In a statement published last September, here, we argued that the SEC should maintain its current system of mandatory quarterly reporting and not adopt President Trump’s recommendation that the United States shift to a system based on six-month filings.  We provided a number of reasons why we believed this change would be unwise but stated that if the Commission were to make any change to the reporting system, a second-best solution would be to provide registrants with the option of either providing six-month reports or retaining the current quarterly system.  On May 5, the Commission issued its Proposal Release to Allow Companies to File Semiannual Reports on New Form 10-S in Lieu of Quarterly Filings, Sec. Act Rel. 11,414 that is consistent with our recommendation.  We appreciate that the SEC rejected scrapping the quarterly reporting system altogether, but in this statement we reiterate that the May 2026 SEC proposal represents the lesser of two evils.  The better course of action is to maintain the current mandatory quarterly reporting system.

The question of timing of mandated disclosures should be understood against the background that the United States does not have a continuous disclosure system by which a covered firm must announce promptly any new material information in its possession.  We instead have a system requiring firms to periodically answer a set of specific questions in its annual Form 10-K report, quarterly 10-Q reports, and the updating Form 8-K reports for specified events.  This system has the advantage of greater clarity as to what must be disclosed and when, but the disadvantage that some information useful to the market remains undisclosed until it is called for by one of these forms.  The current quarterly reporting system represents an effort to balance this disadvantage versus the advantages of the current system.

Giving firms the option to move to six-month reporting would ignore the primary reasons for making disclosure mandatory in the first place.  Any optional disclosure system risks leading to a lower equilibrium: Firms are often disinclined to voluntarily disclose information useful to their competitors, major suppliers, and major customers, even when the information is useful to current and potential investors and accordingly likely would have a positive impact on share prices.   If all firms are required to disclose, the share prices will reflect these positive impacts, while each firm not only provides information to these other firms, but also receives from them comparable information.  Moreover, even if only one or a few firms in an industry were to choose not to disclose what is now required information, comparability would be lost.  The disclosure of each firm in an industry helps investors and potential investors understand the meaning of all firms in that industry.

We are deeply skeptical of the wisdom of adopting even an optional semiannual reporting system as proposed.  We have previously recognized the virtues of an independent Commission, see Shadow SEC Statement No. 1, The Value of an Independent SEC, available here.  Since our initial statement on the wisdom of retaining quarterly reports, Commissioner Caroline Crenshaw, the sole Democrat on the Commission, ended her term on January 5, 2026.  The Commission is now led by a 3-0 Republican majority.  The Commission has broken with decades of tradition and with Congress’ statutory design to maintain a one-party agency with solely Republican commissioners wielding power over United States capital markets.  As a result there are no commissioners at the SEC with the practical ability to ask hard questions of proposals that emanate from the White House, as the proposal for semiannual reporting system did.  The unlikelihood of internal commissioner-level debate is amplified by President Trump’s insistence that he has the right to fire independent agency commissioners at will.

We also have recognized the risks associated with the deep cuts in SEC staff—recently stated to be 20 percent or so of earlier staff—and the loss of morale and experience associated with high staff turnover.  See Shadow SEC Statement No. 2: The Crisis Deepens as SEC and Budget Cuts Are Directed, available here.

The semiannual reporting proposal should be understood in light of these facts—a one-party proposal that likely has received less internal review and debate from fewer experienced attorneys, economists, and analysts than historically would have been the case had the SEC been operating normally as an independent agency.

This likely has resulted in the exclusion of concepts self-evidently important to any fair reading of this proposal.  For a critical example, SEC Chair Atkins in a May 5, 2026 statement making the case for semiannual reporting explained that “companies and their investors” need to determine for themselves “the interim reporting frequency that best serves their business needs and investors.”  We agree that if an optional semiannual reporting system were to be adopted, it is preferable that investors be part of any company’s decision to adopt this change.  If managements of reporting companies simply opt for semiannual reporting, they may alienate many investors.  Companies could suffer a significant loss in share value that greatly exceeds any cost savings from moving to a six-month reporting interval if investors felt differently and discounted the registrant’s shares because of lesser transparency.  Under existing SEC statutory authority and rules such as Rule 14a-8, shareholders could be asked to vote before a company could move to ending quarterly reports.  This could be framed as a precatory vote as would be consistent with current Delaware law.  Hypothetically, if 90 percent of shareholders voted in favor of retaining quarterly reports, this would be important for management to know.  Ignoring such information or failing to obtain it could result in activist hedge funds seeking board representation in order to challenge management’s decision.  This would be expensive to both sides and could be avoided if management sought a serious census of its shareholders before proceeding.

The SEC semiannual rule proposal is strikingly unusual for its approach to judging new disclosure standards.  There is little analysis of the possibility of an increase in fraud as a result of companies being able to report less frequently.  See the Proposing Release at pages 67-78 and 110-115.  The Proposing Release does recognize what it terms a likely increase in “information asymmetries” and the risk that agency costs may cause companies to choose to report less frequently than would be in the interest of shareholders.  This is quite different than recognizing that there have been major securities frauds in recent years because of obscuring or misstating financial data such as Enron, WorldCom, and most recently FTX.  Historically, the SEC had long provided detailed data on disclosure requirements that could be correlated with the presence or absence of such information about material transactions with insiders, disclosure of bonuses, profit-sharing arrangements, the incidence of restatements, or the failure of companies to disclose all material financial information, a key issue in several crypto cases, which the SEC dismissed, about companies that engaged in overseas transactions to avoid full disclosure and United States oversight.   See Louis Loss, Joel Seligman & Troy Paredes, Securities Regulation 51-54, 730-751, 849-862 (Wolters Kluwer 7^th ed. 2024).  Although, Chair Atkins is correct that investor protection is one of the core elements of the SEC mandate, the Proposing Release seriously underemphasizes the extent to which the Securities Act of 1933 and the Securities Exchange Act of 1934 were adopted to deter fraud and to allow enforcement actions to spot what does occur.

The SEC’s semiannual reporting proposal also lacks a serious attempt to synthesize the results found in studies of comparable rule changes outside the United States such as the Robert Pozen, Suresh Nallareddy & Shiva Raigopal 2017 study, the Impact of Reporting Frequency on UK Public Companies, Research Found. Briefs 3, No. 1 which found that only 10 percent of covered companies elected to move to semi-annual reporting. It cites a study of such a rule change in Israel, Keren Bar-Hava, Audit Fee and Corporate Governance Quality, 9 J. Fin. & Acct. 249 (2021), but solely for the finding that semi-annual reporting reduces audit hours, and not for the effects reported in that study that suggest that such a switch would produce harms such as negative stock-price reaction to announcements by companies that were making such a switch and the positive associations with good governance at firms that did not make the switch.

The SEC instead arbitrarily assumed without citing reliable data that 20 percent of listed companies will elect to use semiannual reporting, see Proposal notes 313 and 332.  This assumption is based on a single survey from Nasdaq that did not report the response rate, the size of the surveyed universe, or any basis for believing that the companies that did respond were representative of public companies generally.  Seventy-five percent of 183 responding companies did report in this survey that they would move to semiannual reporting.  Left unaddressed in the assertion is that there are roughly 3500 Nasdaq companies.  This amounts to 4 percent of the total Nasdaq firms.

Nor did the SEC candidly acknowledge that estimated costs and benefits of its rule change are so uncertain that the net benefits of the proposal cannot in fact be reasonably quantified.  The proposal does recognize the possibility of increased costs of capital, lower liquidity, increased insider trading, and increased costs for analysts searching for information to replace quarterly reports by companies that choose to move to semiannual reporting.  It also recognizes that there would be a diminution in the ability of prospective investors or institutional investors to engage in comparable financial analysis if some firms now report on the semiannual Form 10-S once a year and others three times a year on the quarterly Form 10-Q.  Indeed, the potential harm to investors due to the lack of comparability is broader than that between firms that continue to report quarterly on Form 10-Qs and those that instead report semiannually on Form 10-S.  Additional comparability concerns are posed by firms who cease to file on Form 10-Q but supply some quarterly information to the market in a nonconforming format outside the language mandated by the SEC in Form 10-Q.  While the SEC proposal states that it lacks a basis for estimating the magnitude of such harms, it nowhere clearly acknowledges that as a result of the lack of data it has no basis for estimating the net costs and benefits of the rule.  This, in effect, is hiding the ball when it comes to the very serious risks of its proposal.

Is there a strong need for this proposal?  The stock market is up approximately 20 percent since President Trump took office in January 2025.  The Dow Jones Average opened 2025 at 42,660 and recently and consistently has traded above 50,000.  The Commission’s Investor Advisory Committee asserted before its March 12, 2026 meeting: “The disclosure requirements for public companies have increased dramatically in recent decades at a significant cost to public companies.”  But this can be viewed as the cost of doing business.  United States capital markets’ total equity market capitalization increased by $11 trillion in 2024 alone with substantial increases since then.  The costs of the SEC mandatory disclosure system should be compared with their benefits.  As Luzi Hall and Christian Leuz, International Differences in Costs of Equity Capital:  Do Legal Institutions and Securities Regulation Matter?, 44 Acct. Rev. 485 (2004), states, “firms from countries with more extensive disclosure requirements, stronger securities regulation and stricter enforcement have a significantly lower cost of capital.”

SEC Chair Atkins has repeatedly expressed interest in increasing the number of publicly traded companies.  This is within the SEC’s power to achieve by reducing the breadth of its current exemptions.  See Renee Jones, Untamed Unicorns (Harvard Univ. Press 2026 forthcoming).  The notion that offering companies the option to report semiannually will make much difference to company decisions to register with the SEC or remain private is fanciful.  What might make a difference is changing disclosure requirements, proposals for which the Commission has made in separate releases.  We will analyze these releases soon.

The bottom line here is simple.  If it ain’t broke, don’t fix it.  We have the most stable, highly regarded securities markets in the world today.  We should celebrate, as Chair Atkins once did, markets that are the “envy of the world.”

This post comes to us from the Shadow SEC, whose members are professors John Coates at Harvard Law School, John C. Coffee, Jr. at Columbia Law School, James D. Cox at Duke University School of Law, Merritt B. Fox at Columbia Law School, and Joel Seligman at Washington University School of Law.