Bloomberg Audio Studios, podcasts, radio, news. Public companies in the US are required to report earnings every quarter, but that could change this week. The US Securities and Exchange Commission unveiled a new proposal that would require companies to report earnings semi-annually. That's just twice a year. The current SEC chair, Paul Atkins, said the proposed change would quote provide companies with increased regulatory flexibility. Critics say less frequent reporting could heighten the risk of insider trading. Joining us now on set is a former chair of the SEC, Gary Gensler, now professor at MIT and the co-host of a podcast called Power and Consequences.
I'll ask you plainly first, is this a good idea? Is the move away from quarterly reporting to semi-annual reporting a good idea?
No. I think this is really a solution in search of a problem. I think transparency is really important in our capital markets. You just had a report about transparency about UFOs. This is a little bit different. But we've been doing this actually for a very long time, and I think it's part of why our American capital markets are so good. Investors, people watching this show, or the big investors that maybe don't watch on Saturday morning, they get that information on a quarterly basis, and so it's more timely. And what studies, economic study after economic study has shown that that's a good thing. That creates a market environment where you can get a little higher price earnings ratio and a little less cost of capital because your investor base knows what's going on.
What do you say to the CEOs who complain that this is onerous and too much of their life is taken up having to prepare for these earnings releases and earnings calls?
Who's pushing for this? That's my question. Is who wants this? Yeah. You know, it's really interesting. Like who really is looking for this? In President Trump's first term, which we'll call Trump 45, he also called for this and his then SEC chair, Jay Clayton, did some public roundtables, put out what's called a concept release, and then didn't do it. And I think maybe the president, even though I think he still likes Jay Clayton, he may have felt a little slow-walked on that. And Trump 47 has come back. And so it's I think the president really wants it, but I really don't think the capital markets want it.
Does this make insider trading and malfeasance easier to conceal if you don't have to report quite as regularly?
It's just a little bit easier. I wanted to caution like every 6 months putting out information means that our markets will be a little bit more volatile. Those earnings releases. And this is a voluntary system. So it's interesting what the SEC is saying. They're saying, 'We just want to make flexibility the root of all of this.' And there's a great study in the 1960s. The individual went on to get a Nobel Prize, George Akerlof, who is Janet Yellen's husband. And George wrote about the problem with lemons. And he was talking about the used car market. And he said the problem is if you don't have enough information, you don't know which cars are the lemons. And thus it lowers the pricing of even good cars. And so put that in the stock market. If you let it be flexible, the lemons might not report, but you don't know who the lemons are. And so it might lower the valuation in the overall markets.
How interesting. So a question about the mechanics of this. So we have this proposal, 60-day period in which the public can comment. You've lived through many of these with the CFTC and the SEC. What happens at the end of that comment period? Where are we in this process?
Well, the staff pulls together all the comments, puts together a lot of things for the commissioners. There's only three Republican commissioners now. And makes a recommendation. Generally speaking, from this time to finalizing a rule, it takes anywhere from 18 to I'd say 30 months. But with the clock ticking on the Trump administration, this agency might decide to move forward within that time frame. I think it's up to investors. I think it's up to listeners of this program to say, 'Small investors, large investors, academics, news organizations, say no. Quarterly reporting is what we need.' And then, really the key is do some companies, some issuers say, 'You know, we should do this anyway.' You know, before the SEC actually made it mandatory in 1970, the New York Stock Exchange in 1926 said we should move to quarterly reporting. This is a 100-year-ago thing. And by the early 1950s, 90% of companies were doing it.
But to all the points you just made, is this a fait accompli, or do you think there's room for them to change their mind on this decision?
I think there's a public comment period, and it really is important whether it's the media, and especially large companies, investors, and so forth, who might get in the ear of this White House.
Another question about disclosures, and we're going to watch you deftly dodge the question that I put to you here, but I'm going to give it a shot anyway. We had Elon Musk agreeing to a $1.5 million settlement with the SEC over the fact that he didn't disclose the position that he'd taken in Twitter before he bought the company in a timely fashion. That now goes before a judge this week, which I gather is customary. A judge can say, 'I want to hear out the reasons for coming to this settlement.' Your reaction to that, I should say you were at the SEC when this issue came about.
