you can't put your bid in at the last moment because you won't know when it is. So your best bet is to put in your bid when you've chosen a price, knowing that it will resolve within seven seconds or less.
The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
For example, if you could only trade once a day, let's say a company announces midday that some huge customer has just left their platform. Their price should drop, but without trading it can't. So now everyone knows that their value is lower, but can't do anything about it. So people who own that stock will hold their money and not make other trades, because they know they are going to lose a bunch when trading happens again.
> The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
Trading never stops. There is an entire secondary market that has after hours/weekend trading, and a tertiary private market when that one isn't open. It's just you (and all the other retail traders) who can't trade.
Which if anything proves the opposite of your point. Liquidity is so important that wealthy people set up an entire system to keep trading just so they can still have it.
I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Why do you think global companies want to list in US capital markets instead of their own? Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
Not only am I dimly aware of the existence of these not-the-US places, but I actually live in not-the-US.
I believe I'm dimly aware of the concept of a timezone too, yeah. https://bugs.python.org/issue35829#msg385309
> Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
So, no downsides or diminishing returns to offering 24/7 trading?
Having US markets open during the rest of the world's business day.
I don't understand what that means so I'm guessing it doesn't apply to retirement savings in general. Does "liquidity to cover" imply that one made a bet that didn't work out?
But board members are largely just a proxy for the large shareholders anyway. E.g., short-term investment strategies are not going away.
Working C-levels would almost always much rather take the longer view against the wishes of their boards.
It’s 3 to 4 years on average. This isn’t relevant to quarterly filing requirements.
Give them no stock, pay them 100k a year and if they fuck up fire them rather than saying they left to "spend more time with their family" - kinda like the rest of the working joes out there.
Pay me 100mil this year and I might as well spend the rest of my time on the job gambling with shareholders money or trying to shag everyone in HR, there are no longer any consequences to my actions.
The exec's bosses are the board, the people who represent the stock holders, so the exec's compensation is a direct reflection of the incentive the board is giving them. Stock options ensure they look out for that ticker. If the board didn't want short term gains they can always change their mind on the structure of exec compensations.
That used to be the case, though more like millions a year. Clinton ended it.
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.
If you think quarterly reporting 'season' is crazy now, wait until it becomes semi-annual and the pressure is really on to hit analyst numbers. It'll be like New Year's Countdown on Results Release Day.
To your point that "executives should be tracking performance daily", there's an argument that all that data should be publicly released daily. It would make it nearly impossible to hide mismanagement and actually remove most of the human overhead since it would be impossible to spin bad data on a daily basis.
If you have been public for >N years, and have had >X "clean" quarterly reports, no trouble with the SEC, etc, then sure, back off to 6mo (or even yearly, if your shareholders are ok with that).
But if you have an audit problem, violate SEC rules, get any kind of conviction, hell, even an inditement, then back to quarterly until you clean it up.
...staff changes happen, incentives change due to changes in business performance. Enron was apparently clean public company from 1985 until sometime after Andrew Fastow was hired in 1990.
If high-resolution transparency has any value, it doesn't make sense to do it a few times and then stop.
For certain types of firms, daily revenue figures are likely to reveal individual deals. Many B2B firms have a modest number of high value deals, a daily data feed might show $0 revenue one day $1.374 million the next, which is more likely a single deal of that size than two or more smaller deals-and that would reveal a lot to competitors-especially if those competitors are in other jurisdictions which haven’t mandated this form of extreme transparency
Why do you need to "go back"? The corrected data would be available the very next day (or month (or week or fortnight) if you don't want to go to that extreme).
Moving it to bi-yearly does the opposite. CEOs can now do the same amount of gaming with half the effort. Or twice the gaming with the same effort.
Should be obvious who this change is for.
Now I know why I have to stand for 15 minutes at the hotel reception desk to check in to my already paid room, while the receptionist is typing away.
Now I know why projects which should take one week to complete instead take 5 years.
Release early, release often.
If you want corporate machinery to run more smoothly with less effort, force it to operate more frequently not less: when TLS certs had 2-3 year lifespans there was all sorts of manual methods that people forgot how to do; then it was maximum one year. We then got free certs from LE (using ACME), but they were 90 days, so that made automation much more necessary.
Now with certs from public CAs having a max time of 47 days soon (not that I'm necessarily a fan) automation is all but a must.
So if you want less onerous effort on corporate reporting, your workflows and processes need to be much more automated: that's one of the reason why computers were invented after-all, to make computations faster.
And one way to force automation is to insist on more frequent reporting, not less; Barry Ritholtz:
> 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.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
Move from quarter / every-3-months to monthly reporting: companies will be forced to automate their "corporate machinery". And each report will be much less 'momentous' because the time between samples will be much less.
I would also prefer more frequent reports, but only if they were less burdensome and risky.
Every company doesn't have to be public. The US taxpayer underwrites US securities markets, and companies that trade on our public markets have access to some of the deepest pools of low-cost liquidity in the world. But companies are obviously free to list elsewhere.
> the number of public corporations is already in decline.
Separate problem. IIRC HBS studied this and basically the issue is we stopped enforcing our anti-competition laws a while back[1]. So we end up with a fraction of firms that each sector would financially support. Both because it creates giants that are much harder to compete against, and because it allows mergers between competing firms that AFAIK could be deemed illegal under existing laws.
1 - See, for example the Robinson-Patman Act, whose dormancy allows big box retailers to exist. This law has never been repealed.
That's not how I remember it. I remember lots of publicly traded company shares being gobbled even though their business plans[1] were essentially:
1. Collect underpants
2. ?
3. Profit
"Going for marketshare" and not making a profit was still popular as recently as Uber/DoorDash/etc. Cisco still (AIUI) hasn't reached back to is DotCom peak.
Are the current multiples of many tech stocks sensible?
Anyway the difference now is that those companies still exist they just take round after round of private investor capital and the employees are offered shares that will never be tradable. Were those businesses would go bankrupt in a few years before now they can take 5-10 years. Time value of money being a thing, your money will be locked up for longer in a bad investment than it would on the public markets.
The South Park episode came out in 1998, when the profitability of tech companies was… questionable, but their popularity was very high. It was social commentary on the zeitgeist and group think of the time. And it turned out the irrational exuberance was not justified for the valuations, as everyone learned post-2000.
And have we learned anything since then? What are valuations and P/E multiples now? And it goes back centuries in the past as well, so 'modern tech' is hardly the driving force:
* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...
Your original post stated "the legion of badly performing companies that went public and were thoroughly rejected by public investors". The historical record shows that these companies going public were not "thoroughly rejected".
"Just raised a Series E/F/G/H/I" companies
The "audit" certifies a certain hash of a repo that produces known-good results, and if you use a different commit in that repo you have explain in an SEC filing why you modified things.
Basically reproducible builds for financial results:
But any "mistakes" that are made are simply corrected the next reporting period (whether that's monthly, fortnightly, weekly, or daily) in this more-frequent proposal.
The 'crunches' that occur at quarter/period-end are there because there is so much attention put on those reports because they're so infrequent. If the sampling rate is higher then errors are corrected that much sooner.
The reports are generated on the books in the state that they currently are in on a monthly/fortnightly/weekly/daily basis, and any adjustments will be "fixed" in the next reporting period. The reason why there's so much pressure to get them "correct" now is because of the (relatively) infrequent reporting. If you know that things will be 'sorted out' in a fortnight (two weeks), or whatever, there's less pressure now to get them "right".
There will be an expectation of less perfecttion and more corrections and better 'smoothing' due to the higher 'sampling rate'.
But while we live in this system which forces stocks onto me, and I have no say in the matter, I want it as transparent as possible, and I don‘t care how much it costs my enemies.
https://www.britannica.com/topic/Sarbanes-Oxley-Act
Like the building and electrical code, these regulations were written in blood.
Except Enron's results were audited. By (now defunct) Arthur Anderson:
* https://en.wikipedia.org/wiki/Enron_scandal
* https://en.wikipedia.org/wiki/Arthur_Andersen#Collapse
The auditing already existed and didn't stop Enron (or WorldCom; see also the silliness of GE under Jack Welch).
Sure SOx added more rules, but it's not like folks were flying without a net before.
I get where you're coming from but this is a rough transition for some. Ideally we would hope that more frequent reporting would necessitate development of more seamless systems... but we ain't there yet. There's a lot of flexibility in some systems but they allow that flexibility so that it can be tightened as needed. Be careful.
What does any of this have to do with too-soon reports poorly representing positive trends that can’t be tracked in 1-3 month timelines?
Source: worked at public companies, helped executives prepare for said calls.
Release unrequired. This is the purpose of an 8-K. We don’t need every public firm to constantly release quarterly.
These rules arose in 1970. Granting more flexibility, now, makes sense. (Post SOX, earnings require senior management.)
Every six months being the cadence we learn how our companies we own are doing is absurd. It leads to really long dark periods. Also for employees it means we can only divest in a semi annual window. Our carry risk is extensive and expanding.
This is about hiding truth longer, which is the MO of this administration top to bottom.
The obvious net effect is that companies would structure themselves to no longer have the reporting requirement, as the cost of reporting exceeds the benefits. That would not benefit society at large.
Why, after 30-40 years of modern computing in accounting does it still take a month to close the books? I worked at a public company that was $100m revenue yearly and it took a whole month to close the books. Absolute insanity. Even AT&T or Verizon or GM should be able to report at least weekly.
When I have been in positions where reporting was a necessary part of my job, reporting related activity probably consumed 1/3 of my time. Even in highly optimized contexts, it consumes a stupid amount of time and the impact on the consumers of those reports is often quite low. It is almost a total waste of time.
There should be some reporting but the current cadence and requirements is way too high for many large companies. Reporting doesn't have infinite ROI.
Isn't it the same amount of transactions to be interpreted no matter what the reporting period is?
These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
You gravely underestimate the legal seriousness of these reports.
So let's try to think of solutions instead of giving up. A law that requires daily disclosure can change how the reporting works so you don't need to update those category decisions 200 times.
> These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
> You gravely underestimate the legal seriousness of these reports.
All of these seem look like an argument for additional automation.
Going over what I quoted:
> You can’t serve up intentionally stale information without inviting legal repercussions.
Keeping information fresh and up to date is something technology has helped with in many areas. If there is a reasons why it can not help here then I an interested in why or that the current tech already does a good enough job in this area.
> These are being revised and updated right up until the point they are released to provide the most accurate reporting possible.
Technology can help verify last minute changes, running a test suite for example or similar. How hard that is to make or maintain though may make impractical.
> You gravely underestimate the legal seriousness of these reports.
Having an audit trail and known processes may be helpful here too if the current tooling is not adequate.
I quoted parts of the comment that looked like areas where tech has already helped in other areas. What I want to find out are details about what exists, why people think it can not be better, or why pervious attempts have failed, or why things are currently optimal.
Do you have examples? This seems like something that is a solvable problem, and from the outside it can seem like it is only about not being willing to switch to a new paradigm. That unwilling ness can come from avoiding real consequences like loosing a competitive edge due to allocation of resources to the switchover.
Reporting also contains narrative explanations by management of: the company's financial health, updates on any new or existing market risks and the company's strategy to deal with them, any changes to controls or accounting procedures, updates on any new or existing litigation, and more.
These reports need to be certified for truth by the CEO, CFO, and relevant officers under penalty of 10+ years in jail and millions of dollars in fines personally.
It's also common to do a press release, earnings call, and investor presentation but those aren't required.
In what should be a very black and white line of work there is a ton of judgement and negotiation involved
While there may be some "hijinks" (in their case, institutional advancement likes to steadily rearrange endowments or donations to take advantage of offers to match donations, etc., but that's not really a delay, as accounting basically says things like "No, that gift has already been spent"). Even with things like Concur or Expensify, expenses aren't classified on time, submitted for reimbursement, etc.
Curious why the word "slaved" was used here instead of the much more nominal "employed".
If there were done daily, they would take no time at all, and would be close to free.
I was at a large Wall Street firm which closed its books daily and has done for decades. They disclose daily to the fed and others. It was work for sure but the benefits of constantly knowing your business far out weighed the cost. So I don’t buy that it turns into more theater, you can’t do theater at a continuous pace. Theatre takes time, and the level of theatre increases as the pace of disclosure decreases.
This is one of those ideas that sounds amazing to people have never operated a real business with reporting requirements. In practice it turns into a classic case of Goodhart's Law. It drives insane incentives. Reducing reporting intervals would seriously reduce overheads and inefficiency in business.
This is 100% a good change.
Although… if there was a software engineering union, swinging a mandate for live public financial reporting is the type of non productive work that would keep everyone in a job.
It's something of a diversification benefit - when you're able to smooth over months, as long as they're not all perfectly correlated (your shock just keeps hitting over and over and you can't stop it) - your results will have lower variance once normalized for elapsed time.
What I can't speak to is whether this is a benefit to economic stability. Say an industry is shifting rapidly in a certain direction. Companies less able to adapt would be less quickly "punished" for that lack of adaptation.
The question is whether that adaptation curve is "a company may need extra time and upfront investment in transformation, but can get back on the curve, so giving them grace helps to stabilize jobs and markets..." vs. "a company that falls off the curve will continue to fall behind, so faster reporting incentivizes companies to innovate and not get into an irrecoverable state that destroys value."
And I think this question varies so widely between situations that it's difficult to standardize. Perhaps economists have looked at this more thoughtfully. Either way, this is an incredibly significant change - how so is a much more difficult question.
GE used to smooth their earnings to accomplish exactly what you describe here. This was not good for investors, or transparency, or ultimately GE itself[1].
There's ample reason to want more frequent, not less frequent, results from companies.
> the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports
> internally executives should be tracking performance daily
Executives would also be better served by having more timely access to the same data they will eventually disclose. Why would executives want to drive blind for more of the time?
1 - https://markets.businessinsider.com/news/stocks/warren-buffe...
I was following a company that did an ATM offering in January. By June, less than six months later, they had entered Chapter 11. Things can move fast in the business world. A financing deal falling through at the wrong time can be the difference between business as usual and bankruptcy.
This change would largely benefit insiders and deep pocketed investors/funds that can afford bespoke data sources to fill in the gaps. And it feels like just another attempt by Wall street to force mom and pop investors into the role of dumb exit liquidity.
In 25 years of working professionally I've never felt this or heard this even once.
> execs every 13 weeks, maybe they can focus better.
I don't care about the struggles of executives. I'm entirely unconvinced that an additional two weeks a year will afford them enough "focus" to make any appreciable difference.
> that takes 3–6 weeks after quarter end to churn out reports.
We run a sales heavy organization. No one "churns" out reports and hasn't for decades. The biggest struggle is getting engineering to finalize their existing capital project reports. Everything else is automated to such an extent that I can't even fathom this scenario still existing.
The average Nasdaq firm spend 850 hours per quarter purely on earnings. It’s absurdly burdensome.
It is part of the reason companies don’t want to go public (it’s not the only reason, obviously). But the harder you make it for companies to go public, the more will stay in private markets.
Then the only companies going public are going to be the ones that aren’t hot enough to stay private. Then retail will lose out on a lot of good growth companies.
And you could say, “well let retail invest in private companies” but that makes the information asymmetry problem even worse. Because now instead of investing in companies with biannual reporting, retail is investing in companies with no reporting at all. I guess you could say “well make private companies have to report more” and now you’ve just created a public market again.
https://www.businessinsider.com/quarterly-earnings-proposal-...
1. I have heard people complain about quarterly mindset, I have started to believe into it too. Moving to 6 months does not change short term thinking, but it does change at the margins. Gives you breathing space.
2. Just because a pied piper is pushing for the change does not make it bad. At least for me. How it is executed of course will be a concern, but not who is doing it. If I supported this change yesterday, why would I flip now?
3. I am in the SRE world. I see countless people burning midnight oil generating reports ... like why is it important for yesterdays data to be available by 5 AM pacific when by the law of temporal physics, it does not arrive before midnight. 5 hours is all you get why? I know execs may be in NYC, but still ... why is it not a P2? Why is there a fire every day? The same SLA mentality carries over to quarterly reports.
Maybe it is our well engineered just in time inventory mindset. You do not have data by this time, you lose a day here, then someone else loses a day, and pretty soon you need 2 more weeks in your supply chain, or in your financial reporting chain.
4. Yes the daily numbers should roll up into financial reports. But ... we also add all the compliance and make CEO and CFO liable for mis-reporting. Which means they need to look at the numbers, ask questions, get the gaps fixed. And not just them, they will have proxies of accountants doing this work. If you have legal liability, dont we think it costs exec (and subordinate) time? How can we say just roll the database data into financial reports? Has our group of hackers never had a bug or data corruption or system crash?
however the bigger issue here - is this is a ruse - there is a reason quarterly reporting brought transparency to companies - now they can easily hide nasty things.
you as an employee with stock options - yeah those are close to worthless since the price hit you can take can vary a lot.
For 6 months instead of 3. One could argue the need to show quarterly growth forces companies to do nastier things. Long term thinking is definitely needed these days when all companies are only focusing on short term gains.
Before 1970, the reporting was twice a year and in the first half of the twentieth century it was once a year.
I think a small subset of people might adopt a short-term approach to equity ownership. I think a much larger subset would simply be selling to access the money they rightfully earned or to diversify their holdings instead of having the bulk of their stock portfolio in a single company.
What if someone froze half of your paycheck and said you can't touch it except for the two months out of the year that they say you can?
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.
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.
Personally I think it might be better to be longer term oriented, but audit teams will lose revenue... Or just have a harder time reconciling longer time periods.
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.
Transaction costs. Preparing this transparency costs money and attention.
The data generation is mostly automated.
It's still a distraction for leadership. While they're on a strategic pivot like the current one, quarterly reporting makes sense. If they're floating along on predictable cash flows like usual, semiannual reporting with an 8-K if something weird happens should still be fine.
I invest in mostly private companies. I’m be pretty furious if I learned those executives spend a material part of every quarter making pretty presentations for me.
> Does this impact the operations of the business, not a whole lot
Every public-company CEO and CFO I know basically has to drop what they’re doing for a week, sometimes two, a quarter when it comes to earnings. Preparing reports and releases. Talking to big investors and bank analysts.
> 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...
I personally witnessed this, at more than one of the top 5 qsr chains
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.
The overall idea of SPAC’s is not bad, even if Chamath only created them to exit his sh*t investments. There are very few other ways for retail investors to invest in potential 100-1000X companies (which are generally pre-revenue). Of course the flip side, is that most SPAC’s might close down and cause you to lose money. That is the decision for the investor to make, risky opportunities are fine! Sadly chamaths shitty tactics to close out his investments have tainted a completely fine idea.
Can you really invest only 50k into OpenAI? That seems low to me.
However, some small companies are okay with small investments. You have to negotiate privately, that's just how it is. If it was a simple, uniform process, they'd be on the stock market.
"I have this exciting bag-holding opportunity for you."
If such a company succeeds and still retail investors, don’t get paid back, I would consider that fraudulent, but that’s not the case with SPAC’s. I would like to see SPAC deals be better to investors as opposed to banning them entirely.
It is. It’s a workaround.
More directly, SPACs are financially engineered to extract wealth from retail. Every weird interest-rate, guaranteed-floor and private-placement provision is geared for it. We have a crap IPO process, in part due to reporting requirements, so sometimes the gamble works out.
Surely they wouldnt mind bragging about their fantastic GAAP P&L in their filing docs. Maybe its the pesky quiet period theyre trying to avoid, so they can be even more transparent about finances and equity holders.
In practice, companies like Stripe, OpenAI, etc have stayed private because they've been able to access the cash they need at valuations they're happy with and because no one wants to open their books unless they have to. They aren't staying private because being a public company is hard.
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!
Persons affected by the market deserve quarterly earnings reports; which should be trivial given sufficient accounting systems.
Other international markets under consideration for investment are expected to retain their sub-annual reporting requirements.
Does this policy provide for allowing firms to optionally continue to disclose their financial status to all investors quarterly using the existing guidelines for scheduled disclosure?
Firms could instead instruct their CAO Chief Accounting Officer to continue to prepare quarterly reports and work on being able to prepare automated monthly reports.
Markets with a no-fee CBDC have the advantage on transactional accountability. If all transactions were in CBDCs, the treasury report for quarterly or monthly statements of accounting accountability would be easy.
Investors have for quite awhile operated with legally mandatory quarterly accounting reports and explanations of the nature of the costs and returns.
You do the now-annual earnings report webcast
Sort of like when you put off working on a paper until the last minute
It’s “pay [external] auditors and legal to review to make sure all of this won’t get us thrown in jail”
If those processes are automated because the law, accounting, and audit professions innovate, then I would suspect you’d
I don't think malice of the decision.
> The WSJ report added that the rule is expected to make quarterly reporting optional and not eliminate it altogether.
So companies can still do their quarterly reporting if they and their investors want that.
Universal healthcare? Democratic rule of law? Affordable living wage?
Nah, I'll bang the drum of international equality for corporate malfeasance.
This is also not a done deal and large pension funds will oppose this hard during the public comment portion of this process.
Nobody knows about most companies, but either a big big public company will benefit from this, or a soon to be public company will benefit from this.
So, at least twice a year would still be mandatory until this change.
Would there be any incentive for companies to still report quarterly? would reporting make them appear more transparent than 6month reporter competitors in their space?
There's a reason the Black-Scholes model assumes market prices are continuous. The discontinuity of the market makes hedging options a lot more complex and expensive.
24/7 trading doesn't completely fix that, but it does help.
6:30 AM to say 10 PM would solve a lot of those issues though without needing to go 24/7 (unless you work night shift...)
But I also like to believe that Santa is, in fact, real.
> Beginning in 2007, UK public companies were required to issue quarterly, rather than semiannual, financial reports. But the UK removed this quarterly reporting requirement in 2014. We studied the effects of these regulatory changes on UK public companies and found that the frequency of financial reports had no material impact on levels of corporate investment. However, mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts.
* https://rpc.cfainstitute.org/research/foundation/2017/impact...
So it seems that if you want more accurate analysis for investors (and current stock holders), more frequent is better.
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."
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.
> 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.
This one? I really have a hard time thinking it's nothing else then another grifting scheme.
-8 billion human beings
-the continuing health impacts of COVID
-increased frequency and magnitude of destructive weather events
-global weather pattern shifts
-increasingly dysfunctional governments in previously stable nations
-markets dominated by players decoupled from reality
-a stock market bubble of immense proportions
-the end of the post-WWII order
-an interlinked global economy with very little resilience
-an increasing amount of war
I have no idea what shape the world that emerges from all the above is going to be, but I strongly doubt it will be better than it was. The obvious analogs seem to be the Great Depression and the World Wars.
I don't know exactly what will start the dominoes falling, but the current war in Persian Gulf has a lot of potential to do so.
(A luxury i know as it shows i have a comfortable and stable existence)