INSIDE COMPLIANCE

The SEC’s proposed rule to permit public companies to file semiannual reports in lieu of quarterly reports may create one of the worst shifts in access to timely and reliable information for investors in the last 50 years. U.S. securities markets are the deepest, most liquid capital markets in the world, and have undoubtedly benefited from consistent and reliable reporting of public companies. Nonetheless, the SEC and others highlight that this rule change gives public companies flexibility and reduces costly compliance burdens. Additionally, they believe the proposal will reduce the short-term effects on stock prices and their corresponding volatility, allowing company management to focus on longer-term strategies over short-term returns. Others, including the SEC’s Investor Advisory Council (IAC), argue that the proposed rule harms investors by widening the information gap between the investing public and corporate insiders. Under the SEC’s proposed rules, investors lose a key source of information while bad actors gain a significant advantage on material nonpublic information between reporting cycles.