How they square increasing liquidity with delaying information is insane.
I know there is a lot of manipulation to make quarterly numbers and the tax code is convoluted but if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense. And over time would learn the flow of the company and be able to make informed predictions on the overall health of the company. More information is usually better than less with very few exceptions.
If they want to delay the earnings call to every 6 months to talk about the business I have no problems with that.
A former manager used to run his own company, it was a satellite internet company sometime in the 2000s, they were going into the negative, so they had a big TV in the office, showing everyday what was coming in, and how much they made vs how much they owed. They did it to motivate everyone to go back into the green. Really interesting approach. Might not work at larger companies, but in a small shop where everyone knows everyone, it makes sense.
It's not. That's why we have the rules that they are recinding, and why the US has long had among the the most transparent, safest, and liquid markets in the world.
Saying that 'it's always been this way' is a really concerted effort to bury one's head in the sand.
One facet of the Trump administration that still manages to surprise me is now some action that is nakedly corrupt, or stupid, or destructive will be undertaken, and people will scramble to come up with explanations for why it might be done in good faith, or as part of some clever plan. We've been watching Donald Trump operate in national politics for over a decade (and seen him in business for far longer). Why on Earth would anyone ever give him the benefit of the doubt at this point?
Goodhart's law is knocking on your door right now.
I'm not advocating for a single metric that can be gamed. A business is fundamentally about dollars in and dollars out. Maybe add receivables in there and a few other metrics from the P&L. I'm not trying to be prescriptive here on purely cash in and out.
I do think there is a low friction way that companies could report daily certain metrics that over time would give their shareholders a sense of the company's health and trajectory.
/ES does not trade between 5pm and 6pm ET. SPX options aren't marked until 8:15 PM ET.
It's more plausible that large caps see MWF, then MTWHF possibly.
T+0 all-year-round trading is good in many ways bad in others —like losing the real investor liquidity spawning window at 09:30 EST as opposed to pure market making.
Quarterly earnings were already a bad fit for many businesses so I agree with the measure to do away with them in principle. Someone proposed real-time and I think that would be a net positive if not very feasible. Yearly is a good compromise.
Companies that are not profitable YoY usually have a story so they probably can avoid having to rob Peter to pay Paul.
Then again, maybe everyone adapts and yearlies turn into the next quarterlies.
That’s why people hide information from bad bosses.
The company is employing additional resources (accountants) and distracting leadership (prepping talking points).
I'm not firmly in one camp or the other, but it is a substantial amount of effort to release on whatever cadence the SEC mandates.
For example having daily morning 2 hour long stand ups provide more information for everyone involved. It's also worse for productivity and work atmosphere.
Wrt Shannon, the channel capacity today vastly exceeds that of 1934 when quarterly reporting became standard. Give me more data and a filter any day over a once every 6 month black box. 6 month reporting is undersampling.
They aren't banning quarterly reporting, they'd just no longer require it.
this is why they've been lobbying for it, and with Trump in power they pushed and got it.
once it is gone none of them will do it, or at best will do it half-heartedly for a while.
5 years after its repeal there will be no large company doing it regularly
"In our business, a truckload of various drugs can easily reach $10-$15 million. Now, if that truck arrives at the depot at 11:59pm March 31st then it's first quarter earnings. If it arrives at 12:01am April 1st then it's second quarter earnings.
$15 million is a BIG shortfall, even for us, so you better believe those truck drivers will roll the stop signs, blow red lights etc to make sure that truck arrives before 11:59pm"
If it is accrual-based acocunting, it takes place when the event legal triggering the change of ownership of goods in the transaction takes place, which depends on the shipping terms, which could be anywhere from when it is available for the buyer’s transport agent to pick up at the seller’s facility (EXW) to when it is delivered, unloaded, and at the buyers door (DDP) or any of a variety of places in between (FOB Origin, FOB Destination, and a bunch of other potential shipping terms with their own rules on when ownership—and responsibility—transfer from seller to buyer.)
FOB Shipping Point (or Origin): Responsibility transfers to the buyer as soon as the goods leave the seller's premises. You book it when it leaves your loading dock.
FOB Destination: The seller retains risk and costs until the goods reach the buyer’s location.
The sale doesn't happen until the asset transfer occurs. Before that any cash you get from the sale is balanced by the liability to actually produce the good or refund the money. Or more likely you don't get any cash but can't record the bill as accounts receivable. It's not receivable until the transfer point is crossed.
That's not something I'd be proud of.
Substitute "telling the truck driver to run stop signs" with "order the factory to increase production", it's the same thing.
Cool.
What company is this?
In this particular example a single truckload would be less significant annually than quarterly though.
Like why get hung up on these arbitrary cutoffs
I've seen someone trying to explain to an investor that the numeric change between quarters wasn't meaningful. Investor seemed to understand explanation, but was clearly deeply unhappy about the chart not being tidy. People respond to that by trying to make the chart tidy, even if it means losing the company money at times.
Reporting is burdensome, sure, but being listed on public exchanges is not a requirement.
Share buyers are clearly rewarding investing for the long term, even with quarterly reporting.
Now, with an admin that's disposed to deregulation, the usual approach to closing that gap is to loosen requirements on public companies. You don't see a lot of people advocating for closing the other half of the gap, where we increase the reporting requirements on private companies. Stricter requirements there seem justified if you look with a bit of realism at how many consumer-facing funds are holding little pieces of unicorns. A lot of people have a stake in SpaceX or Stripe, one way or another. I'd like to see at least a few proposals that make it less comfortable to stay private for so long.
The problem of growing private capital markets and liquidity has been an issue for ~20 years now.
And maybe more Enrons?
it used to be raise money. now that money is done privately. the result exacerbates the gap between private and public markets and ultimately between rich and poor. Private market participation is usually for accredited investors where you need $1m net worth.
Public markets are one of the best ways to create wealth in the US, if the historical record is any hint about the future. Fewer public companies gives regular investors less choice. So if you're a private company and you have 1/2 as many reports to file each year, well now you have a slightly less onerous reporting regime and slightly tilts in favor of going public.
Not anymore, private markets are quite illiquid right now.
What in heavens gave you that idea? A well developed public stock market is such a new (and American thing) and it still makes up a small amount of the capital raised by businesses.
Even within large public companies, there's significant use of bank/private debt.
Aren’t there some factors that require a company to go public? For example, I think there’s a limit on the number of investors (1000?).
I wonder who this benefits, the people with non public information, or the every day person?
24/7 trading will definitely burn a lot of extra energy in datacenters, make some speculators a little richer, and make a LOT of retail investors nervous…
But what actual real-world problem will it solve?
I for one am skeptical that more liquidity is always good. I think that having achieved $0.01 spreads, we're well-past the point of diminishing returns with high-frequency trading.
I don't understand what that means so I'm guessing it doesn't apply to retirement savings in general. Does "liquidity to cover" imply that one made a bet that didn't work out?
Give them no stock, pay them 100k a year and if they fuck up fire them rather than saying they left to "spend more time with their family" - kinda like the rest of the working joes out there.
Pay me 100mil this year and I might as well spend the rest of my time on the job gambling with shareholders money or trying to shag everyone in HR, there are no longer any consequences to my actions.
The exec's bosses are the board, the people who represent the stock holders, so the exec's compensation is a direct reflection of the incentive the board is giving them. Stock options ensure they look out for that ticker. If the board didn't want short term gains they can always change their mind on the structure of exec compensations.
That used to be the case, though more like millions a year. Clinton ended it.
But board members are largely just a proxy for the large shareholders anyway. E.g., short-term investment strategies are not going away.
Working C-levels would almost always much rather take the longer view against the wishes of their boards.
It’s 3 to 4 years on average. This isn’t relevant to quarterly filing requirements.
And it’s not just execs, but the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports. Of course, internally executives should be tracking performance daily, but the quarter-end panic could lessen. If you have a bad quarter, you’re not penalized as much if the surrounding months are good.
And anyway, if there is a material adverse change the companies should be expected to disclose, like they are expected now.
Ps: I posted the same on Reddit a couple of hours back. Not AI but if you do find the account don't mention them online in the same sentence.
Release early, release often.
If you want corporate machinery to run more smoothly with less effort, force it to operate more frequently not less: when TLS certs had 2-3 year lifespans there was all sorts of manual methods that people forgot how to do; then it was maximum one year. We then got free certs from LE (using ACME), but they were 90 days, so that made automation much more necessary.
Now with certs from public CAs having a max time of 47 days soon (not that I'm necessarily a fan) automation is all but a must.
So if you want less onerous effort on corporate reporting, your workflows and processes need to be much more automated: that's one of the reason why computers were invented after-all, to make computations faster.
And one way to force automation is to insist on more frequent reporting, not less; Barry Ritholtz:
> This is exactly backward: More frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often—meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
> That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
> Twice-a-year earnings reporting will make the event so momentous, with such focus on it, that any company that misses analysts’ forecasts will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
Move from quarter / every-3-months to monthly reporting: companies will be forced to automate their "corporate machinery". And each report will be much less 'momentous' because the time between samples will be much less.
Every six months being the cadence we learn how our companies we own are doing is absurd. It leads to really long dark periods. Also for employees it means we can only divest in a semi annual window. Our carry risk is extensive and expanding.
This is about hiding truth longer, which is the MO of this administration top to bottom.
Source: worked at public companies, helped executives prepare for said calls.
I would also prefer more frequent reports, but only if they were less burdensome and risky.
This is one of those ideas that sounds amazing to people have never operated a real business with reporting requirements. In practice it turns into a classic case of Goodhart's Law. It drives insane incentives. Reducing reporting intervals would seriously reduce overheads and inefficiency in business.
This is 100% a good change.
Although… if there was a software engineering union, swinging a mandate for live public financial reporting is the type of non productive work that would keep everyone in a job.
Release unrequired. This is the purpose of an 8-K. We don’t need every public firm to constantly release quarterly.
These rules arose in 1970. Granting more flexibility, now, makes sense. (Post SOX, earnings require senior management.)
I get where you're coming from but this is a rough transition for some. Ideally we would hope that more frequent reporting would necessitate development of more seamless systems... but we ain't there yet. There's a lot of flexibility in some systems but they allow that flexibility so that it can be tightened as needed. Be careful.
What does any of this have to do with too-soon reports poorly representing positive trends that can’t be tracked in 1-3 month timelines?
To your point that "executives should be tracking performance daily", there's an argument that all that data should be publicly released daily. It would make it nearly impossible to hide mismanagement and actually remove most of the human overhead since it would be impossible to spin bad data on a daily basis.
For certain types of firms, daily revenue figures are likely to reveal individual deals. Many B2B firms have a modest number of high value deals, a daily data feed might show $0 revenue one day $1.374 million the next, which is more likely a single deal of that size than two or more smaller deals-and that would reveal a lot to competitors-especially if those competitors are in other jurisdictions which haven’t mandated this form of extreme transparency
If you have been public for >N years, and have had >X "clean" quarterly reports, no trouble with the SEC, etc, then sure, back off to 6mo (or even yearly, if your shareholders are ok with that).
But if you have an audit problem, violate SEC rules, get any kind of conviction, hell, even an inditement, then back to quarterly until you clean it up.
Moving it to bi-yearly does the opposite. CEOs can now do the same amount of gaming with half the effort. Or twice the gaming with the same effort.
Should be obvious who this change is for.
Now I know why I have to stand for 15 minutes at the hotel reception desk to check in to my already paid room, while the receptionist is typing away.
Now I know why projects which should take one week to complete instead take 5 years.
GE used to smooth their earnings to accomplish exactly what you describe here. This was not good for investors, or transparency, or ultimately GE itself[1].
There's ample reason to want more frequent, not less frequent, results from companies.
> the whole corporate machinery that takes 3–6 weeks after quarter end to churn out reports
> internally executives should be tracking performance daily
Executives would also be better served by having more timely access to the same data they will eventually disclose. Why would executives want to drive blind for more of the time?
1 - https://markets.businessinsider.com/news/stocks/warren-buffe...
In 25 years of working professionally I've never felt this or heard this even once.
> execs every 13 weeks, maybe they can focus better.
I don't care about the struggles of executives. I'm entirely unconvinced that an additional two weeks a year will afford them enough "focus" to make any appreciable difference.
> that takes 3–6 weeks after quarter end to churn out reports.
We run a sales heavy organization. No one "churns" out reports and hasn't for decades. The biggest struggle is getting engineering to finalize their existing capital project reports. Everything else is automated to such an extent that I can't even fathom this scenario still existing.
It's something of a diversification benefit - when you're able to smooth over months, as long as they're not all perfectly correlated (your shock just keeps hitting over and over and you can't stop it) - your results will have lower variance once normalized for elapsed time.
What I can't speak to is whether this is a benefit to economic stability. Say an industry is shifting rapidly in a certain direction. Companies less able to adapt would be less quickly "punished" for that lack of adaptation.
The question is whether that adaptation curve is "a company may need extra time and upfront investment in transformation, but can get back on the curve, so giving them grace helps to stabilize jobs and markets..." vs. "a company that falls off the curve will continue to fall behind, so faster reporting incentivizes companies to innovate and not get into an irrecoverable state that destroys value."
And I think this question varies so widely between situations that it's difficult to standardize. Perhaps economists have looked at this more thoughtfully. Either way, this is an incredibly significant change - how so is a much more difficult question.
The average Nasdaq firm spend 850 hours per quarter purely on earnings. It’s absurdly burdensome.
It is part of the reason companies don’t want to go public (it’s not the only reason, obviously). But the harder you make it for companies to go public, the more will stay in private markets.
Then the only companies going public are going to be the ones that aren’t hot enough to stay private. Then retail will lose out on a lot of good growth companies.
And you could say, “well let retail invest in private companies” but that makes the information asymmetry problem even worse. Because now instead of investing in companies with biannual reporting, retail is investing in companies with no reporting at all. I guess you could say “well make private companies have to report more” and now you’ve just created a public market again.
https://www.businessinsider.com/quarterly-earnings-proposal-...
1. I have heard people complain about quarterly mindset, I have started to believe into it too. Moving to 6 months does not change short term thinking, but it does change at the margins. Gives you breathing space.
2. Just because a pied piper is pushing for the change does not make it bad. At least for me. How it is executed of course will be a concern, but not who is doing it. If I supported this change yesterday, why would I flip now?
3. I am in the SRE world. I see countless people burning midnight oil generating reports ... like why is it important for yesterdays data to be available by 5 AM pacific when by the law of temporal physics, it does not arrive before midnight. 5 hours is all you get why? I know execs may be in NYC, but still ... why is it not a P2? Why is there a fire every day? The same SLA mentality carries over to quarterly reports.
Maybe it is our well engineered just in time inventory mindset. You do not have data by this time, you lose a day here, then someone else loses a day, and pretty soon you need 2 more weeks in your supply chain, or in your financial reporting chain.
4. Yes the daily numbers should roll up into financial reports. But ... we also add all the compliance and make CEO and CFO liable for mis-reporting. Which means they need to look at the numbers, ask questions, get the gaps fixed. And not just them, they will have proxies of accountants doing this work. If you have legal liability, dont we think it costs exec (and subordinate) time? How can we say just roll the database data into financial reports? Has our group of hackers never had a bug or data corruption or system crash?
I was following a company that did an ATM offering in January. By June, less than six months later, they had entered Chapter 11. Things can move fast in the business world. A financing deal falling through at the wrong time can be the difference between business as usual and bankruptcy.
This change would largely benefit insiders and deep pocketed investors/funds that can afford bespoke data sources to fill in the gaps. And it feels like just another attempt by Wall street to force mom and pop investors into the role of dumb exit liquidity.
however the bigger issue here - is this is a ruse - there is a reason quarterly reporting brought transparency to companies - now they can easily hide nasty things.
you as an employee with stock options - yeah those are close to worthless since the price hit you can take can vary a lot.
For 6 months instead of 3. One could argue the need to show quarterly growth forces companies to do nastier things. Long term thinking is definitely needed these days when all companies are only focusing on short term gains.
Before 1970, the reporting was twice a year and in the first half of the twentieth century it was once a year.
I think a small subset of people might adopt a short-term approach to equity ownership. I think a much larger subset would simply be selling to access the money they rightfully earned or to diversify their holdings instead of having the bulk of their stock portfolio in a single company.
What if someone froze half of your paycheck and said you can't touch it except for the two months out of the year that they say you can?
Let's have an exchange or heck , even an ETF require quarterly reporting. I would invest in that and I am sure many wouldn't. It will trade at a premium or it won't.
You've got 364 days in between the truth, and if you think a company is fudging it's numbers you've got to wait another 365 before anything else comes out.
I also don’t see how less granularity in financials is a good thing, yes if you have bad quarter that bad (but at least you can make it up the next quarter vs a bad six months likely introduces more volatility (I think?). Also I think one of the biggest complaint is “short termism” in markets, but I hardly think that will make much of a difference.
Transaction costs. Preparing this transparency costs money and attention.
> Back to quarterly earnings. Why do we even require them in the first place? The answer is that thanks to the transparency provided by regularly reported earnings and profits, investors can make informed decisions about which stocks to own or avoid. Owners of public companies have hired managers to run the businesses for them, and they want to see with some consistency how healthy the companies that they own actually are. If there are issues with how the business is being managed by the hired corporate executives, the owners want to know sooner rather than later -- and to have a chance to make course corrections. Quarterly numbers allow that to happen.
* https://web.archive.org/web/20151008083649/http://www.bloomb...
* Via: https://ritholtz.com/2015/08/worst-idea-ever/
And in 2018 he suggested going in the opposite direction—more frequent—to even daily reporting:
> This is exactly backward: More frequent reporting makes the data less significant. In the real world, human behavior emphasizes what occurs less often—meaning doing something less frequently gives it an even greater significance than something that becomes routine or common.
> That is the difference between a New Year’s Eve celebration and a married couple’s weekly date night.
> Twice-a-year earnings reporting will make the event so momentous, with such focus on it, that any company that misses analysts’ forecasts will find their stock price shellacked. The twice-yearly focus on making the per-share number will become overwhelmingly intense.
> This is counterproductive.
> My proposal: Report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update. Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.
> Once financial reporting becomes daily, the short-term earnings obsession will all but disappear. In its place will be a focus on broader profit trends and deeper analytics.
[…]
> The bottom line is so obvious: To make quarterly earnings less important, we should be exploring ways to report results more often, not less.
* https://www.fa-mag.com/news/reporting-profits-daily-would-en...
On the positive side, it removes a lot of burden from the companies as making those earnings reports 4 times per year is no joke. A lot of effort goes into it.
On the other hand, earnings reports are the only times, 4 times per year to be specific, where we can clearly see real numbers and how the company is doing vs what the company is "selling" to the public. So this inherently damages transparency, no doubt about that.
Also, rememebr all those insider trades the politicians love to do? Well, now it will be even harder to monitor.
The overall idea of SPAC’s is not bad, even if Chamath only created them to exit his sh*t investments. There are very few other ways for retail investors to invest in potential 100-1000X companies (which are generally pre-revenue). Of course the flip side, is that most SPAC’s might close down and cause you to lose money. That is the decision for the investor to make, risky opportunities are fine! Sadly chamaths shitty tactics to close out his investments have tainted a completely fine idea.
In practice, companies like Stripe, OpenAI, etc have stayed private because they've been able to access the cash they need at valuations they're happy with and because no one wants to open their books unless they have to. They aren't staying private because being a public company is hard.
Persons affected by the market deserve quarterly earnings reports; which should be trivial given sufficient accounting systems.
Other international markets under consideration for investment are expected to retain their sub-annual reporting requirements.
Does this policy provide for allowing firms to optionally continue to disclose their financial status to all investors quarterly using the existing guidelines for scheduled disclosure?
Firms could instead instruct their CAO Chief Accounting Officer to continue to prepare quarterly reports and work on being able to prepare automated monthly reports.
Markets with a no-fee CBDC have the advantage on transactional accountability. If all transactions were in CBDCs, the treasury report for quarterly or monthly statements of accounting accountability would be easy.
Investors have for quite awhile operated with legally mandatory quarterly accounting reports and explanations of the nature of the costs and returns.
You do the now-annual earnings report webcast
Sort of like when you put off working on a paper until the last minute
In this new legislation, some stocks will not be associated with any corporations. There will be no reporting requirements. The stock will move as the market dictates.
And people who have more money than you can buy access to trade it seconds faster than you can.
Good luck everyone! I hope the PUMP & DUMP bill works out!
It’s “pay [external] auditors and legal to review to make sure all of this won’t get us thrown in jail”
If those processes are automated because the law, accounting, and audit professions innovate, then I would suspect you’d
I don't think malice of the decision.
Would there be any incentive for companies to still report quarterly? would reporting make them appear more transparent than 6month reporter competitors in their space?
This is also not a done deal and large pension funds will oppose this hard during the public comment portion of this process.
Nobody knows about most companies, but either a big big public company will benefit from this, or a soon to be public company will benefit from this.
So, at least twice a year would still be mandatory until this change.
6:30 AM to say 10 PM would solve a lot of those issues though without needing to go 24/7 (unless you work night shift...)
There's a reason the Black-Scholes model assumes market prices are continuous. The discontinuity of the market makes hedging options a lot more complex and expensive.
24/7 trading doesn't completely fix that, but it does help.
But I also like to believe that Santa is, in fact, real.
> Beginning in 2007, UK public companies were required to issue quarterly, rather than semiannual, financial reports. But the UK removed this quarterly reporting requirement in 2014. We studied the effects of these regulatory changes on UK public companies and found that the frequency of financial reports had no material impact on levels of corporate investment. However, mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts.
* https://rpc.cfainstitute.org/research/foundation/2017/impact...
So it seems that if you want more accurate analysis for investors (and current stock holders), more frequent is better.
Supporters of the idea would likely say: "But considering that stock price crashes result in government bailouts, why bother reporting bad news since it just panics everyone and necessitates a bailout that shouldn't have been necessary."
It's a conundrum, for sure. But as much as it pains me to agree with Donald Trump on anything, I think this may be the right thing to do. Something that could help reduce the short-term thinking that is so prevalent in American business today sounds like a win to me. But I won't deny that there are tradeoffs.
> Trump, who first floated the idea in his first term as president, has argued the change in requirements would discourage shortsightedness from public companies while cutting costs.
Having less information does not change one's time horizon. It just means large investors paying for proprietary data will have more edge.
This one? I really have a hard time thinking it's nothing else then another grifting scheme.
