The Securities and Exchange Commission’s proposal to allow companies to choose to file financial reports semiannually drew a groundswell of public letters in the 60-day comment period that ended Monday.
Of the 8,011 letters submitted through July 3, a large majority (7,925 or 99%) were from individuals and writers who opposed the plan while 34 supported it and 52 had “conditional” views, according to a tracker overseen by Tzachi Zach, a professor of accounting at The Ohio State University, who is analyzing the data.
Zach said in an email Tuesday that many more letters have likely since been submitted and that the tracker will soon be updated to reflect them.
The tone and range of the responses in opposition vary. Among the opponents are anonymous writers such as one June 30 email that stated “Keep it quarterly stop getting rich off of our backs” from a cell phone. Another group called wallstreetbets, which describes itself as a community of 18 million retail investors on Reddit, wrote that 10-Qs “are the single most important leveling mechanism between retail and institutional investors in U.S. equity markets.”
Critics of the move also include financial executives like David Bolling Wells, a former CFO of Netflix, who acknowledged that he understands there are some good arguments for the six month reporting cycle. Still, he went on to say that quarterly reporting is a “foundational element of ‘democratic capital markets,’” and urged the SEC “to make decisions that keep our US capital markets the envy of the world and stay with the current model.”
An SEC spokesperson declined to comment on the feedback the agency received. However, the SEC staff is expected to review the comments as it prepares a recommendation on whether to proceed with the final rule.
While many expect the SEC to proceed with the proposal, the response has raised questions about whether the commission can move forward without drawing some kind of challenge, according to Daniel Brinks, a partner who specializes in forensic accounting at StoneTurn who prevously worked as a senior enforcement accountant at the SEC.
“When the proposal came out I thought it was a shoe-in that it was going to pass,” Brinks told CFO Dive in an interview. “It will be interesting to see if they decide to move forward and whether that opens them up to rules challenges. I can’t remember another rule where the comment letters were so one-sided.”
The response is very different from the more balanced feedback the SEC received in 2018, when it sought feedback on the reporting cadence matter and only 43% were opposed, according to Sarah McVay, an accounting professor at the University of Washington’s Foster School of Business.
McVay, who says she was shocked when the proposal first came out and is opposed to it, is nevertheless expecting the SEC to finalize the proposal given its current deregulatory positions.
“Unfortunately there’s a real chance that this will pass anyway,” she said in an interview, despite the opposition. “I hope that I am wrong.”
SEC Chairman Paul S. Atkins has said the initiative was part of his “Make IPOs Great Again” agenda aimed at reshaping rules governing public companies, to encourage them to go and stay public by reducing the “rigidity” of the SEC’s rules, CFO Dive previously reported.
“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,” Atkins said in a statement in May.
