r/WallStreetBets hates the SEC’s proposal to weaken quarterly reporting

Last week, the Securities and Exchange Commission formally proposed relaxing quarterly reporting standards for publicly traded companies. So far, public comments submitted to financial regulators about the idea have been overwhelmingly negative. But the best objection was filed yesterday by the popular subreddit WallStreetBets.

In an unsigned letter, a community of “approximately 18 million retail investors on Reddit” argued that quarterly financial reports (known as 10-Q filings) are “the single most important equalization mechanism between retail and institutional investors in the U.S. stock market.”

“Institutional investors have expert networks, channel checks, alternative data, satellite imagery of retail store parking lots, credit card panel data, and direct management access through conferences and one-on-one meetings, which cost more than most of our portfolio. We have a 10-Q,” the letter said.

Although the SEC would not eliminate the 10-Q, the regulator’s proposal suggests that companies would be able to choose each year whether to file an annual report and three quarterly reports (as is the case today) or just one annual report and one semiannual report. The rule change is particularly relevant as SpaceX, which is expected to allocate unprecedented IPO shares to retail investors, and a series of other high-profile AI and technology startups are lining up for IPOs.

WallStreetBets argues that this will not only reduce the level of real-time visibility into the financial health of publicly traded companies (also referred to by the Commission and in this letter as “issuers”), but will also actively hurt the wallets of retail investors.

The Commission’s release mentions cost savings for issuers. We would like to know what the Commission thinks the cost will be for a retail investor to hold a position for six months without ever receiving any 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 all the shares we own during that gap. Someone is trying to capture the spread. There is speculation as to who it might not be.

The SEC justified its proposal by arguing that semiannual reporting would reduce the cost and time burden associated with preparing quarterly 10-Qs. It also said the move would allow companies to focus more on long-term growth rather than meeting Wall Street analysts’ quarterly forecasts.

WallStreetBets considers these ideas to be failures.

We would also like to respectfully express our opposition to the proposal that quarterly reporting would be a burden on the European Commission so that companies can focus on the long-term perspective. The companies we work with will not be held back from greatness by a requirement to file four reports a year. Apple files a quarterly 10-Q and has $900 billion in cash equivalents. Nvidia files a quarterly 10-Q that is worth more than the GDP of most G20 countries. The entire S&P 500 has delivered a quarterly 10-Q, and the S&P 500 is at an all-time high. If quarterly reporting is killing American capitalism, American capitalism is doing a good job of hiding it. we have seen.

It’s not just a retail trade subreddit. The SEC’s claims were rejected outright by more than 120 people during the first week of the 60-day public comment period. The group also includes a number of individual investors who filed anonymously, as well as certified financial planners, hedge fund managers, and even a former SEC attorney (who, to be fair, used the opportunity to promote his book).

The proposed rule changes may even infuriate both sides of the political aisle. One anonymous financial planner wrote:[a]After years of fighting ideologically-driven rules that politicize corporate disclosure, we never expected to see a Republican-led commission decide on a gift-wrapping exemption that so clearly undermines market transparency and puts the sector at a disadvantage to everyday retail investors. ”

Even the (very) few who submitted comments in support of this rule tended to attach caveats, such as suggesting that companies publish monthly earnings and balance sheets instead of more detailed quarterly reports.

The public comment period is open until early July, and as law professor Anne Lipton (who first brought up WallStreetBets’ comments on BlueSky) recently pointed out, major institutional investors have yet to weigh in.

But so far, no one has spoken out against it more sharply than the WallStreetBets team, which has remained a vocal supporter since the GameStop craze five years ago. In the letter, he also mentions that history, saying in an understandably sarcastic tone:

Some of us are very good at this, and some of us are bad at this, in the sense of technical securities law. Many of us learned what a 10-Q is the hard way. So you bought a stock, saw the stock price drop 40% on the earnings release, and then read the tax return to find out why. That’s a stupid operational order, and we admit it. But this is also the entire system by which a generation of retail investors taught themselves how to read financial statements, and the European Commission is now proposing cutting it in half.