By Anirban Sen
NEW YORK, April 15 (Reuters) - Two Sigma Investments and D.E. Shaw are among several Wall Street investment firms and hedge funds that are fighting a proposal to allow companies to opt out of quarterly reporting, according to people familiar with the matter, on concerns it would reduce the flow of key financial information for investors in public companies.
The funds' opposition adds to a cohort of institutional investors and hedge funds that includes billionaire Ken Griffin's Citadel.
They are working behind the scenes to express their views ahead of an expected U.S. Securities and Exchange Commission proposal and comment period on the topic, the sources said. These firms have recently held discussions with industry lobby and trade group the Managed Funds Association (MFA) to highlight their concerns, the sources said.
The Wall Street firms are hoping they can convince the regulators to moderate the drive to abolish quarterly reporting of financials, if not scrap the effort entirely, the sources said. They added that the lobbying efforts are at an early stage and that a formal, organized initiative is not yet under way.
Citadel and asset manager Fidelity also raised concerns at the SEC's investor advisory committee meeting on March 12, the sources said. At the meeting, which included SEC Chair Paul Atkins, the companies warned that scrapping quarterly reporting would lead to heightened market volatility, bigger swings in stock prices and a jump in companies' costs to raise capital. They also said that regular quarterly reporting promotes accurate market valuations, the sources said.
The MFA has argued that eliminating quarterly reporting would deter private investment by creating lengthy periods during which material information is not disclosed to the public.
"Optional quarterly reporting in the U.S. could lead to inconsistent disclosure practices: some will continue reporting quarterly, others will report some quarters but not others, while still others will stop reporting quarterly altogether," the MFA said in a comment letter posted on Monday in response to the SEC's proposal to trim nonfinancial disclosures under Regulation S-K.
The MFA declined to comment on its conversations with individual member firms. Two Sigma and D.E. Shaw declined to comment.
Others in the finance industry, such as Wall Street bank JPMorgan, have been supportive of the proposal.
FORMAL PROCESS EXPECTED
The SEC in coming weeks is expected to formally seek feedback and comments from market participants for the proposal to remove the quarterly earnings reporting requirement, according to the people familiar with the matter, reviving an effort launched during President Donald Trump's first term.
In September, Atkins said the regulator is fast-tracking the effort. Trump has argued that the move, first proposed by him in 2018, would cut costs and discourage shortsightedness among publicly traded companies.
“Chairman Atkins has been clear that the Commission will consider a proposal to give companies the option to report on a semi-annual basis, with the goal of removing the agency’s thumb from the scales and allowing the market to dictate the optimal reporting frequency based on factors such as the company’s industry, size, and investor expectations," an SEC spokesperson said in a statement. "As with any rulemaking, the public will have the opportunity to comment on the proposal and make their feedback heard."
The SEC did not comment on the timing of such action.
White House spokesman Kush Desai said: "President Trump is committed to ensuring that American companies and industries think, plan, and invest in terms of years and decades, not quarters, to fuel America’s long-term economic resurgence. The Administration is working with the private sector to deliver on this vision.”
U.S.-listed companies have been mandated since 1970 to report financial results every quarter, putting them at odds with several countries in Europe and Asia, where companies are required to report on their financial performance once every six months. Canadian securities regulators recently launched a pilot project to allow smaller issuers to voluntarily adopt a semi-annual financial reporting framework.
WALL STREET DIVIDED
U.S. regulators have been attempting to overhaul financial market guardrails implemented after the 2008-09 global financial crisis. They say the rules have caused the number of publicly traded companies to shrink. Recent estimates from Nasdaq and PitchBook showed the number of publicly listed companies on U.S. exchanges has declined by nearly 36% to 4,500 since 2000.
Proponents of quarterly financial disclosure have argued it results in higher analyst coverage, improved accuracy of earnings forecasts and greater transparency. Some of those experts, however, have also argued that small-cap firms should be exempted, given the expenses and efforts involved in compiling public filings.
When Trump proposed the move during his first term, Wall Street heavyweights including BlackRock and T. Rowe Price were among several Wall Street institutions that opposed the proposal. At the time, two-thirds of 63 firms that posted public comments on the SEC's website opposed the idea, according to a Reuters review of the comment letters.
BlackRock declined to comment.
"With respect to now, as details emerge from the SEC’s anticipated proposal, we’ll assess the changes and consider whether the positions expressed in our 2019 comment letter should be refined," a T. Rowe Price spokesperson said in a statement.
(Reporting by Anirban Sen in New York; Editing by Megan Davies and Matthew Lewis)
