With the Canadian market in the midst of a pilot project to allow semi-annual reporting by small public companies, the U.S. Securities and Exchange Commission (SEC) is proposing rule changes to enable semi-annual reporting for companies generally.
The SEC issued rule proposals on Tuesday that would give public companies the option of filing reports twice a year, instead of quarterly, to meet their disclosure obligations under the federal securities laws.
“The flexibility provided under proposed amendments would enable public companies to choose the interim reporting frequency that would best serve the company and its investors,” the regulator said in a statement accompanying the proposed rule changes.
Under the proposal, the rules that govern the financial statement requirements for periodic reports, registration statements and proxy statements would also be revised to reflect the new semi-annual reporting option, and to simplify the existing financial statement requirements.
“Public companies have an obligation under the federal securities laws to provide information that is material to investors. Yet, the rigidity of the SEC’s rules has prevented companies and their investors from determining for themselves the interim reporting frequency that best serves their business needs and investors,” said SEC chairman, Paul Atkins, in a statement.
“Today’s proposed amendments, if ultimately adopted, would provide companies with increased regulatory flexibility in this regard,” he added.
The proposal will be out for public comment for 60 days after its publication in the Federal Register.
In March, the Canadian Securities Administrators (CSA) announced the adoption of a pilot project to allow certain venture issuers — listed companies with less than $10 million in annual revenue, among other conditions — to voluntarily adopt a semi-annual reporting, with the aim of potentially enabling small companies to reduce their compliance costs.
As with the SEC’s proposal, the CSA’s pilot is also optional, allowing companies to choose whether to make the move to semi-annual reporting or not. Already, a number of venture companies have adopted the practice.
The regulators have also indicated that they will consider extending the option of semi-annual reporting to listed companies more broadly, depending on the result of the pilot program.
Critics of the idea have suggested that some companies may suffer a decline in investor attention by reducing the frequency of their reporting, which may outweigh the savings produced by less frequent reporting.
“We share the SEC’s goal of reducing burdens on public companies, but any changes must balance that objective with the needs of investors who rely on timely information to evaluate companies and allocate capital,” said Bryan Corbett, president and CEO of the Managed Funds Association (MFA), in a statement.
“We urge the SEC to review changes to the cadence and content of disclosures holistically to avoid creating information gaps that harm investors and market efficiency,” he added. “We will review the proposal closely to ensure any reforms support transparent, efficient, and well-functioning markets.”
For both the CSA and the SEC, these initiatives are part of a broader effort to reduce compliance costs on public companies, making it more attractive for companies to go public.
“Today’s proposal is just the first step of the larger, comprehensive effort to review and reshape the current SEC rules governing public companies with respect to their ongoing reporting obligations and their ability to raise capital in the public markets,” said Atkins.
“Over the next few months, I expect that the commission will be considering a series of proposals that, if adopted, will not only redefine what it means to be a public company, but will make being public attractive again,” he added.