The Securities and Exchange Commission’s sweeping assault on the 1934 Act’s continuous disclosure system is misguided and likely to do more harm than good.

The tens of proposed changes in the requirements appear to be based on the belief that the decline in public companies can be attributed to the burdens of United States reporting requirements, a key premise of the “Make IPOs Great Again” campaign. This premise is strongly challenged by the evidence at hand. The much-trumpeted decline in public companies is not isolated to the United States but is a worldwide phenomenon. It is not disproportionate in the United States and is a result of a variety of causes.

In one fell swoop, the SEC’s proposed revisions relieve a significant portion of all publicly traded issuers from making a wide variety of disclosures that they are currently required to provide. Each of these disclosures was adopted by the Commission for a reason and was the result of a careful process of evaluation that concluded that their benefits exceed their costs. It is unwarranted to eliminate any such requirement for such a wide swath of firms without a similarly careful consideration.  Doing so ignores the fact that the resulting decrease in information to the market can negatively affect IPO pricing in ways that might well reduce the number of IPOs.  In this connection, the Commission’s proposals understate the value that many in the investment and company communities place on such existing requirements as auditor attestation of internal controls.

This under-considered wholesale rollback of required disclosure requirements would almost certainly increase the level of fraud and raise the cost of capital.  As a result, whatever the savings in compliance cost, these changes on balance may well have a negative effect on our markets and capital formation.

The Commission’s proposed revisions to the 1934 Act’s periodic, ongoing disclosure system is one of four major disclosure-related rule proposals made in May 2026.  In the 1934 Act proposal, the Commission proposes to replace the current Securities Exchange Act filer statuses⁴ with a new trifurcation:  (1) Proposed Large Accelerated Filers (LAFs), with a $2 billion threshold that would replace the current $700 million and a five-year on-ramp that would replace the current 12-month on-ramp; (2) Nonaccelerated Filers (NAFs) defined to mean “all registrants that are not LAFs”; and (3) a small, final, new category of NAFs with total assets of less than $35 million. NAFs would be subject to disclosure requirements currently applicable to Smaller Reporting Companies (SRCs) and Emerging Growth Companies(EGCs), which would be folded into the NAF category.

The practical consequence of this proposed revision would be to reduce the largest LAF category from coverage of 35.4 percent of Exchange Act reporting companies to 19.2 percent, albeit with 93.5 percent of total market float.

If these proposals were adopted as proposed, NAFs would account for 81 percent of reporting companies and 6.5 percent of total market public float. The Commission recognized that this would result “in the loss of some information, loss of auditor attestation of internal controls of financial reporting (ICFR) and longer reporting deadlines for certain registrants” but was intended to facilitate more companies going and staying public.

The Commission outlined a long list of proposed disclosure changes for the proposed NAFs, including:

• NAFs would only be required to provide two, not three, years of audited financials in their annual reports and registration ⁷
• NAFs would not be subject to ICFR auditor attestation requirements as delineated in Sarbanes-Oxley Section 404(b). By increasing the upper bound of NAF status from less than (usually $700 million to less than $2 billion), the proposed amendments would expand by 26.7 percent the number of current registrants that would qualify as NAFs and therefore not be subject to an ICFR auditor attestation requirement.
• SRC standards would apply to all NAFs, noting that SRCs currently compose 6 percent of all 1934 Act filers. This meant two, not three, years of Management Discussion and Analysis would be required under Regulation S-K Item 303.
• Two, not three, years of summary compensation table information would be required under Item 402.
• Executive compensation disclosure now would be required for three, not five, executives under Item 402.
• Risk-factor disclosures in Forms 10-K and 10-Q and Item 1A would no longer be required.
• Performance graph disclosure under Item 201(e) except for investment company NAFs would no longer be required.
• Supplemental financial information under Item 302(a) would no longer be required.
• Quantitative and qualitative disclosures about market risk under Item 305 would no longer be required.
• A large portion of compensation disclosure under Item 402 would no longer be required including:
• • compensation discussion and analysis,
  • compensation policies and practices related to risk management,
  • pay ratio disclosure and specified executive compensation tables,
  • graphs of plan-based awards tables,
  • pension benefits tables,
  • option exercises and stock vested tables, and
  • nonqualified deferred compensation.
• Compensation discussion and analysis, compensation policies and practices related to risk management, pay-ratio disclosure and specified executive compensation tables, including graphs of plan-based awards table, pension benefits table, option exercises and stock vested table, and nonqualified deferred compensation table under Item 402 would no longer be required.
• Policies and procedures for review, approval, or ratification or related-party transactions under Item 404(b) would no longer be required.
• Compensation Committee Interlocks and Insider Participation disclosure and Compensation Committee Report disclosure under Item 407(e)(4) and (5) would no longer be required.
• Audit committee financial expert disclosure in a registrant’s first annual report would no longer be required.
• Certain payments made by resource extraction issuers under Rule 13q-1 would no longer be required to be disclosed.
• The Commission also proposed extending to NAFs all EGC accommodations not also recognized under the SRC accommodations, including exclusion of a registered public accounting firm’s attestation report on the registrant’s ICFR under Item 308(b) of Regulation S-K.
• Pay versus performance disclosure under Item 402(v) and shareholder advisory votes on executive compensation (Say-on-Pay), the frequency of Say-on-Pay Votes and Golden Parachute compensation in connection with mergers and acquisitions and related disclosures would no longer be required.
• The Commission also would follow EGC practice and allow NAFs the option to defer compliance with new or revised FASB standards for the proposed five-year on-ramp.

The Commission, as the Economic Analysis stated, believed that: “The proposed disclosure accommodations would decrease the information available in public disclosures to investors in evaluating companies newly eligible for scaled disclosures and their securities, and making investment and could make such evaluation and decision-making more costly.”

To justify this loss of information and increase in social costs, the rationale for this very broad set of changes is the Commission’s belief that more companies would register their securities or continue as public companies. “On balance, investors in smaller companies are better protected if these companies are subject to the requirements of the Exchange Act with scaled disclosure rather than private markets where there is often less disclosure.” Regulatory costs would be reduced.

In the aggregate, the 1934 Act proposal, when combined with the other three major disclosure-related SEC proposals released this May, amount to the largest regulatory revision of the Securities Acts during the Commission’s over 90-year history. Unlike earlier major efforts such as the Commission’s 1961-1964 Special Study or the Commission’s detailed 2005 proposals to modernize 1933 Act disclosures for new issues, the current SEC proposals do not adequately address fraud, the key investor protection concern, do not provide a persuasive empirical basis for each proposal (indeed with some proposed rule changes, do not provide any analysis at all), and like a “shock and awe” military strategy appear to be intended to deter the serious analysis required for changes of this magnitude. Yes, there will be comments which will be summarized and presented to the Commissioners before a vote on enactment. But that is not an adequate substitute for the robust debate envisioned in the bipartisan design of the Commission with its statutory requirement that no more than three of the five SEC Commissioners can be from the same party.

Much of the work of deregulating standards applicable to smaller registrants was already achieved when the Commission adopted its current reduced standards for Emerging Growth Companies and Smaller Reporting Companies.

The raising of the current $700 million public float requirement to a proposed $2 billion public float has a long history. “Following a series of corporate and accounting scandals in the early 2000s that led to financial restatements and bankruptcies and resulted in significant adverse effects on shareholders, the Commission established ‘accelerated filer’ status by adopting accelerated filing deadlines for certain registrants.” In 2002, “[t]he new ‘accelerated filer’ status therefore accelerated the periodic reporting filings deadlines for registrants with a public float of $75 million or more, who had been subject to Exchange Act reporting requirements for at least 12 months, and had previously filed at least one annual report.” In 2005, the Large Accelerated Filer status rules were adopted with the specific purpose of avoiding “applying the shortest deadlines to registrants with less than $700 million in public float” with further divisions for Accelerated Filers ($75 million to $700 million in public float and Nonaccelerated Filers with less than $75 million in public float). In 2007, the Commission added the Smaller ReportingCompany (SRCs) status for filers who were non-AFs or LAFs and had less than $75 million in public float.

After 2007, there was effectively a three-tier status framework:

• LAFs having a public float of $700 million or more, subject to the most accelerated filing deadlines and the most comprehensive disclosure requirements;
• AFs having a public float of $75 million or more, but less than $700 million, subject to less accelerated filing deadlines and the most comprehensive disclosure requirements; and
• SRCs having a public float of less than $75 million (or, if without a calculable public float, annual revenues below $50 million), subject to non-accelerated filing deadlines and scaled disclosure

Notably, Large Accelerated Filer and Accelerated Filer status meant accelerated filing deadlines but required the most comprehensive disclosure requirements. Only Small Reporting Companies with less than $75 million float were subject to scaled disclosure requirements.

In 2012, the JOBS Act created Emerging Growth Companies (EGCs) and provided disclosure and other accommodations when an EGC had total gross revenues then of less than $1.235 billion during the most recently completed fiscal year.

In 2015, the Fixing America’s Surface Transportation or FAST Act provided for additional accommodations for EGCs and required the Commission “to further scale or eliminate requirements of Regulation S-K, in order to reduce the burden on emerging growth companies, accelerated filers, smaller reporting companies, and other smaller issuers, while still providing all material information to investors.”

The Commission’s case for raising the public float threshold for LAFs from $700 million to $2 billion is similar to the 2005 rationale for the $700 million standard: “We believe that registrants with the largest U.S. equity market capitalization have a heightened investor demand for more comprehensive information sooner, and these registrants are likewise the most capable of bearing the costs and burdens of compliance with shorter disclosure deadlines and non-scaled disclosure and other requirements.”

The Commission stressed: “We continue to believe that public float is a reasonable indication of which companies the markets follow most closely.”

At the very least, the commitment to continuing to rely on public float deserved more attention. In a period when unicorns (unlisted companies with more than a $1 billion valuation), with fewer than 2000 shareholders and fewer than 500 non-accredited investors have become an increasingly significant proportion of securities offerings, reliance on public float or public float alone is increasingly question-begging. There is no strong reason to believe that the size of the public float—which is to a large extent something that can be chosen or managed by corporate executives—is a reasonable proxy for the need for enhanced disclosures, faster financial accounting updating, or control attestations.  Moreover, to the extent that reductions in disclosure requirements for some issuers can be justified on economies-of-scale arguments, the float is not a good measure of the base over which the costs of disclosure can be spread. Better proxies for the net value of preserving current disclosures that the SEC should consider instead or in addition to public float include size (revenues, assets, or employees), complexity (segments, locations, length and detail of financial statements), or stage of development (e.g., pre-revenue, negative operating cash flow, or mature). These are reasonable alternatives that should be considered—and if discarded, an explanation provided for why—in any economic analysis.

The Commission also proposed to extend the on-ramp for an LAF to 60 consecutive months instead of the current 12 calendar months. The Commission recognized that the minimum five-year on-ramp would delay compliance for non-scaled disclosure requirements, auditor attestation and many other provisions, but justified the new more permissive standard by asserting that this would allow “all newer registrants ample time to adjust to the disclosure and filing requirements of a public company [and] may encourage more new companies to go public and stay public, which may ultimately improve overall market transparency and provide investors with more investment opportunities with the greater transparency afforded by Exchange Act transparency.”

This is unpersuasive. Companies in the proposed five-year on-ramp typically have had experience with annual and quarterly filing requirements. To compare Accelerated Filers achieving Large Accelerated Filers to EGCs with a statutory five-year on-ramp is like comparing apples to kumquats. EGCs typically have little or no experience with securities disclosure requirements. Accelerated Filers usually do. A five-year delay amounts to a lengthy rescission of several provisions critical to investor protection. It is not necessary to allow registrants five years to adjust to the disclosure and filing requirements. Nor is it clear that this delay would encourage more companies to go public.

For Accelerated Filers during the five-year on-ramp, several currently applicable disclosure requirements are reduced or rescinded. The Commission recognized that the number of registrants who would be permitted to employ what is euphemistically called SRC, scaled disclosure would approximately double—from 44 percent of registrants to 81 percent.

The Commission candidly acknowledges:

The proposed amendments to expand the number of registrants that would be eligible to qualify for scaled disclosure accommodations also are expected to decrease the amount of information available through public disclosures to investors and other market participants about eligible filers, which could result in costs of information loss to investors and the potential increase in the risk of less informed investment and voting decisions.

Indeed, the Commission goes further than that: “We acknowledge, as we have in the past, that the smallest issuers tend to be disproportionately represented among issuers with restatements and allegations of fraud,” citing “See, e.g., Accelerated Filer and Large Accelerated Filer Definitions, Release No. 34-88365 (Mar. 12, 2020)[85 FR 17,178, 17,216 (Mar. 26, 2020)] (“Small, loss-incurring issuers are also disproportionately represented among issuers that have allegedly engaged in financial disclosure frauds, indicating that any benefits in terms of investor protection and investor confidence may be particularly important for this population of issuers.”).

On the increased fraud risk for Accelerated Filers, Non-Accelerated Filers, and Emerging Growth Companies, the Economic Analysis presented its most detailed circumstantial evidence in Tables 5-7:

Against this backdrop, the Commission proposed, among other initiatives for non-LAFs, including those still in the five-year on-ramp, no longer requiring the ICFR (Internal Control over Financial Reporting) auditor attestation requirements under §404(b) of the Sarbanes-Oxley Act. The Commission acknowledged: “[T]he ICFR auditor attestation requirement has benefits for investors, including that it enhances the reliability of management’s disclosure related to ICFR and may help a registrant identify a significant deficiency or identify and disclose a material weakness in ICFR that had not been identified or properly characterized by management.”

The Commission’s Economic Analysis amplified these concerns:

On balance, we believe increasing the LAF threshold and the resulting change in the number of companies subject to the ICFR auditor attestation requirement are appropriate given the significant relative cost burden of this requirement, particularly to smaller registrants. The expected reduction in costs to those registrants, as well as related effects of the proposal that may encourage more companies to go and stay public, ultimately would benefit investors in those companies.

We believe that this is the wrong trade-off. The initial and continuing purpose of the Federal Securities laws is to deter fraud and enhance investor confidence in securities markets. The Commission already has taken several steps to lessen the scope of auditor attestation. It may be appropriate to make further changes for smaller companies. But to justify any such change would require a serious discussion of why this is appropriate, given the higher levels of fraud, ineffective internal control over financial reporting, and restatements summarized by the Commission in this Proposal Release.

Even limiting analysis to the Proposal Release’s Economic Analysis, the Commission’s proposal to cut back on §404(b) audit attestation makes little sense.The Commission estimates that this would provide an approximate net benefit of a total of $1.87 billion over 10 years discounted to present value.

But this cost-benefit analysis only considers the net reduction in compliance costs, and it completely ignores the lost benefits from the eliminated audit attestations.  The resulting reduction in the quality of disclosure on the cost of capital could easily swamp such savings in compliance costs.  For example, should they result in a 1 percent increase in the cost of equity capital and a 0.1 percent increase in the cost of debt capital, the increased cost of capital over 10 years could total $3.72 billion to $8.7 billion, depending on whether a 3 percent or 7 percent discount rate is employed:

For the many proposed disclosure reductions, the Release does not even do the compliance-cost reduction calculation that it performs for the proposed §404(b) relief.  Each of these disclosure reductions receives little or no meaningful cost benefit analysis at all. For example, risk factor disclosures in Forms 10-K, 10-Q,and Item 1A, as well as quantitative and qualitative disclosures about market risk under Item 305 of Regulation S-K, would no longer be required. There is no text or Economic Analysis explaining why this proposal is justified.

Each or appropriate clusters of the long laundry list of changes proposed by the SEC in May 2026 deserve a separate rule proposal making the historical and institutional case for the specific proposed change.  Upon adequate consideration, some of these proposed disclosure reductions may well be merited. Provisions whose costs exceed their benefits are undesirable for all kinds of reasons, including discouraging IPOs, and changing circumstances or new knowledge may reveal a rule to be no longer beneficial.  But each item on the 1934 Act proposal’s laundry list of exemptions is not equally wise. Without individual consideration of the many varied exemptions covering five-years for NAFs—81 percent of all issuers—this proposal amounts to an assault on a system that is highly regarded throughout the world because it works. This is not how serious efforts at eliminating unnecessary regulation should work.  Rather, this is deregulation gone wild.

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. A full version of this statement has been submitted to the SEC, including footnotes, and is available in the archive of the Shadow SEC, here, or by emailing Brian Morgan at bm3330@columbia.edu.