Proposed Rule2026-09095
Semiannual Reporting
Primary source
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Published
May 7, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is proposing amendments to allow companies to file semiannual reports on new Form 10-S in lieu of quarterly reports on Form 10-Q to meet their interim reporting obligations under the Securities Exchange Act of 1934 ("Exchange Act"). The Commission is also proposing changes to the financial statement requirements of Regulation S-X to facilitate semiannual reporting and to simplify rules regarding the age of financial statements.
Full Text
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<title>Federal Register, Volume 91 Issue 88 (Thursday, May 7, 2026)</title>
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[Federal Register Volume 91, Number 88 (Thursday, May 7, 2026)]
[Proposed Rules]
[Pages 24968-25058]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09095]
[[Page 24967]]
Vol. 91
Thursday,
No. 88
May 7, 2026
Part II
Securities and Exchange Commission
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17 CFR Parts 200, 210, 229, et al.
Semiannual Reporting; Proposed Rule
Federal Register / Vol. 91, No. 88 / Thursday, May 7, 2026 / Proposed
Rules
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 210, 229, 230, 232, 239, 240, 249, and 260
[Release Nos. 33-11414; 34-105368; 39-2563; IC-36140; File No. S7-2026-
15]
RIN 3235-AN58
Semiannual Reporting
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing amendments to allow companies to file semiannual reports on
new Form 10-S in lieu of quarterly reports on Form 10-Q to meet their
interim reporting obligations under the Securities Exchange Act of 1934
(``Exchange Act''). The Commission is also proposing changes to the
financial statement requirements of Regulation S-X to facilitate
semiannual reporting and to simplify rules regarding the age of
financial statements.
DATES: Comments should be received on or before July 6, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/submitcomments.htm">https://www.sec.gov/rules/submitcomments.htm</a>).
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#acded9c0c981cfc3c1c1c9c2d8ecdfc9cf82cbc3da"><span class="__cf_email__" data-cfemail="2b595e474e06484446464e455f6b584e48054c445d">[email protected]</span></a>. Please include File
Number S7-2026-15 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-15. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website <a href="https://www.sec.gov/comments/s7-2026-15/semiannual-reporting#no-back">https://www.sec.gov/comments/s7-2026-15/semiannual-reporting#no-back</a>. Do not include personally
identifiable information in submissions; you should submit only
information that you wish to make available publicly. The Commission
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website <a href="https://www.sec.gov/rules-regulations/2026/05/s7-2026-15">https://www.sec.gov/rules-regulations/2026/05/s7-2026-15</a>.
FOR FURTHER INFORMATION CONTACT: Mark Saltzburg, Senior Special
Counsel, Office of Rulemaking, Division of Corporation Finance, at
(202) 551-3430, or Ryan Milne, Associate Chief Accountant, Office of
Chief Accountant, Division of Corporation Finance, at (202) 551-3400,
U.S. Securities and Exchange Commission, 100 F Street NE, Washington,
DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend or add
the following rules and forms:
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[GRAPHIC] [TIFF OMITTED] TP07MY26.001
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 15 U.S.C. 77aaa et seq.
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[GRAPHIC] [TIFF OMITTED] TP07MY26.002
Table of Contents
I. Introduction
II. Background
III. Discussion of Proposed Amendments
A. Proposed Amendments for Semiannual Reporting
B. Proposed Amendments to Regulation S-X
C. Proposed Amendments Regarding Transition Reports
D. Proposed Technical Amendments
E. General Request for Comment
IV. Other Matters
V. Economic Analysis
A. Introduction
B. Broad Economic Considerations
C. Baseline
D. Benefits and Costs
E. Anticipated Effects on Efficiency, Competition, and Capital
Formation
F. Reasonable Alternatives
G. Request for Comment
VI. Paperwork Reduction Act Analysis
A. Summary of the Collections of Information
B. Estimated Paperwork Burden Effects of the Proposed Amendments
C. Incremental and Aggregate Burden and Cost Estimates
D. Request for Comment
VII. Congressional Review Act
VIII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Rules and Amendments
D. Reporting, Recordkeeping, and Other Compliance Requirements
E. Duplicative, Overlapping or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
Statutory Authority
I. Introduction
We are proposing amendments to provide all companies subject to
reporting obligations under Exchange Act Section 13(a) or 15(d)
(``Exchange Act reporting companies'') \4\ that file
[[Page 24971]]
quarterly reports the option of filing interim reports on a semiannual
basis. Currently, Exchange Act reporting companies must file quarterly
reports on Form 10-Q pursuant to 17 CFR 240.13a-13 (``Exchange Act Rule
13a-13'') or 17 CFR 240.15d-13 (``Exchange Act Rule 15d-13''), with
certain exceptions.\5\ Pursuant to these rules, Exchange Act reporting
companies file with the Commission three quarterly reports on Form 10-Q
each fiscal year, with the fourth fiscal quarter subsumed within the
reporting company's annual report on Form 10-K. The proposed amendments
to Exchange Act Rules 13a-13 and 15d-13, if adopted, would allow
Exchange Act reporting companies electing to do so to file semiannual
reports on new Form 10-S in lieu of quarterly reports on Form 10-Q. Our
proposal would provide an Exchange Act reporting company with the
flexibility to determine the frequency of interim reporting that best
suits its particular circumstances, such as its ability to bear the
costs of preparing the quarterly reports, the stage of its business
development, and the expectations of its investors, without undermining
fundamental investor protections. Providing such regulatory flexibility
could reduce the regulatory burden of being a reporting company, which
could potentially influence a company's decision to become or remain a
reporting company and encourage more companies to go or remain public.
These proposed amendments would not substantively affect investment
companies except for business development companies and face-amount
certificate companies.\6\
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\4\ For purposes of this release, with respect to the terms
``Exchange Act reporting company'' or ``Exchange Act reporting
companies'' (or, where the context is clear, abbreviated terms
``reporting company'' and ``reporting companies''): (A) unless
otherwise noted, we use these terms interchangeably with the terms
``registrant'' or ``registrants'' in the context of registrants with
a reporting obligation under Exchange Act Section 13(a) or 15(d)
but, in the context of companies that are ``in registration'' (i.e.,
have filed a registration statement that has not yet become
effective), we use the term ``registrant'' to include these
companies as well, and (B) we generally limit the use of these terms
in this release to those companies that are subject to a requirement
to file Form 10-Q quarterly reports, unless the context clearly
indicates all Exchange Act reporting companies are referred to. See
infra note 5 for discussion of Exchange Act reporting companies that
are excluded from Form 10-Q reporting requirements.
\5\ Exchange Act Rules 13a-13 and 15d-13 exempt investment
companies that are required to file reports pursuant to 17 CFR
270.30a-1 (which includes open-end management investment companies,
closed-end management investment companies other than business
development companies, and unit investment trusts), foreign private
issuers, and asset-backed issuers (as defined in Item 1101 of
Regulation AB) from the quarterly reporting obligations imposed by
these rules.
\6\ See 17 CFR 240.13a-13(b)(3) and 17 CFR 270.30a-1 (together
exempting registered investment companies that file Investment
Company Act annual reports from the requirement to file a quarterly
Form 10-Q). Business development companies currently file Form 10-Q
quarterly reports and Form 10-K annual reports. See 17 CFR 240.13a-1
(requiring Exchange Act Section 12 registrants to file annual
reports); 15 U.S.C. 80a-2(a)(48) (defining business development
company); 15 U.S.C. 80a-53 (making the election to be subject to
certain provisions of the Investment Company Act conditional on
registration under Exchange Act Section 12). Face-amount certificate
companies are a type of registered investment company that is not
required to file reports pursuant to 17 CFR 270.30a-1 and thus is
required to file periodic reports pursuant to Exchange Act Section
13. See Investment Company Reporting Modernization, Investment
Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18,
2016)], at n.757.
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We are also proposing amendments to the financial statement
requirements of 17 CFR part 210 (``Regulation S-X'')--including to 17
CFR 210.3-01 (``Rule 3-01''), 17 CFR 210.3-12 (``Rule 3-12''), and 17
CFR 210.8-08 (``Rule 8-08'')--to facilitate semiannual reporting and to
simplify rules regarding the age of financial statements in
registration statements and other Commission filings.
II. Background
Companies subject to Exchange Act Sections 13(a) and 15(d) must
file periodic and other reports as prescribed in Commission rules.
Exchange Act reporting companies have been required to file annual
reports on Form 10-K since 1935 \7\ as well as current reports on Form
8-K for certain material events since 1936.\8\ In 1946, the Commission
required certain reporting companies to file quarterly reports on Form
8-K to disclose, among other things, the dollar amount of gross sales
(less discounts, returns, and allowances) and operating revenue.\9\ In
1953, the Commission ended this quarterly reporting requirement,\10\
and, in 1955, it adopted rules requiring semiannual interim reports
pursuant to Rules X-13A-13 and X-15D-13.\11\ These rules required one
semiannual report to be filed each fiscal year by Exchange Act
reporting companies on a new Form 9-K.\12\ Semiannual reports on Form
9-K, which were due 45 days after the end of the reporting period, did
not require the narrative disclosures mandated by Form 10-Q and
provided only limited disclosures typically associated with an income
statement.\13\
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\7\ Rule Adopting Form 10-K, Release No. 34-445 (Dec. 20, 1935)
[not published in the Federal Register]. An annual report
requirement for Section 12 registrants remains in place today
pursuant to 17 CFR 240.13a-1. See also 17 CFR 240.15d-1 (annual
report requirement for Securities Act registrants).
\8\ Rule Adopting Form 8-K, Release No. 34-925 (Nov. 11, 1936)
[not published in the Federal Register].
\9\ See, e.g., Current Reports to be Filed and Requirements of
Quarterly Reports by Certain Companies, 11 FR 3393 (Apr. 2, 1946)
and Current Reports and Instructions for Use Thereof, 11 FR 3394
(Apr. 2, 1946) (together requiring quarterly reports pursuant to
Item 11 of Form 8-K to be filed not more than 45 days after the
close of a quarter by certain issuers, including those that file
annual reports on Form 10-K, but exempting insurance companies,
investment companies, common-carriers, and public utility
companies). See also Adoption of New and Revised Forms, Release No.
34-4340 (Nov. 2, 1949), 1949 SEC LEXIS 71 (adopting new quarterly
report form, Form 9-K, to replace Item 11 of Form 8-K but not making
any substantial change in the quarterly reporting requirements).
\10\ See Rescission of Form 9-K and Rules X-13A-13 and X-15D-13,
Release No. 34-4949 (Oct. 9, 1953), 1953 SEC LEXIS 30 (rescinding
the quarterly reporting requirements and Form 9-K); Notice of
Proposed Adoption of Form 9-K and Rules X-13A-13 and X-15D-13,
Release No. 34-5129 (Jan. 27, 1955) [20 FR 771 (Feb. 4, 1955)] (``In
October 1952, the Commission proposed revised rules calling for
quarterly statements of profit and loss and earned surplus. These
rules were not adopted and about a year later the requirement of
quarterly reports of sales and revenues was discontinued.'').
\11\ Adoption of Form 9-K and Rules X-13A-13 and X-15D-13,
Release No. 33-3553 (June 23, 1955) [20 FR 4816 (July 7, 1955)].
\12\ Certain issuers were excepted from these requirements. The
rules provided exemptions from required semiannual reporting for:
(1) banks and bank holding companies, (2) investment companies, (3)
certain insurance companies, (4) certain public utilities and common
carriers filing reports with certain Federal agencies, (5) certain
single-crop agricultural commodity producers, (6) certain
promotional or development stage companies, and (7) foreign issuers
other than private issuers domiciled in a North American country or
Cuba.
\13\ Specifically, semiannual Form 9-K required items including:
(i) gross sales (less discounts, returns, and allowances), (ii)
operating revenues, (iii) extraordinary items and special items,
(iv) net income before tax, (v) provision for tax, (vi) net income,
and (vii) earned surplus. Semiannual Form 9-K did not require a
detailed balance sheet, statement of stockholders' equity, or
statement of cash flows.
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After 15 years of this semiannual reporting system, the Commission
rescinded semiannual reports on Form 9-K in 1970 and instead required
quarterly reporting pursuant to amended Rules 13a-13 and 15d-13.\14\
The rules required Exchange Act reporting companies to file three
quarterly reports on Form 10-Q each fiscal year.\15\ When it proposed
the quarterly report on Form 10-Q, the Commission explained that the
new report would ``provide detailed information as a back-up to
information released pursuant to timely disclosure policies'' and would
provide ``uniform standards'' for all Exchange Act reporting
companies.\16\ The Commission's move towards a quarterly reporting
requirement was also consistent with the recommendation of the 1969
Wheat Report, which
[[Page 24972]]
concluded ``that a regular, quarterly report would be more useful than
the present, irregular 8-K report.'' \17\ Although the Commission has
amended Form 10-Q and requirements in connection with quarterly
reporting over time,\18\ the Commission has not changed this cadence of
quarterly interim reporting since it was adopted in 1970.
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\14\ Adoption of Form 10-Q, Rescission of Form 9-K and Amendment
of Rules 13a-13 and 15d-13, Release No. 34-9004 (Oct. 28, 1970) [35
FR 17537 (Nov. 14, 1970)].
\15\ Certain exemptions were provided for: (1) certain
investment companies, (2) certain real estate companies, (3) certain
foreign private issuers, (4) certain life insurance companies, (5)
certain public utilities, common carriers, and pipeline carriers
filing reports with certain Federal agencies, and (6) certain
promotional or development stage companies.
\16\ Proposal to Adopt Form 10-Q Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 and to Rescind Forms
8-K and 9-K Under That Act, Release No. 34-8683 (Sept. 15, 1969) [34
FR 14239, 14239 (Sept. 10, 1969)].
\17\ Disclosure to Investors--A Reappraisal of Federal
Administrative Policies Under the '33 and '34 Acts (The Wheat
Report) 332 (1969). The Wheat Report was a product of a review of
the periodic reporting system from 1967 to 1969 conducted by
Commissioner Francis Wheat and staff members of the Commission.
\18\ See, e.g., Audit Committee Disclosure, Release No. 34-42266
(Dec. 22, 1999) [64 FR 73389 (Dec. 30, 1999)] (requiring interim
financial statements included in Form 10-Q to be reviewed by an
independent public accountant).
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Form 10-Q today requires more detailed information than the
rescinded semiannual report on Form 9-K. Form 10-Q requires financial
statements (inclusive of footnote disclosures) for the covered
quarterly period that are prepared in accordance with United States
(``U.S.'') generally accepted accounting principles (``U.S.
GAAP''),\19\ have been reviewed by an independent public accountant
(but are not required to be audited),\20\ and are data tagged using
inline XBRL.\21\ It also requires narrative disclosures regarding:
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\19\ Foreign private issuers may voluntarily file on domestic
forms, including Form 10-Q, and include financial statements for the
covered quarterly period that are prepared in accordance with: (a)
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) without
reconciliation to U.S. GAAP or (b) home-country GAAP with
reconciliation to U.S. GAAP.
\20\ The regulation at 17 CFR 210.10-01(d) (Rule 10-01(d) of
Regulation S-X) requires that, prior to filing, interim financial
statements included in quarterly reports on Form 10-Q ``must be
reviewed by an independent public accountant using applicable
professional standards and procedures for conducting such reviews,
as may be modified or supplemented by the Commission.'' See also 17
CFR 210.8-03. Public Company Accounting Oversight Board (``PCAOB'')
Auditing Standard 4105 sets forth the auditing standard that
currently applies to an independent public accountant conducting a
review of interim financial statements and explains that ``the
objective of a review of interim financial information pursuant to
this section is to provide the accountant with a basis for
communicating whether he or she is aware of any material
modifications that should be made to the interim financial
information for it to conform with generally accepted accounting
principles.'' See PCAOB Auditing Standard 4105, Reviews of Interim
Financial Information, ] .07. That standard further explains that
the objective of such review ``differs significantly from that of an
audit conducted in accordance with the standards of the PCAOB''
because ``[a] review of interim financial information does not
provide a basis for expressing an opinion about whether the
financial statements are presented fairly, in all material respects,
in conformity with generally accepted accounting principles'' as an
auditor would do when expressing an unqualified opinion in an audit
of the financial statements. Id. See also PCAOB Auditing Standard
1000, General Responsibilities of the Auditor in Conducting an
Audit, ] .18 (setting forth the standard for an auditor to express
an unqualified opinion in an audit of the financial statements).
\21\ See Form 10-Q, Part I, Item 1; 17 CFR 210.10-01 (Regulation
S-X Rule 10-01); 17 CFR 210.8-03 (Regulation S-X Rule 8-03); Form
10-Q, Part II, Item 6; 17 CFR 229.601(b)(101)(i)(A).
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<bullet> Management's discussion and analysis of financial
condition and results of operations (``MD&A''); \22\
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\22\ See Form 10-Q, Part I, Item 2; 17 CFR 229.303 (17 CFR part
229 (``Regulation S-K'') Item 303).
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<bullet> Market risk; \23\
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\23\ See Form 10-Q, Part I, Item 3; 17 CFR 229.305 (Regulation
S-K Item 305).
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<bullet> Effectiveness of disclosure controls and procedures and
material changes in internal control over financial reporting; \24\
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\24\ See Form 10-Q, Part I, Item 4; 17 CFR 229.307 (Regulation
S-K Item 307); 17 CFR 229.308(c) (Regulation S-K Item 308(c)).
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<bullet> Legal proceedings; \25\
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\25\ See Form 10-Q, Part II, Item 1; 17 CFR 229.103 (Regulation
S-K Item 103).
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<bullet> Material changes in risk factors; \26\
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\26\ See Form 10-Q, Part II, Item 1A; 17 CFR 229.105 (Regulation
S-K Item 105).
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<bullet> Unregistered equity security sales and use of proceeds;
\27\
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\27\ See Form 10-Q, Part II, Item 2; 17 CFR 229.701 (Regulation
S-K Item 701).
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<bullet> Defaults on senior securities; \28\
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\28\ See Form 10-Q, Part II, Item 3.
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<bullet> Material changes to the procedures by which security
holders may recommend nominees to the registrant's board of directors;
\29\
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\29\ See Form 10-Q, Part II, Item 5(b); 17 CFR 229.407(c)(3)
(Regulation S-K Item 407(c)(3)).
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<bullet> Disclosure of director or officer adoptions or
terminations of certain plans for the purchase or sale of registrant
securities; \30\
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\30\ See Form 10-Q, Part II, Item 5(c); 17 CFR 229.408(a)
(Regulation S-K Item 408(a)).
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<bullet> Exhibits required under Item 601 of Regulation S-K; \31\
and
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\31\ See Form 10-Q, Part II, Item 6; 17 CFR 229.601 (Regulation
S-K Item 601).
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<bullet> Certifications by the principal executive and financial
officers as exhibits.\32\
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\32\ See Sarbanes-Oxley Act of 2002, Public Law 107-204, 302,
116 Stat. 745, 777 (2002); 17 CFR 240.13a-14; 17 CFR 240.15d-14; 17
CFR 229.601(b)(31) (Regulation S-K Item 601(b)(31)) (exhibits
regarding certifications that include those related to internal
controls, untrue statements of material facts, and material
omissions); Sarbanes-Oxley Act of 2002, Public Law 107-204, 906, 116
Stat. 745, 806 (2002), 17 CFR 229.601(b)(32) (Regulation S-K Item
601(b)(32)) (exhibits regarding certifications related to financial
condition and results of operations).
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Form 10-Q reports are filed electronically with the Commission
through its EDGAR system. The deadline for filing Form 10-Q with the
Commission is 40 or 45 days after the end of a fiscal quarter,
depending on the filer status of the reporting company.\33\
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\33\ Large accelerated filers and accelerated filers, as defined
in 17 CFR 240.12b-2 (``Exchange Act Rule 12b-2''), must file Form
10-Q within 40 days after the end of a fiscal quarter and all other
Exchange Act reporting companies must file Form 10-Q within 45 days
after the end of a fiscal quarter. See Form 10-Q, General
Instruction A.
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Finally, securities exchange listing standards generally do not
mandate a particular frequency of interim reporting. Instead, they
refer generally to compliance with Commission rules requiring interim
reports (with at least one exchange making specific reference to
quarterly reports on Form 10-Q),\34\ require availability of interim
reports,\35\ or require quick dissemination of quarterly earnings
information to the market.\36\
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\34\ See, e.g., Nasdaq Stock Market Rule 5250(c)(1) (providing
that a company shall timely file all required periodic financial
reports with the Commission through the EDGAR system); NYSE Listed
Company Manual Sec. 802.01ESEC (providing that, for purposes of
remaining listed on the exchange, a company will incur a late filing
delinquency and be subject to the procedures set forth in Section
802.01E on the date on which any of several events occurs, including
where the company fails to file its annual report (Forms 10-K, 20-F,
40-F or N-CSR) or its quarterly report on Form 10-Q with the SEC by
the date such report was required to be filed by the applicable
form).
\35\ See, e.g., Nasdaq Stock Market Rule 5250(d)(3)(A)
(providing that each company that is not a limited partnership and
is subject to Rule 13a-13 under the Exchange Act shall make
available copies of quarterly reports including statements of
operating results to shareholders either prior to or as soon as
practicable following the company's filing of its Form 10-Q with the
Commission).
\36\ See, e.g., NYSE Listed Company Manual Sec. 202.05
(providing that a listed company is expected to release quickly to
the public any news or information which might reasonably be
expected to materially affect the market for its securities); NYSE
Listed Company Manual Sec. 203.02 (providing that any company with
voting or non-voting common securities listed on the exchange that
is required to file interim financial statements with the Commission
is required to disseminate in a manner consistent with the
exchange's immediate release policy an interim earnings release as
soon as its interim financial statements are available and citing
Section 202.06 for the exchange's immediate release policy); NYSE
Listed Company Manual Sec. 202.06 (providing that annual and
quarterly earnings are examples of news items that should be handled
on an immediate release basis).
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Certain companies that are not subject to Section 13(a) or Section
15(d) already report on a semiannual basis under the Commission's
rules,\37\ and certain other
[[Page 24973]]
companies are exempt from quarterly reporting but furnish semiannual
information pursuant to other requirements such as exchange listing
standards.\38\ Several foreign jurisdictions also require semiannual
reporting of financial information (but not quarterly reporting).\39\
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\37\ For example, issuers that sell up to $75 million of
securities within a 12-month period under the Regulation A exemption
(``Tier 2 issuers'') are required to file a Form 1-SA semiannual
report with the Commission within 90 days after the end of the first
semiannual period of the issuer's fiscal year and an annual report
on Form 1-K within 120 days after fiscal year end. 17 CFR
230.257(b)(3). Semiannual reports on Form 1-SA require interim
financial statements and MD&A disclosures. The financial statements
are not required to be reviewed (which differs from the requirement
that Form 10-Q financial statements be reviewed by an independent
public accountant). In adopting the semiannual reporting requirement
for Tier 2 issuers, the Commission found that a semiannual, rather
than a quarterly, reporting requirement strikes an appropriate
balance between the need to provide information to the market and
the cost of compliance for smaller issuers. Amendments for Small and
Additional Issues Exemption under the Securities Act, Release No.
33-9741 (Mar. 25, 2015) [80 FR 21806, 21847 (Apr. 20, 2015)]. Based
on our analysis of Tier 2 issuer filings on Form 1-SA and amendments
thereto on the Commission's EDGAR system, we estimate that there
were 470 unique filers of such forms in calendar year 2024 and 448
unique filers of such forms in calendar year 2025.
\38\ Foreign private issuers, as defined in 17 CFR 230.405
(``Securities Act Rule 405'') and 17 CFR 240.3b-4(c), are
effectively required by a combination of Commission and securities
exchange rules to file with the Commission one semiannual report on
Form 6-K (due no later than six months following second fiscal
quarter end) for each fiscal year. See 17 CFR 240.13a-16 (requiring
every foreign private issuer which is subject to 17 CFR 240.13a-1 to
make reports on Form 6-K, with certain exceptions); 17 CFR 15d-16
(requiring every foreign private issuer which is subject to 17 CFR
240.15d-1 to make reports on Form 6-K, with certain exceptions);
General Instruction B of Form 6-K (requiring foreign private issuers
to furnish to the Commission whatever reports that: they make public
pursuant to the law of their jurisdiction of domicile or
organization; they file or are required to file with a stock
exchange on which their securities are traded and that are made
public by that exchange; or they distribute or are required to
distribute to security holders); NYSE Listed Company Manual Sec.
203.03 (requiring that an NYSE-listed foreign private issuer file
with the Commission a Form 6-K that includes (i) an interim balance
sheet as of the end of its second fiscal quarter and (ii) a
semiannual income statement that covers its first two fiscal
quarters); Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Listed Company Manual to Adopt a
Requirement that Listed Foreign Private Issuers Must, at a Minimum,
Submit a Form 6-K to the Securities and Exchange Commission
Containing Semi-Annual Unaudited Financial Information, Release No.
34-77198 (Feb. 19, 2016) [81 FR 9563 (Feb. 25, 2016)]; Nasdaq Stock
Market Rule 5250(c)(2) (providing for similar semiannual report
requirements for foreign private issuers as in NYSE Listed Company
Manual Sec. 203.03); Self-Regulatory Organizations; National
Association of Securities Dealers, Inc.; Order Approving Proposed
Rule Change and Amendments Nos. 1 and 2 Thereto to Require Semi-
annual Financial Reporting by Foreign Private Issuers, Release No.
34-52192 (Aug. 2, 2005) [70 FR 46241 (Aug. 9, 2005)].
\39\ For example, the securities regulations in the European
Union (``EU''), the United Kingdom (``UK''), Hong Kong, and Japan
provide for such semiannual reporting. Both the EU and the UK
transitioned from quarterly to semiannual reporting in the 2010s.
See, e.g., Directive 2013/50/EU Amending Directive 2004/109/EC on
the Harmonisation of Transparency Requirements in Relation to
Information About Issuers Whose Securities are Admitted to Trading
on a Regulated Market (Oct. 22, 2013), available at <a href="https://eur-lex.europa.eu/eli/dir/2013/50/oj/eng">https://eur-lex.europa.eu/eli/dir/2013/50/oj/eng</a>; Removing the Transparency
Directive's Requirement to Publish Interim Management Statements,
Financial Conduct Authority (Nov. 2014), available at <a href="https://www.fca.org.uk/publication/policy/ps14-15.pdf">https://www.fca.org.uk/publication/policy/ps14-15.pdf</a>. See also Section
13.46 to 13.50B of the Listing Rules and Guidance of the Hong Kong
Exchange Main Board, available at <a href="https://en-rules.hkex.com.hk/rulebook/main-board-listing-rules">https://en-rules.hkex.com.hk/rulebook/main-board-listing-rules</a> and Article 24-5 and the changes
to the Japanese securities regulations in the Financial Instruments
and Exchange Act (Act No. 25 of 1948), available at <a href="https://www.japaneselawtranslation.go.jp/en/laws/view/4633#je_ch2at48">https://www.japaneselawtranslation.go.jp/en/laws/view/4633#je_ch2at48</a> (the
revision from quarterly to semiannual reporting was enacted in
2024).
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Over the years, the Commission at times has reassessed the current
periodic reporting system, its impact on Exchange Act reporting
companies, and potential alternatives including semiannual reporting.
Most recently, as part of the Commission's disclosure effectiveness
review, the Commission issued two releases that addressed and requested
public comment on the frequency of interim reporting.\40\ In July 2019,
the Commission also held a roundtable that discussed issues including
the frequency of periodic reporting.\41\ The Commission received
significant public feedback as a result of these recent efforts,
including from companies and their representative organizations, asset
managers and institutional investors, investor groups and individual
investors, accounting firms, law firms, and other market
participants.\42\ Commenters expressed a wide variety of views about
the frequency of interim reporting requirements,\43\ with some
supporting the current frequency but others recommending less-frequent
interim reporting, such as semiannual reports, due to concerns about
compliance costs and short-termism.\44\ Finally, the concept of
semiannual reporting was recently discussed at: a meeting of the
Commission's Investor Advisory Committee; \45\ the Commission's 45th
Annual Small Business Forum (and the prior year's forum); \46\ and the
Commission's 2025 Small Cap Policy Roundtable.\47\
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\40\ Business and Financial Disclosure Required by Regulation S-
K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23916 (Apr. 22,
2016)] (``2016 Regulation S-K Concept Release''); Request for
Comment on Earnings Releases and Quarterly Reports, Release No. 33-
10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)] (``2018 Request
for Comment on Quarterly Earnings and Reporting'').
\41\ Roundtable on Short-Term/Long-Term Management of Public
Companies, Our Periodic Reporting System and Regulatory
Requirements, U.S. Sec. & Exch. Comm'n (July 18, 2019) (``2019
Periodic Reporting Roundtable''), available at <a href="https://www.sec.gov/newsroom/meetings-events/071819-roundtable-short-term-long-term-management-public-companies">https://www.sec.gov/newsroom/meetings-events/071819-roundtable-short-term-long-term-management-public-companies</a>.
\42\ Additionally, separate from public comments on these
releases and the roundtable, the Commission received a petition for
rulemaking in 2025 that requested the Commission provide public
companies the option to file interim reports semiannually instead of
quarterly and that the Commission: issue a notice of proposed
rulemaking to amend Rule 13a-13, Rule 15d-13, and Form 10-Q;
consider additional conforming amendments to related rules as
necessary; and ``take such other action as the Commission deems
appropriate to address the harmful effects of mandatory quarterly
reporting on long-term value creation.'' See Long Term Stock
Exchange, Inc., Petition for Rulemaking to Amend Quarterly Reporting
Requirements Under the Securities Exchange Act of 1934, File No. 4-
872 (Sept. 30, 2025), available at <a href="https://www.sec.gov/files/rules/petitions/2025/petn4-872.pdf">https://www.sec.gov/files/rules/petitions/2025/petn4-872.pdf</a>.
\43\ See comments on 2016 Regulation S-K Concept Release,
available at <a href="https://www.sec.gov/comments/s7-06-16/s70616.htm">https://www.sec.gov/comments/s7-06-16/s70616.htm</a>;
comments on 2018 Request for Comment on Quarterly Earnings and
Reporting, available at <a href="https://www.sec.gov/comments/s7-26-18/s72618.htm">https://www.sec.gov/comments/s7-26-18/s72618.htm</a>. One commenter provided survey data from 183 listed
public companies that indicated 75% of those companies supported a
move to semiannual reporting. Letter from Nasdaq, Inc. (Mar. 21,
2019) (``Nasdaq 2019'') (responses by 183 listed companies to the
question ``Do you believe that your company and/or your investors
would benefit from moving to a semi-annual reporting model?''
indicated: Yes: 75%; No: 25%). In this release, generally comment
letters cited that are dated 2018 or 2019 are comments received in
response to the 2018 Request for Comment on Quarterly Earnings and
Reporting and comment letters cited that are dated 2016 are comments
received in response to the 2016 Regulation S-K Concept Release; we
generally do not provide individual hypertext links for each comment
but the comment letters can be found at the links provided above.
Comment letters in response to the 2019 Periodic Reporting
Roundtable are found at the same link above as the comments in
response to the 2018 Request for Comment on Quarterly Earnings and
Reporting.
\44\ Short-termism is an expression commonly used to refer
generally to a focus on short-term results instead of long-term
business strategies and short-term actions by a company that can
have a negative long-term impact on the company; such actions can
include: reducing capital expenditure (including investment in
intangible assets and research and development); deferring needed
maintenance; forgoing opportunities with long-term net present
value; reducing advertising; delaying new hires; and earnings
management. For examples of comments regarding short-termism, see
generally comments on the 2018 Request for Comment on Quarterly
Earnings and Reporting, supra note 43.
\45\ U.S. Sec. & Exch. Comm'n, Panel Discussion: Public Company
Disclosure Reform, in Meeting of the Inv. Advisory Comm., 2026 03 12
Investor Advisory Committee Part 01, YouTube (Mar. 12, 2026),
available at <a href="https://www.youtube.com/watch?v=y0ZrTZ-uUg0">https://www.youtube.com/watch?v=y0ZrTZ-uUg0</a>.
\46\ 45th Annual Small Business Forum, U.S. Sec. & Exch. Comm'n
(Mar. 9, 2026), available at <a href="https://www.sec.gov/files/transcript-45th-sb-forum.pdf">https://www.sec.gov/files/transcript-45th-sb-forum.pdf</a>; 44th Annual Small Business Forum, U.S. Sec. &
Exch. Comm'n (Apr. 10, 2025), available at <a href="https://www.sec.gov/files/2025-SBF-508-Transcript.pdf">https://www.sec.gov/files/2025-SBF-508-Transcript.pdf</a>.
\47\ Small Cap Policy Roundtable: Reassessing the Framework for
Small Public Companies, U.S. Sec. & Exch. Comm'n (July 22, 2025),
available at <a href="https://www.sec.gov/files/small-cap-policy-roundtable-transcript.pdf">https://www.sec.gov/files/small-cap-policy-roundtable-transcript.pdf</a>;.
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III. Discussion of Proposed Amendments
Interim reports provide investors with material information about
the financial performance of their companies during a fiscal year. Yet
quarterly reporting may not be the ideal interim reporting frequency
for every Exchange Act reporting company, given the varied
circumstances each company faces. We are proposing rule and form
amendments to provide all Exchange Act reporting companies with the
[[Page 24974]]
option of filing semiannual reports on new Form 10-S in lieu of
quarterly reports on Form 10-Q. The flexibility provided under our
proposed amendments would enable all Exchange Act reporting companies
to choose the reporting frequency that would best serve the company and
its investors. Companies that elect semiannual interim reporting may
see a reduction in compliance costs of time and money, as they would
incur these interim reporting costs only one time in connection with
each fiscal year instead of three times in connection with each fiscal
year pursuant to quarterly reporting.\48\ These companies could then
choose to dedicate any compliance cost and resource savings to their
business growth. Other potential benefits of semiannual reporting
include: less distraction from running the day-to-day business;
reallocation of attention from interim reporting to company strategy;
additional time spent on new product development; and ability to engage
in transactions that might not be possible when management is focused
on preparing interim reports.\49\ To the extent that companies could
not previously do so due to quarterly reporting, companies electing
semiannual reporting may employ business strategies that may help
ensure these companies' long-term viability. In particular, emerging
growth companies \50\ and smaller reporting companies \51\ may value
having the flexibility to select the interim reporting requirement that
is most appropriate for them and their investors.\52\ Additionally,
reducing the compliance costs associated with quarterly reporting may
contribute to more private companies deciding to enter the public
markets and more companies deciding to remain public. Further, the
flexibility provided in the proposal may appeal to companies in certain
industries where investors may focus more on certain business, product,
or regulatory developments than interim financial results.\53\
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\48\ See infra economic analysis discussion in Section V.E.
\49\ The economic analysis discussion in Section V.E further
discusses opportunity costs. See infra note 229 and accompanying
text.
\50\ In 2012, the Jumpstart Our Business Startups Act (Pub. L.
112-106, 126 Stat. 306 (2012)) amended the Securities Act and
Exchange Act to add provisions regarding and to define an ``emerging
growth company.'' Commission rules also define an ``emerging growth
company.'' Pursuant to Securities Act Rule 405 and Exchange Act Rule
12b-2, the term ``emerging growth company'' means an issuer that had
total annual gross revenues of less than $1.235 billion during its
most recently completed fiscal year. Pursuant to these rules, if an
issuer qualifies as an ``emerging growth company'' on the first day
of its fiscal year, it maintains that status until the earliest of:
(i) the last day of the fiscal year of the issuer during which it
had total annual gross revenues of $1.235 billion or more; (ii) the
last day of its fiscal year following the fifth anniversary of the
first sale of its common equity securities pursuant to an effective
registration statement under the Securities Act; (iii) the date on
which the issuer has, during the previous three-year period, issued
more than $1 billion in nonconvertible debt; or (iv) the date on
which the issuer is deemed to be a ``large accelerated filer'' (as
defined in Exchange Act Rule 12b-2).
\51\ For the definition of smaller reporting company, see 17 CFR
229.10(f)(1); 17 CFR 230.405; and 17 CFR 240.12b-2. Under these
rules, ``smaller reporting company'' is defined as an issuer that is
not an investment company, an asset-backed issuer, or a majority-
owned subsidiary of a parent that is not a smaller reporting company
and that: (1) had a public float of less than $250 million; or (2)
had annual revenues of less than $100 million and either: (i) no
public float; or (ii) a public float of less than $700 million.
\52\ Letter from Society for Corporate Governance (Apr. 19,
2019) (survey of 130 public companies who responded to the question
``Regardless of any other proposed changes to the reporting scheme,
do you think that emerging growth companies or smaller reporting
companies should be permitted to elect a semi-annual reporting
frequency?'' indicated the following results: Yes: 45%; No: 22%;
Unsure: 34%).
\53\ For example, a pre-revenue biotechnology company could find
semiannual reporting best serves the company and its investors where
investors' primary focus is on progress in product development and
applicable regulatory approvals and where investors find semiannual
reports to be sufficient. See, e.g., Remarks of Charles Baltic,
Member, Advisory Comm. on Small & Emerging Cos., in Meeting of the
Advisory Comm. on Small and Emerging Cos., U.S. Sec. & Exch. Comm'n
64-65 (Sept. 23, 2015), available at <a href="https://www.sec.gov/info/smallbus/acsec/acsec-transcript-092315.pdf">https://www.sec.gov/info/smallbus/acsec/acsec-transcript-092315.pdf</a> (remarking that emerging-
growth, small capitalization biotechnology companies do not trade on
their financial quarterly reporting but trade on their fundamental
clinical development events and regulatory events, that these events
follow their own non-quarterly cycle and are captured in Form 8-K
filings, and that most capital-intensive companies (in technology
generally as well as biotechnology) trade most significantly on
basic business developments such as new products as opposed to
incremental revenues or earnings on a quarterly basis). See also
infra note 141 and accompanying text.
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Under the proposal, companies would have the option to elect on an
annual basis to comply with the semiannual reporting requirements.
Exchange Act reporting companies could continue to file quarterly
reports on Form 10-Q under the proposal. Companies might continue to
report quarterly, for example, where they determine that quarterly
frequency is best for the company and its investors or due to factors
such as expectations of investors and securities analysts, disclosure
practices in a particular industry, contractual obligations, or other
regulatory requirements.\54\ It is also possible some companies may
view semiannual reporting as increasing the length of time that the
company's directors or employees possess non-public information that
may be subject to the company's closed trading windows and see
quarterly reporting as a better approach for the company, because it
may provide more frequent open trading windows for the company's
directors and employees.
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\54\ For additional discussion of factors that may provide
incentives for companies to elect to continue to file quarterly
reports, see the economic analysis in this release, infra Section
V.D.
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Although one result of the proposal will be a reduction in the
frequency of interim reports for some Exchange Act reporting companies,
we expect certain material information about these companies between
interim semiannual reports and annual reports will continue to be
disclosed either voluntarily or as a result of other requirements.
Significant regulatory enhancements have occurred since 1970 with
regard to disclosure of certain material events during interim periods.
Investors currently have access to information through the current
reporting system on Form 8-K regarding certain material events that is
far more robust and timely than in 1970 when semiannual reports on Form
9-K were last required. Since that time, the Commission significantly
accelerated that era's Form 8-K filing deadline of 10 days after the
end of the month in which the applicable event occurred to the current
general deadline of within four business days of the event.\55\
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\55\ Release No. 34-13156 (Jan. 13, 1977) [43 FR 4424 (Jan. 25,
1977)] (adopting the general Form 8-K filing deadline of 15 calendar
days after the event); Additional Form 8-K Disclosure Requirements
and Acceleration of Filing Date, Exchange Act Release No. 49424
(Mar. 16, 2004) [69 FR 15594 (Mar. 30, 2004)] (``2004 Amended Form
8-K Adopting Release'') (adopting the general Form 8-K filing
deadline of four business days after the event).
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In addition to shortening the filing deadlines, the Commission over
time significantly expanded the list of events that would trigger a
filing obligation under Form 8-K and prescribed standardized
disclosures that must be provided upon the occurrence of the material
event, including through amendments in 2003 and 2004.\56\ In fact,
several of the Form 10-Q disclosure requirements largely duplicate the
Form 8-K requirements.\57\ Importantly, in 2003, the Commission added
Item 2.02 as a Form 8-K filing trigger event for the furnishing of
earnings releases and other material information about companies'
[[Page 24975]]
results of operations and financial condition for a completed interim
period.\58\ Current Item 2.02 requires reporting companies generally to
furnish their quarterly earnings releases as an exhibit to Form 8-K on
the Commission's EDGAR system.\59\ Many Exchange Act reporting
companies hold a conference call in connection with their earnings
releases. Item 2.02 provides the conference call does not need to be
furnished with Form 8-K subject to certain conditions, including that
the call occur within 48 hours of the earnings release, the call be
accessible to the public, and the call and dial-in information be
announced in advance to the public.\60\ In practice, many public
companies make recordings of the call freely available on their
website. Recordings of the calls are also commonly freely available on
third-party platforms.
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\56\ See Conditions for Use of Non-GAAP Financial Measures,
Release No 34-47226 (Jan. 22, 2003) [68 FR 4820 (Jan. 30, 2003)]
(``2003 Amended Form 8-K Adopting Release''); 2004 Amended Form 8-K
Adopting Release.
\57\ For example, both Form 8-K and Form 10-Q require
disclosures of recent sales of unregistered securities, mine safety,
and defaults on debt securities.
\58\ 2003 Amended Form 8-K Adopting Release.
\59\ The term ``earnings release'' as used in this release means
a public announcement or release by a company, or person acting on
its behalf, of material non-public information regarding a company's
results of operations or financial condition for a completed fiscal
year or interim period. The requirements of Item 2.02 of Form 8-K
are triggered by the disclosure of this information, with the
earnings releases furnished under the cover of Form 8-K. Forward-
looking information provided by a company to its investors on a
quarterly basis in a method other than Form 8-K or Form 10-Q is
referred to as ``forward-looking earnings guidance'' or ``earnings
guidance.'' The non-GAAP financial measure rules in 17 CFR 244.100
through 17 CFR 244.102 (``Regulation G'') and 17 CFR 229.10, along
with the antifraud provisions of the Federal securities laws (such
as Exchange Act Section 10(b) and 17 CFR 240.10b-5 (Exchange Act
Rule 10b-5)), apply to earnings releases and earnings guidance.
\60\ Form 8-K, Item 2.02(b).
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We believe that the requirements of Form 8-K elicit important
disclosures about material events on a more timely basis than quarterly
reports on Form 10-Q. We acknowledge, however, that quarterly earnings
releases furnished with an Item 2.02 Form 8-K differ from Form 10-Q
financial information because they are not required to be reviewed by
an independent public accountant or to comply with the Commission's
interim financial statement requirements or certain other requirements
in Form 10-Q.\61\ We also acknowledge that, if a company elects to take
advantage of semiannual reporting and stops reporting quarterly
earnings or having quarterly earnings release conference calls, then
the disclosures elicited by Item 2.02 of Form 8-K would not be
available. We expect that a company's individual characteristics,
facts, and circumstances will determine whether it would make quarterly
earnings releases or announcements after electing to report
semiannually.\62\
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\61\ In addition, the information furnished under Item 2.02 of
Form 8-K is not required to be prepared in accordance with GAAP
(although it is subject to requirements concerning non-GAAP
financial measures in Regulation G and 17 CFR 229.10(e)(i)), is not
required to be data tagged, and is not required to include
disclosures or certifications related to disclosure controls and
procedures or internal control over financial reporting.
\62\ While specific registrants may base decisions on their
specific circumstances, the experience in foreign jurisdictions may
be broadly illustrative. A 2017 CFA Research Institute study said,
``When quarterly reporting was no longer required of UK companies in
2014, less than 10% stopped issuing quarterly reports (as of the end
of 2015).'' Robert Pozen, Suresh Nallareddy & Shivaram Rajgopal, The
Impact on Reporting Frequency on UK Public Companies (Mar. 2017)
(``2017 CFA Study of UK''), available at <a href="https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/rfbr-v3-n1-1-pdf.pdf">https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/rfbr-v3-n1-1-pdf.pdf</a>. Our interpretation of the 2017 CFA
Study of UK is that where the study refers to ``issuing quarterly
reports,'' the study is referring to voluntary earnings releases,
because companies no longer file quarterly reports with the UK
Financial Conduct Authority. See 2018 Request for Comment on
Quarterly Earnings and Reporting, at 65602-65603 (discussing
required UK semiannual reporting and the elimination of quarterly
reporting). For additional discussion of semiannual filers that may
voluntarily release quarterly earnings if the proposal is adopted,
see the economic analysis in this release, infra Section V.D.
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Regulation FD, adopted in 2000, was another significant development
in the evolution of disclosure requirements for Exchange Act reporting
companies. Regulation FD requires that any material non-public
information selectively shared with certain enumerated persons be
promptly (in the case of unintentional disclosure) or simultaneously
(in the case of intentional disclosure) disclosed to the market by
either furnishing or filing a Form 8-K report or disseminating the
information through another method that is reasonably designed to
provide broad, non-exclusionary distribution.\63\ In connection with
Regulation FD, Exchange Act reporting companies may disclose material
information during a fiscal year through Item 7.01 of Form 8-K.\64\
Regulation FD seeks to promote full and fair disclosure and may cause a
company to disclose material information--whether on Form 8-K or
through other means--at various points during a fiscal year, depending
on the company and its circumstances (such as whether the company seeks
to communicate previously material non-public information to analysts
or other persons covered by Regulation FD). Such disclosure results in
greater investor access to material information disclosed outside
quarterly reports on Form 10-Q. Regulation FD and current Form 8-K
disclosure requirements were either not present or less robust when the
Commission last required the limited form of semiannual reporting
during the period from 1955 to 1970.
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\63\ 17 CFR 243.100(b)(1); 17 CFR 243.101(e). Regulation FD
restricts selective disclosure of material, non-public information
to persons including: broker-dealers; investment advisers;
investment companies; and securityholders if it is reasonably
foreseeable they will trade on the information. If a company or
person covered by the rule intentionally discloses material
nonpublic information to a covered recipient, then the company must
make simultaneous public disclosure and, if the disclosure to a
covered recipient is unintentional, then public disclosure must be
prompt. See also Selective Disclosure and Insider Trading, Release
No. 34-43154 (Aug. 15, 2000) [65 FR 51715 (Aug. 24, 2000)].
\64\ A study in 2021 that took a sample of 2,108 public
companies found that a public company, on average, files six to
eight Form 8-K reports per year, and, among those filings, files one
Item 7.01 (Regulation FD disclosure) Form 8-K filing per year. Azi
Ben-Rephael et al., Who Pays Attention to SEC Form 8-K?, at 14 (Aug.
20, 2021), available at https://academicweb.nd.edu/~zda/8k.pdf.
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Although we are proposing to amend our rules regarding frequency of
interim reporting, our proposal does not include any general changes to
the current regulatory requirements governing: (1) earnings releases,
other than proposed technical amendments to Item 2.02 of Form 8-K to
include references to semiannual periods, or (2) earnings guidance
practices. Federal securities laws do not impose general duties upon
Exchange Act reporting companies to announce or publish earnings,
conduct earnings calls, or issue earnings guidance.\65\ We received
public feedback on earnings releases and earnings guidance practice in
connection with the Commission's 2016 Regulation S-K Concept Release
and 2018 Request for Comment on Quarterly Earnings and Reporting, with
commenters expressing a variety of views on these practices and on a
wide range of related topics. Our proposal is focused on the more
specific issue of the frequency of interim reporting as mandated by the
Federal securities laws, with the goal of providing more flexibility
with respect to this mandated disclosure. Although the proposal is not
intended to change the regulatory framework for voluntary practices
regarding earnings releases and guidance, we welcome comments on the
impact of our proposal on these voluntary practices.
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\65\ Certain regulatory requirements that apply to Form 10-Q,
however, do not apply to earnings releases. See supra note 61 and
accompanying text. When earnings information is selectively
disclosed to certain covered persons, however, Regulation FD
requires disclosure in a Form 8-K filing or another method that is
reasonably designed to provide broad, non-exclusionary distribution.
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We believe our proposal represents a balanced approach of
maintaining a reporting system that elicits material, timely, and
regular disclosures in a manner that best suits the needs of both the
company and its investors,
[[Page 24976]]
promoting efficiency by reducing compliance costs, and maintaining
robust investor protections. The proposal is one step in a broader
Commission effort to encourage more companies to go and remain public
by reducing the costs and burdens associated with Exchange Act
reporting. A robust public capital market--with more emerging companies
and small businesses choosing to become public companies through
initial public offerings or other paths--benefits companies and
investors alike. Becoming a public company provides companies with
access to the public markets that allows them to raise capital to grow
their businesses, a broader set of potential investors who may purchase
their securities in the secondary trading market, and the benefits of
transparent valuations by public markets and of a market following. For
investors, public companies represent opportunities to participate in
the future growth of promising companies. Initial public offerings
represent liquidity opportunities for early-stage investors. Investors
in public companies are protected by mandated disclosures and by
liability provisions of the Federal securities laws that apply to
public companies' disclosures, such as Securities Act Section 11 and
Exchange Act Section 18.\66\
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\66\ Securities Act Section 11 provides for liability for an
untrue statement of a material fact in a Securities Act registration
statement and for an omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. Many public companies commonly make registered offerings
of securities and thus are subject to potential Section 11
liability. Exchange Act Section 18 provides for liability for a
false or misleading statement with respect to a material fact in an
Exchange Act report. Interim reports on Form 10-Q are not subject to
Section 18 liability with respect to Items 1, 2, and 3 of Part I of
Form 10-Q (respectively relating to financial statements,
management's discussion and analysis of financial condition and
results of operations, and quantitative and qualitative disclosures
about market risk). See Form 10-Q, General Instruction F.1. Proposed
semiannual reporting Form 10-S would similarly provide that Items 1,
2, and 3 of Part I of the form are not subject to Section 18
liability. See proposed Form 10-S, General Instruction F.1.
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We are also proposing amendments to Regulation S-X. Our proposed
amendments would incorporate provisions applicable to registrants that
elect semiannual reporting frequency into the financial statement
requirements for periodic reports. We are also proposing changes to the
age of financial statement requirements in Regulation S-X to ensure
that financial statements in registration statements filed by
semiannual filers would not be considered ``stale'' under existing
rules, which were built along a quarterly reporting framework, and to
revise those age requirements for semiannual filers to fit with their
reporting schedule. The proposed changes to the age of financial
statement rules would also simplify existing rules, including by
consolidating the age requirements into a single rule.
Finally, we recognize that, if the proposal is adopted, in order to
comport with semiannual reporting by public companies, it is possible
that changes may be necessary or appropriate to the rules of securities
exchanges \67\ or to various accounting or auditing standards.\68\ If
the proposal is adopted, to facilitate any such changes, we expect the
Commission staff would coordinate with accounting and auditing
standard-setters, securities exchanges, and other market participants.
To help inform those efforts, we are soliciting comment in this release
on what changes to accounting or auditing standards or rules of
securities exchanges should be made to comport with semiannual
reporting.\69\
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\67\ See, e.g., letter from NYSE Group, Inc. (Mar. 21, 2019)
(``If the Commission elected to make reporting requirements less
frequent, giving public issuers the option to report two or three
times a year, the NYSE Exchanges believe we could comply with our
regulatory duties by adapting our rules and practices
accordingly.'').
\68\ See supra note 20 and infra notes 92, 93, 188, 191, 214 and
accompanying text for discussion of certain auditing standards
relevant to quarterly and proposed optional semiannual reporting.
\69\ We are also aware that the regulations of some Federal
agencies contain references to quarterly reports filed with the
Commission. These agencies may wish to consider whether they should
revise their law to reflect semiannual reporting if the proposal is
adopted. See, e.g., 12 CFR 16.6 (providing the Comptroller of the
Currency will deem offers or sales of national bank or Federal
savings association issued nonconvertible debt to be in compliance
with certain regulations if a number of requirements are met,
including that each purchaser receives an offering document that
contains, among other things, the national bank's, Federal savings
association's, or the holding company's (where the national bank or
Federal savings association is a subsidiary of a holding company
with securities registered under the Exchange Act) Forms 10-K, 10-Q,
and 8-K filed under the Exchange Act); 13 CFR 315.7 (requiring
companies petitioning the Economic Development Administration, which
is part of the U.S. Department of Commerce, for eligibility for
trade adjustment assistance to provide information, including the
most recent Form 10-K annual reports (or Form 10-Q quarterly
reports, as appropriate) filed with the Commission for the entire
period covered by the petition); 10 CFR 50.71 (creating an exemption
for companies licensed by the U.S. Nuclear Regulatory Commission
from providing an annual financial report if they submit a Form 10-Q
filed with the Commission). See also Section VI.C (discussing
Federal agency regulations and discussing State law that refers to
quarterly filings with the Commission).
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Our proposal is discussed in greater detail below. We welcome
interested parties to submit comments on any aspects of the proposed
rule and form amendments. When commenting, please include the reasoning
in support of your position or recommendation and provide any
supporting documentation or data.
A. Proposed Amendments for Semiannual Reporting
We are proposing amendments to Exchange Act Rules 13a-13 and 15d-13
(and other relevant rules and forms that we discuss below) to change
the current quarterly reporting requirements for Exchange Act reporting
companies to a more flexible system that permits Exchange Act reporting
companies to elect to file semiannual reports instead of quarterly
reports.\70\ Under the proposal, an Exchange Act reporting company that
elects semiannual reporting would be required to file one semiannual
report and one annual report for each fiscal year. Semiannual filers
would file their interim report on new Form 10-S. This form would
require the same narrative disclosures and financial information as
existing Form 10-Q but would cover a six-month period (rather than a
fiscal quarter). The deadline for filing Form 10-S would be 40 or 45
days (depending on the company's filer status) after the fiscal year's
first semiannual period end--the same as with current Form 10-Q's
fiscal quarter end deadline, which would not change--while the second
semiannual period would be subsumed in the annual period presented in
the annual report on Form 10-K.\71\ Reporting companies that do not
elect to report on a semiannual basis--thereby effectively opting to
report on a quarterly basis under the default rules that would apply--
would continue to be required to file three quarterly reports on Form
10-Q and one annual report on Form 10-K for each fiscal year as under
the current system for reporting companies. We are proposing to add a
check box to the cover page of Form 10-K as the sole means by which a
reporting company would indicate annually whether it is selecting a
semiannual interim reporting frequency (by checking the semiannual box)
or quarterly reporting (by not checking the semiannual box) and by
which the reporting company would disclose the selected frequency to
investors and other market participants.
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\70\ Proposed Rule 13a-13(b) and Rule 15d-13(b).
\71\ We are not proposing to require that semiannual filers
present separately the second semiannual period interim financial
information in Form 10-K but request comment on whether we should
require semiannual filers to break out the second semiannual period
in their annual reports on Form 10-K and similarly require quarterly
filers to break out their fourth fiscal quarter in their annual
report on Form 10-K.
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[[Page 24977]]
We are also proposing amendments to add a similar check box
concerning the semiannual reporting election to the cover page of
Securities Act registration statements on Forms S-1, S-3, S-4, and S-11
and Exchange Act registration statements on Form 10. Companies that
have yet to file Exchange Act reports, such as private companies
conducting initial public offerings, would make initial elections to
use semiannual reporting by checking the box on the cover page of the
registration statement filed.\72\ This election would determine what
financial statements are required in the registration statement \73\
and indicate the company's planned interim reporting frequency to
investors and other market participants.\74\ Similar to current
requirements for the first quarterly report for companies that have
newly become Exchange Act reporting companies,\75\ the first semiannual
report on Form 10-S would be due the later of 45 days after the
effective date of the registration statement or the date that Form 10-S
would otherwise have been due had the company been an Exchange Act
reporting company.\76\
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\72\ While the check box on the registration statement forms
would be the method by which private companies in registration
indicate their planned reporting frequency, there may be other
situations where registration statement forms that would contain the
new check box are filed by a reporting company. In those other
situations, the reporting company would check or leave unchecked the
box consistent with the reporting company's prior election on its
most recent Form 10-K or, in the case of a newly public reporting
company that has not yet filed a Form 10-K, on its registration
statement form where it made its election in connection with
becoming a public company. A reporting company filing a registration
statement form would not be able to respond differently to this
check box than it has indicated in such most recent Form 10-K or,
for a newly public company, such registration statement, because, as
we discuss below, mid-fiscal-year changes in reporting frequency
would not be permitted.
\73\ An election to use semiannual reporting made in an initial
registration statement would not preclude a registrant from
providing financial statements more current than otherwise required.
\74\ A company that is not a reporting company and that is in
registration in connection with an initial registration statement
may change its check box answer with respect to semiannual reporting
until the initial registration statement becomes effective. Once the
initial registration statement becomes effective, the company
becomes a reporting company and, as with existing reporting
companies, can change its interim reporting frequency in accordance
with the proposed amendments to Rules 13a-13 and 15d-13.
\75\ 17 CFR 240.13a-13(a); 17 CFR 240.15d-13(a).
\76\ Proposed Rules 13a-13(b)(1) and 15d-13(b)(1).
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In connection with our proposed optional semiannual reporting
approach, we are proposing to add two new definitions--``quarterly
filer'' and ``semiannual filer''--to 17 CFR 240.12b-2 (and to add two
identical definitions to 17 CFR 230.405) to facilitate a number of
amendments we are proposing, including a number of technical amendments
to insert references to semiannual reporting in rules that currently
refer to quarterly-reporting-related concepts. A ``quarterly filer''
would be defined as a registrant that is required to file quarterly
reports on Form 10-Q, pursuant to 17 CFR 240.13a-13(a). A ``semiannual
filer'' would be defined as a registrant that is required to file
semiannual reports on Form 10-S, pursuant to 17 CFR 240.13a-13(b).
Under our proposed optional semiannual reporting approach, we are
proposing to permit a change in interim reporting frequency--either
from quarterly to semiannually or vice versa--to be indicated on a Form
10-K by checking the box on the cover page to file semiannually or
leaving the box unchecked to file quarterly. As proposed, the
determination to report semiannually or quarterly would therefore be
made on an annual basis and may not be changed until the next Form 10-K
annual report is filed.\77\ Companies would then be required to file
interim reports based on the chosen frequency, beginning with the
report for the first interim period (semiannual or quarterly) of the
fiscal year in which the Form 10-K with the election was filed.\78\
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\77\ Companies that leave an unmarked box on Form 10-K would be
deemed to have opted for quarterly reporting and therefore be
required to file quarterly reports on Form 10-Q for the next fiscal
year (i.e., the fiscal year for which the election is being made
which, for the avoidance of doubt, is the fiscal year that follows
the fiscal year covered by that Form 10-K). This means that
semiannual filers that wish to continue to file on a semiannual
basis in future fiscal years must make the election again each year
on their Form 10-K. Otherwise, if these companies do not make the
election on Form 10-K, they would be required to resume filing
quarterly reports beginning with the first quarter of the fiscal
year in which the Form 10-K with the election is filed.
\78\ Proposed Rules 13a-13(b)(2) and (3); proposed Rules 15d-
13(b)(2) and (3).
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<bullet> For example, an Exchange Act reporting company reporting
quarterly with a December 31 fiscal year-end wants to file semiannual
reports on Form 10-S for the next fiscal year. The company would file
its Form 10-K for fiscal year 2026 in March 2027. Under the proposal,
the company would have to make its election to switch to semiannual
reporting for fiscal year 2027 by checking the box for semiannual
reporting on the cover page of its Form 10-K for fiscal year 2026. With
this election made in fiscal year 2027 (i.e., when the Form 10-K for
fiscal year 2026 was filed), the company would be required to report
semiannually and would begin semiannual reporting by filing in August
2027 its Form 10-S for the first six-month period (ended June 30, 2027)
of fiscal year 2027.\79\
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\79\ In this example, in its Form 10-S for fiscal year 2027, the
reporting company would be required to present statements of
comprehensive income, cash flows, and changes in stockholders'
equity for the first six months of the preceding fiscal year
(2026)--in addition to these statements for the first six months of
2027. The company would have previously filed a first quarter Form
10-Q covering January to March 2026 and a second quarter Form 10-Q
covering April to June 2026. In the second quarter 2026 Form 10-Q,
the company would have been required to file year-to-date (i.e.,
January to June 2026) statements of comprehensive income, cash
flows, and changes in stockholders' equity. Therefore, a reporting
company would not need to take extra steps to prepare those
preceding year financial statements (covering January to June 2026)
when changing its reporting frequency from quarterly reporting to
semiannual reporting (in contrast to the situation discussed below
where a company changes from semiannual reporting to quarterly
reporting, where extra steps may be required).
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<bullet> Similarly, for example, an Exchange Act reporting company
with a December 31 fiscal year-end that previously chose to file
semiannual reports on Form 10-S as indicated in its Form 10-K for the
fiscal year ended December 31, 2026 wishes to switch to quarterly
reporting. The company will file its Form 10-K for fiscal year 2027 in
March 2028. The reporting company would change its interim reporting
frequency by leaving the box unchecked for semiannual reporting on the
cover page of its Form 10-K for fiscal year 2027. With this election
made in fiscal year 2028 (i.e., when the Form 10-K for 2027 was filed),
the company would be required to report quarterly and would begin
quarterly reporting by filing in May 2028 its Form 10-Q for the first
quarter (ended March 31, 2028) of fiscal year 2028. In its Form 10-Q
for the first quarter of fiscal year 2028, the company would be
required to present statements of comprehensive income, cash flows, and
changes in stockholders' equity for the first quarter of the preceding
fiscal year (2027).\80\ These first quarter 2027 financial statements
would have been subsumed within (but would not have been required to be
separately presented in) the semiannual financial statements included
in the previously filed Form 10-S covering January to June 2027.
Therefore, in changing the election by leaving the box unchecked
(thereby choosing to file quarterly reports on Form 10-Q for fiscal
year 2028), the reporting company may need to take additional steps to
prepare the financial statements for the comparable 2027 quarterly
periods, including ensuring that an independent public accountant
[[Page 24978]]
has reviewed the comparable quarterly periods for fiscal year 2027.\81\
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\80\ Proposed Rules 8-03(a)(2), 8-03(a)(5),10-01(a)(7), and 10-
01(c) of Regulation S-X.
\81\ Registrants must provide MD&A disclosure pursuant to Part
I, Item 2 of Form 10-Q. With respect to results of operations, 17
CFR 229.303(c)(2)(ii) requires registrants to compare the most
recent quarter to either: (1) the corresponding quarter for the
preceding fiscal year or (2) the immediately preceding sequential
quarter. That regulation also requires, where the comparison is made
to the preceding sequential quarter, that financial information for
such sequential quarter be presented in summary form or identified
in prior EDGAR filings. In this example, if the company chose to
compare results of operations for the first quarter of fiscal year
2028 to the results for the fourth quarter of fiscal year 2027, then
the company would need to take further additional steps to include
information for the fourth quarter of fiscal year 2027 in summary
form in its Form 10-Q for the first quarter of fiscal year 2028.
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Once an Exchange Act reporting company has elected its interim
reporting frequency, it would be committed to that reporting frequency
for the remainder of that fiscal year. This proposed approach would
avoid potential investor confusion that could result if Exchange Act
reporting companies were permitted to switch interim reporting
frequency in the midst of a fiscal year, such as confusion over when
the companies would file interim reports.
We recognize the possibility that a company may mistakenly leave
the check box unmarked or incorrectly mark the check box (for example,
a company mistakenly checking the box for semiannual reporting when it
intended to be a quarterly filer or a company mistakenly leaving the
check box unmarked when it intended to be a semiannual filer). We
therefore propose to amend Rule 13a-13(b) and Rule 15d-13(b) to permit
companies to amend their Form 10-K to correct any such inadvertent
mistakes. Such corrective amendments would be required to be filed as
soon as practicable after discovery of the mistake but no later than
the due date by which the company's first Form 10-Q report would be
required to be filed for the fiscal year in which the initial Form 10-K
with the erroneous election was filed.\82\ For example, a quarterly
filer with a December 31 fiscal year-end wants to continue filing
quarterly reports on Form 10-Q. The company filed its Form 10-K for
fiscal year 2026 in March 2027. It mistakenly marked the check box on
the cover page of its Form 10-K for fiscal year 2026, thereby electing
to switch to semiannual reporting for fiscal year 2027. The company
would be able to correct this error by amending its Form 10-K no later
than the due date for its Form 10-Q for the first quarter of fiscal
year 2027.\83\
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\82\ Proposed Rules 13a-13(b)(4) and 15d-13(b)(4). If a company
were to amend Form 10-K for the sole purpose of correcting a check
box error under the proposal, we would not expect the company to
refile the certifications required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (discussed supra note 32). See also 17
CFR 240.12b-15. Where such an error was made and is being timely
corrected, a company would file a Form 10-K/A indicating the number
of the amendment and provide the amended cover page, an explanatory
note, the exhibit list, and signatures. Electing to file semiannual
reports in compliance with this rule and the filing of this
corrective amendment would not impact the company's timeliness for
the purposes of determining eligibility to file short form
registration statements (e.g. Form S-3).
\83\ The filing of Form 12b-25 in accordance with 17 CFR
240.12b-25 to provide notification of an inability to timely file a
Form 10-Q would not affect a company's error correction deadline,
which would remain the original due date for the company's Form 10-
Q.
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Proposed Form 10-S would require the same information as currently
required by Form 10-Q but for the covered six-month period instead of a
quarter.\84\ Required disclosures would include, among other things,
MD&A, legal proceedings, material changes in risk factors, unregistered
equity security sales and use of proceeds, defaults on senior
securities, director nomination procedures, disclosure of director or
officer adoptions or terminations of certain plans for the purchase or
sale of registrant securities, and exhibits required under Item 601 of
Regulation S-K. The financial statements for the covered semiannual
period would be required to be prepared in accordance with U.S. GAAP
\85\ and reviewed by an auditor (but not required to be audited).\86\
They would also be required to be data tagged using Inline XBRL. The
current disclosure and certifications requirements for disclosure
controls and procedures, as well as for internal control over financial
reporting, would apply to proposed Form 10-S.\87\ Non-GAAP financial
measures presented in proposed Form 10-S would be subject to the
current requirements of Regulation G and Item 10(e) of Regulation S-K.
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\84\ Form 10-S is not proposed to be substantively different
from Form 10-Q (other than the reporting period covered). Scaled
disclosure would be available to smaller reporting companies on
proposed Form 10-S as with Form 10-Q. See, e.g., proposed Form 10-S,
Item 1 (permitting smaller reporting companies to provide financial
information required by 17 CFR 210.8-03); Item 3 (which requires
quantitative and qualitative disclosures of market risk pursuant to
17 CFR 229.305, which provides that smaller reporting companies are
not required to provide the information otherwise required).
\85\ But see supra note 19 regarding a foreign private issuer's
election to voluntarily file on domestic forms and ability to apply
accounting standards other than U.S. GAAP in its financial
statements.
\86\ A semiannual filer would not be precluded from voluntarily
providing quarterly financial information in a Form 10-S in addition
to the required semiannual financial information. If the quarterly
financial information is presented in the financial statements, the
quarterly financial information would be subject to review by an
auditor.
\87\ See 17 CFR 229.307 (Regulation S-K Item 307); 17 CFR
229.308(c) (Regulation S-K Item 308(c)).
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Request for Comment
1. The proposed amendments would allow Exchange Act reporting
companies to elect to file interim reports on a semiannual basis in
lieu of quarterly reports on Form 10-Q. Should companies have this
option, or should all companies continue to be required to file Form
10-Q? What types of companies are likely to elect the option to file
semiannual reports? Are companies in certain industries more likely
than those in other industries to elect to file semiannual reports?
2. We are proposing amendments that would permit, but not require,
all Exchange Act reporting companies that file Form 10-Q today to file
semiannual reports. Should we instead require all companies to file
semiannual reports? What would be the benefits and costs of such a
mandatory approach? Would mandatory semiannual reporting, with the
option to file quarterly reports, lead to more companies electing to
forgo quarterly reporting?
3. Our proposal would permit semiannual reports for all Exchange
Act reporting companies that file Form 10-Q today, regardless of filer
status, revenues, market capitalization, or other criteria. Should the
option for semiannual reporting be available only for Exchange Act
reporting companies that satisfy certain criteria? If so, what criteria
should be imposed and why? For example, should only emerging growth
companies or smaller reporting companies be allowed to report
semiannually? \88\ Should only companies below alternative quantitative
or monetary thresholds be allowed to report semiannually? Should the
Commission consider a pilot program to permit optional semiannual
reporting for a subset of reporting companies and, if so, what would be
the benefits of such a pilot program? What types of companies should be
included in the pilot program?
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\88\ See definition of ``emerging growth company'' supra note 50
(containing a total annual gross revenue threshold of $1.235
billion) and definition of ``smaller reporting company'' supra note
51 (containing a public float threshold of less than $250 million
under one prong of the definition and a public float threshold of
less than $700 million under the second prong of the definition).
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4. Under the proposal, reporting companies currently required to
file Form 10-Q would have the option
[[Page 24979]]
instead to file semiannual reports on Form 10-S. Should any types of
companies that currently file Form 10-Q be excluded from the option of
electing semiannual reporting, such as business development companies?
5. We are proposing that the filing deadlines for semiannual
reports on Form 10-S be the same as for quarterly reports on Form 10-Q.
Should the filing deadline for semiannual reports on Form 10-S be
longer or shorter than proposed? If so, what would be an appropriate
filing deadline? Do companies need more time to prepare semiannual
reports than quarterly reports and if so, why? Should smaller public
companies, newly public companies, or emerging growth companies be
afforded a longer filing deadline for Form 10-S to allow for additional
time to consult with their accountants and advisers?
6. If adopted, would semiannual reporting have an impact on
investors' ability to compare same-company performance over time? Why
or why not?
7. What effect would our proposal have on investors' ability to
compare the relative peer company financial performance of a quarterly
filer to a semiannual filer? For example, can an investor reasonably
compare a quarterly filer to a semiannual filer where the companies
have the same fiscal year and the comparison is sought to be made in
the second quarter (when first quarter information that would be
subsumed in the semiannual filer's semiannual report on Form 10-S is
not yet available) or made in the fourth quarter (when third quarter
information that would be subsumed in the semiannual filer's annual
report on Form 10-K is not yet available)?
8. Should the check box that indicates a company has elected
semiannual reporting be added to registration statements on Forms 10,
S-1, S-3, S-4, and S-11 and annual reports on Form 10-K as proposed?
Should we add a similar check box to any other forms, including Forms
1-A or 8-A? If so, why?
9. Under our proposal, companies that want to file semiannual
reports instead of quarterly reports would make their election by
checking a box on the cover page of their annual report on Form 10-K
for the most recently completed fiscal year. For investors and other
market participants, this would mean that the first indication that a
company will file only semiannual reports going forward will be when
the company files its most recent Form 10-K. For example, under our
proposal, a December 31 fiscal year-end company that files its Form 10-
K for fiscal year 2026 in March 2027 would be able to cease filing
quarterly reports immediately, with its next interim report being its
first Form 10-S for the first six months of fiscal year 2027. Would
investors and other market participants benefit from earlier notice of
a company's intent to file semiannual reports instead of quarterly
reports? If so, how would investors and others benefit and what would
be the magnitude of any benefit? If so, what should the mechanism be
for a company to provide earlier notice of intent to file semiannual
reports?
10. Our proposal would require Exchange Act reporting companies
that elect to file semiannual reports to continue with that interim
reporting frequency for the rest of the fiscal year in which the
election was made. Therefore, companies would not be allowed to file a
semiannual report on Form 10-S for the first six months of a fiscal
year and then file a quarterly report for the third quarter for that
fiscal year. Likewise, companies would not be allowed to file a
quarterly report on Form 10-Q for the first quarter of a fiscal year,
file a semiannual report on Form 10-S for the first six months for that
fiscal year, and not file a quarterly report on Form 10-Q for the third
fiscal quarter. Would this proposed approach help avoid potential
confusion that could be caused by changes in interim reporting
frequency during a fiscal year? Is it necessary to add any language to
the proposed rules to make more explicit the requirement to maintain
the selected frequency for the full fiscal year? Rather than the
proposed approach, should we allow: (1) semiannual filers and quarterly
filers to make a change in interim reporting frequency during the
fiscal year, or (2) only semiannual filers to switch to filing
quarterly reports during the fiscal year? Should issuers that elect
semiannual reporting be required to commit to that disclosure frequency
for a certain period of time? Why or why not?
11. Do companies that have newly become a public company (e.g.,
through an initial public offering, de-SPAC transaction, or direct
listing) need to have greater flexibility for switching interim
reporting frequency within a fiscal year? For example, a private
company that elected semiannual reporting in a Form S-1 for an initial
public offering could subsequently decide that quarterly reporting is
preferable (e.g., to promote greater trading liquidity by increasing
the frequency of its interim reporting) and wish to switch to quarterly
reporting for the rest of the fiscal year. Should we allow such newly
public companies to switch the interim reporting frequency within a
fiscal year?
12. Should correction of errors with respect to the Form 10-K check
box related to semiannual reporting be permitted as we propose? Are the
proposed time limits on when an error correction may be made
appropriate? In addition to allowing error correction in an amended
Form 10-K--or in lieu thereof--should we allow check box error
correction through a Form 8-K filing?
13. We are proposing a new Form 10-S for companies that elect to
file semiannual reports. Is the proposed new form needed? Should there
be one form for all interim reports, regardless of whether they are for
a fiscal quarter or a semiannual period? If so, why?
14. Proposed Form 10-S would mandate the same narrative and
financial information as Form 10-Q, albeit for semiannual periods
rather than quarterly periods. Should Form 10-S require narrative or
financial information that differs from what is required in Form 10-Q?
If so, please specify what information should be different and why this
information is or is not needed in Form 10-S. Are there any disclosure
items, such as mine safety violations, in proposed Form 10-S that
should be required instead to be disclosed in other forms, such as Form
10-K, Form 8-K, or Form SD?
15. As an alternative to the proposal for optional semiannual
reporting, should we instead revise the disclosure requirements of Form
10-Q to reduce the burden on reporting companies of filing this form,
such as amending the current rules for the required interim financial
statement review by an independent public accountant, XBRL data
tagging, MD&A, information about unregistered sales of registrant
securities pursuant to 17 CFR 229.701 (Item 701 of Regulation S-K), or
year-to-date comparisons involving financial statements and MD&A? How
should these requirements, or any other requirements of Form 10-Q, be
revised? What aspects of Form 10-Q's current reporting framework are
most burdensome for reporting companies?
16. What impact would the flexibility to file semiannual reports on
Form 10-S, instead of quarterly reports on Form 10-Q, have on a private
company's decision to become an Exchange Act reporting company? Would
more companies choose to go public under the proposed flexible approach
to interim reporting? What impact would the proposed flexible approach
have on existing Exchange Act reporting companies' desire to remain
public companies?
[[Page 24980]]
17. What impact would the proposed option to file semiannual
reports on Form 10-S have on Exchange Act reporting companies' ability
to focus on: (1) business operations, (2) growth, or (3) long-term
business strategies? Please provide any data on the amount of employee
and director time spent on preparing a quarterly report on Form 10-Q.
18. What is the likelihood that companies that elect semiannual
reporting will continue to issue quarterly earnings releases (to the
extent they did so previously when they reported quarterly)? Why would
semiannual filers still issue earnings releases on a quarterly basis?
Would this practice create any new or heightened investor protection
concerns? For example, would there be any new investor protection
concerns if an Exchange Act reporting company with a December 31 year-
end elects to file semiannual reports and issues an earnings release
for the first quarter of the fiscal year, with the semiannual report
for the first six months of the fiscal year (which includes that first
quarter) not due until months later (e.g., in August of that fiscal
year)? Would companies that currently issue quarterly earnings releases
but elect to become semiannual filers change their earnings release
practices either: (1) to issue earnings releases semiannually, or (2)
to cease issuing earnings releases? Please provide any data or analysis
regarding any experience with earnings releases in foreign
jurisdictions where issuers report semiannually.
19. Our proposal generally would not change the current Item 2.02
Form 8-K furnishing requirement for earnings releases (but we are
proposing technical amendments to include references to semiannual
periods). Should we change these requirements generally for semiannual
filers? For example, should we amend the Form 8-K requirements so that
Item 2.02 Form 8-K submissions are ``filed,'' not ``furnished,'' for
semiannual filers thereby subjecting the earnings release to additional
liability provisions, such as Exchange Act Section 18 (and Securities
Act Section 11 if incorporated into a Securities Act registration
statement), given that investors could rely more heavily on earnings
releases by semiannual filers due to the less frequent interim
reporting by such filers as compared to quarterly filers? If we require
the filing (not furnishing) of earnings releases for semiannual filers,
should we require the incorporation by reference of earnings releases
into Securities Act registration statements of those semiannual filers?
Would requirements for semiannual filers to file (not furnish) earnings
releases discourage semiannual filers from issuing earnings releases?
Would requirements for semiannual filers to file (not furnish) earnings
releases have an impact on companies' decisions about whether to elect
quarterly or semiannual reporting? Are there particular reasons or need
for the information provided in an Item 2.02 Form 8-K submission by a
semiannual filer to be treated differently than a similar Item 2.02
Form 8-K submission by a quarterly filer?
20. In connection with any adoption of the proposal, should there
be a new requirement for semiannual filers that announce or release
earnings for the first or third quarters of their fiscal year (i.e.,
the periods that would later be subsumed in Forms 10-S and 10-K but for
which there would be no quarterly report filed with the Commission)--
that financial information in any first or third quarter earnings
releases be reviewed by an independent public accountant? If so, would
any changes to current auditing standards (e.g., governing reviews) be
required?
21. For companies that issue earnings releases, would the proposed
flexible approach to interim reporting have any effect on how quickly
these releases would be issued after the end of the reporting period?
22. Would the option for semiannual reporting result in an overall
reduction in material information for investors? Or would other
regulatory requirements, such as Form 8-K filing requirements and
Regulation FD, elicit sufficient information to offset the less-
frequent interim reports and address any investor protection concerns?
Would market forces or demands on a company's business--such as
contractual obligations, investor expectations, and potential for
shareholder activism--encourage semiannual filers to: (1) voluntarily
disclose more information than required, (2) disclose information more
frequently than is required, or (3) opt not to become semiannual filers
at all?
23. With semiannual reporting, would there be an impact on
investors or other market participants as a result of less frequent
certifications by management relating to internal control over
financial reporting and disclosure controls and procedures, as well as
less frequent disclosures of changes in such controls? \89\
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\89\ See 17 CFR 229.308(c) (requiring disclosure of any change
in the registrant's internal control over financial reporting during
the period that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting).
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24. Would the nature and extent of procedures that an independent
public accountant performs during a review change depending upon
whether the independent public accountant is performing a review over a
fiscal semiannual period or a fiscal quarterly period? Would
independent public accountants conducting reviews do the same amount of
work for a fiscal semiannual period as they currently do for two
quarterly fiscal periods on a combined basis? Would an independent
public accountant experience any impact on efficiency or economies of
scale when conducting reviews and annual audits under semiannual
reporting versus under quarterly reporting for the same company? Would
any changes to independent public accountants' review or audit
procedures or any impact on efficiency or economies of scale result in
changes in costs to companies? If so, describe the impact and whether
the impact could vary depending upon the size of the registrant subject
to the review.
25. Would companies that elect semiannual reporting retain their
independent public accountant to perform a review of their financial
statements at the end of each quarter either to: (1) support financial
information that is used for purposes of a quarterly earnings release
(notwithstanding that, as noted above, there is no Commission
requirement for a quarterly earnings release to be reviewed by an
independent public accountant), or (2) guard against the possible need
for a quarterly review to be performed should the company decide to
change back to quarterly reporting in a future period (where that
period would require comparative quarterly data for the prior year)?
26. For semiannual filers, what impact would a shift to semiannual
reporting have on: (1) companies' disclosure controls and procedures,
(2) companies' internal control over financial reporting, and (3)
independent public accountants' strategy and approach for the annual
audit of companies' internal control over financial reporting or
financial statements? With semiannual reporting, is there a potential
for a material increase in the risk that material misstatements (either
due to error or fraud) or control deficiencies are not timely detected
by or communicated to the independent public accountant thereby
limiting potential remediation of these issues by the issuer? Please
provide any data related to these questions.
27. Would there be reduced securities analyst coverage of Exchange
Act
[[Page 24981]]
reporting companies that elect the semiannual reporting option as
compared to quarterly filers? Would underwriters' requests for
independent public accountants to provide ``comfort letters'' \90\ in
securities offerings (to support potential due diligence defenses) \91\
lead semiannual filers to continue to retain independent public
accountants to conduct quarterly financial statement reviews? If so,
are changes needed to PCAOB Auditing Standards (regarding reviews by
independent public accountants)? \92\ For example, to comport with
semiannual reporting, are changes needed to PCAOB Auditing Standard
6101, Letters for Underwriters and Certain Other Requesting Parties, to
permit independent public accountants to provide comfort letters
expressing negative assurance on changes subsequent to the date and
period of the latest financial statements included (or incorporated by
reference) in the registration statement? \93\ If semiannual filers
would continue to prepare quarterly financial information or to retain
independent public accountants to conduct quarterly reviews, should the
Commission make any rule changes or take any other steps to address
this issue?
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\90\ ``Comfort letters'' (which provide negative assurance)
commonly state that: (1) the auditor's review of unaudited financial
statements found nothing indicating information is not presented
fairly in all material respects in accordance with U.S. GAAP, (2)
certain specified auditor procedures found nothing in the
information derived from the financial statements (e.g., MD&A)
indicating the information is not in agreement in all material
respects with the financial statements, and (3) certain auditor
procedures found nothing indicating certain financial items changed
(e.g., increases in net sales, increases in long-term debt) from the
end of the last audited or reviewed period to an established cut-off
date in a manner that is inconsistent with the disclosure in the
registration statement (i.e., ``subsequent change'' comfort).
\91\ Underwriters may seek to defend against potential
registration statement-based Securities Act Section 11 liability
claims by: (1) with respect to the unexpertized portions of the
registration statement, relying on the comfort letter to show they
conducted a reasonable investigation to form a reasonable belief the
unexpertized portions are not inaccurate or misleading, and (2) with
respect to the expertized portions of the registration statement,
that they relied on the expert (e.g., an auditor) and had no
reasonable grounds to believe the expertized portions were
inaccurate or misleading. Underwriters may also seek to defend
against potential prospectus-based Securities Act Section 12(a)(2)
liability by relying on the comfort letter to show they did not know
and, in the exercise of reasonable care, could not have known of any
misstatement or omission. The degree to which comfort letters help
to establish these defenses depends on the particular facts and
circumstances.
\92\ See PCAOB Auditing Standard 4105, Reviews of Interim
Financial Information; PCAOB Auditing Standard 6101, Letters for
Underwriters and Certain Other Requesting Parties, ] .37 (providing
that, when accountants have not conducted a review in accordance
with AS 4105, they may not comment in the form of negative assurance
and are, therefore, limited to reporting the procedures performed
and findings obtained). See also PCAOB Auditing Standard 4101,
Responsibilities Regarding Filings Under Federal Securities
Statutes. For additional discussion of PCAOB Auditing Standards, see
the discussion of baseline conditions in the economic analysis in
this release, infra notes 188 through 191 and accompanying text.
\93\ See PCAOB Auditing Standard 6101, Letters for Underwriters
and Certain Other Requesting Parties, ] .46 (permitting negative
assurance as to subsequent changes in specified financial statement
items as of a date less than 135 days from the end of the most
recent period for which the accountants have performed an audit or a
review).
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28. Would our proposal have any impact on a semiannual filer's
application of relevant accounting standards to prepare financial
statements in accordance with U.S. GAAP, IFRS, or home-country GAAP?
How? Are any changes to accounting standards, including U.S. GAAP or
IFRS, necessary or appropriate to effectuate semiannual reporting
(e.g., changes to the guidance on annual impairment testing, lag
reporting, earnings per share, or other topics of authoritative
guidance)?
29. Are any changes to rules of securities exchanges necessary or
appropriate to effectuate semiannual reporting?
30. Should we require the second semiannual period financial
information (for semiannual filers) or the fourth quarter financial
information (for quarterly filers) to be included in Form 10-K so
investors do not need to back out this information if companies do not
voluntarily provide it? Would having a longer period (six months for
semiannual reports versus three months for quarterly reports) make it
more difficult for investors to back out this information? Relatedly,
should we require semiannual filers to break out financial statement
information for the six-month period covered by Form 10-S into two
three-month periods and provide similarly broken-out three-month
information for the fiscal year covered by Form 10-K?
31. Many public companies have standalone insider trading policies
or insider trading policies that are part of the company's code of
ethics,\94\ and these policies may provide for trading windows.\95\
What impact would optional semiannual reporting have on company insider
trading policies, including trading windows? For example, would
companies impose longer trading blackout periods at the beginning of a
semiannual period or towards the end of a semiannual period than they
would impose if reporting quarterly? Even if these periods are longer,
would the total number of blackout days be fewer each fiscal year for
semiannual filers compared to quarterly filers given that semiannual
filers would report less frequently? To the extent that there are
longer blackout periods or fewer total blackout period days each year,
what effects would these changes have on semiannual filers? Under our
proposal, semiannual filers are allowed to voluntarily issue quarterly
earnings releases. How would this affect current trading windows
practices, if at all? Where a company elects to be a semiannual filer,
would this be likely to have an effect on trading plans that may be
adopted by companies or insiders (e.g., company directors, officers, or
employees) for purposes of 17 CFR 240.10b5-1 (Exchange Act Rule 10b5-
1)? If so, what are the effects?
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\94\ The regulations found at 17 CFR 229.406 and 17 CFR
229.408(b) require registrants to disclose whether they have adopted
a code of ethics and whether they have adopted an insider trading
policy, respectively, and are both incorporated into Form 10-K. See
Item 10 of Form 10-K. For foreign private issuers, similar
requirements are incorporated into Form 20-F. See Items 16B and 16J
of Form 20-F. The rules of securities exchanges require listed
companies to adopt a code of ethics. See, e.g., NYSE Listed Company
Manual Sec. 303A.10 (Code of Business Conduct and Ethics); Nasdaq
Stock Market Rule 5610.
\95\ Generally, trading windows are periods under company
insider trading policies when there are no blackout periods in
effect and covered persons (such as company directors, employees,
and consultants) are permitted to transact in the securities of the
company if they do not possess material non-public information.
Company policies often use fixed blackout periods to reduce the risk
that covered persons may trade while in possession of material non-
public information at times when it is more likely that a covered
person may possess it. Many company policies impose these fixed
blackout periods that prohibit trading around the close of a fiscal
quarter until after earnings for a fiscal quarter or year are
released. Collectively, these fixed blackout periods can mean that
at many public companies, trading windows each fiscal quarter are
only open for two or three weeks around the middle of that fiscal
quarter. In addition to these fixed blackout periods, companies also
may impose event-specific blackout periods, such as around product
developments or major company transactions.
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32. Would there be an increased risk of insider trading at
companies that elect to report on a semiannual basis? If so, please
provide the basis for this view, as well as data. Could companies
enhance their insider trading policies or improve their self-
enforcement of these policies to help address this concern? What other
actions could companies or the Commission take to mitigate any increase
in the risk of insider trading?
33. How would the proposed flexible approach to semiannual
reporting affect the competitiveness of U.S. reporting companies vis-a-
vis foreign competitors? For Exchange Act reporting foreign companies
that would
[[Page 24982]]
not be foreign private issuers (which report semiannually as discussed
above) and that would report quarterly under the current system, would
the proposed option to report semiannually make these foreign companies
more likely to list on a U.S. exchange? What would be the competitive
implications of the proposed optional semiannual reporting approach
between U.S. reporting companies (which report quarterly under the
current system) and foreign private issuers (which report semiannually
under the current system as a practical matter)? Should there be
different periodic reporting for foreign private issuers compared to
domestic issuers? Why or why not?
34. If the proposal is adopted, what should be the compliance date
for the proposed amendments? If the proposal is adopted, is there a
need for a transition period and, if so, what should be the length of
the period?
B. Proposed Amendments to Regulation S-X
We are proposing amendments to various rules in Regulation S-X that
would incorporate semiannual reporting and simplify the rules with
respect to the age of financial statements. Specifically, the proposed
amendments would:
<bullet> simplify Rule 3-01 and Rule 8-08 by reorganizing each and
consolidating the requirements of Rule 3-12 regarding the age of
financial statements in a registration or proxy statement into the
balance sheet requirements of Rule 3-01;
<bullet> revise the age requirements to incorporate semiannual
reporting through the introduction of a revised model for determining
the age of interim financial statements; and
<bullet> revise other rules in Regulation S-X to incorporate
semiannual reporting.
1. Streamlining Age of Financial Statements Requirements
To simplify our rules and effectuate our proposed optional
semiannual reporting approach, we are proposing amendments to Rules 3-
01 and 8-08 of Regulation S-X so that each amended rule clearly sets
forth the requirements for annual financial statements and interim
financial statements. The proposed amendments would consolidate the
requirements of Rule 3-12 into Rule 3-01 and eliminate Rule 3-12.
Currently, Rule 3-01 governs the date of audited and interim
balance sheets required to be included in filings as of the filing
date.\96\ The requirements for statements of comprehensive income, cash
flows, and changes in stockholders' equity--set out in current 17 CFR
210.3-02 (Rule 3-02 of Regulation S-X) and 17 CFR 210.3-04 (Rule 3-04
of Regulation S-X)--are derived from dates of annual and interim
balance sheets required by Rule 3-01.\97\ While current Rule 3-01
addresses the dates of the balance sheets as of the filing date,
current Rule 3-12 addresses the age of financial statements as of the
effective date of a registration statement or mailing of a proxy
statement.\98\ Notwithstanding this difference, application of the two
rules currently results in age requirements that are aligned: if a
registrant were to apply current Rule 3-01's filing date age
requirements to a registration statement at the date of effectiveness
(or a proxy statement at the mailing date), the resulting financial
statement requirements would be no different than if Rule 3-12 were
applied. Our proposed consolidation of Rules 3-01 and 3-12 would
streamline Regulation S-X, making the age of financial statement
requirements easier to apply. To clarify the dual purpose of Rule 3-01
as proposed to be revised, we are proposing new Rule 3-01(a), which
would provide that the date of the most recent balance sheet included
in a registration or proxy statement must be updated to comply with
that section's requirements as if the effective date of the
registration statement, or proposed mailing date in the case of a proxy
statement, were the filing date.
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\96\ Registered management investment companies apply the
requirements of Rule 3-18 of Regulation S-X instead of Rule 3-01.
Foreign private issuers are not necessarily subject to Rule 3-01.
Rather, they may apply the requirements in Form 20-F. See current
Rules 3-01(g) and (h), which we are proposing to reorder as
paragraphs (h) and (i).
\97\ Rule 3-02 requires that the filing include audited
statements of comprehensive income and cash flows for two or three
fiscal years preceding the date of the most recent audited balance
sheet being filed as well as interim statements for the period
between the latest audited balance sheet and the date of the most
recent interim balance sheet and for the corresponding period of the
preceding fiscal year. Rule 3-04 requires that the filing include an
analysis of changes in stockholders' equity and noncontrolling
interests in the form of a reconciliation of the beginning balance
to the ending balance for each period for which a statement of
comprehensive income is required to be filed.
\98\ The Commission, in connection with the adoption of Rule 3-
12, stated that the rule ensures ``that interim data provided in
registration statements under the Securities Act is at least as
current as the data already filed under the Exchange Act.'' See
Uniform Instructions as to Financial Statements--Regulation S-X,
Release No. 33-6234 (Sept. 2, 1980) [45 FR 63682, 63684 (Sept. 25,
1980)] (``1980 Regulation S-X Adopting Release'').
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Further, we are proposing several amendments to streamline and
reorganize Rule 3-01 as well as integrate Rule 3-12 into Rule 3-01.
<bullet> We are proposing to place the rules regarding annual
balance sheets in Rule 3-01(b). We do not propose any substantive
amendments to the rules regarding annual balance sheets. Proposed Rule
3-01(b) would require audited balance sheets as of the end of the two
most recently completed fiscal years, which would be the same as
current Rule 3-01(a).
<bullet> The current exceptions to current Rule 3-01(a) applicable
to filings other than on Form 10-K would be included in proposed Rules
3-01(b)(1) and (b)(2).
[cir] Proposed Rule 3-01(b)(1), which would be the same as current
Rules 3-01(b) and 3-12(b), would permit that if the filing is made no
more than 45 days after the end of the registrant's fiscal year, the
audited balance sheets may be as of the end of the two fiscal years
preceding the most recently completed fiscal year and must include an
additional balance sheet as of an interim date specified in proposed
paragraph (c)(1), as described further below.
[cir] Proposed Rule 3-01(b)(2), which would be the same as current
Rules 3-01(c) and 3-12(b), would permit that--if the filing is made
more than 45 days but no more than 59 days (for large accelerated
filers, as defined in Sec. 240.12b-2 of this chapter), 74 days (for
accelerated filers, as defined in Sec. 240.12b-2 of this chapter), or
89 days (for all other registrants) after the end of the registrant's
most recently completed fiscal year--so long as three conditions are
met, the registrant may apply proposed paragraph (b)(1), which means
that, in this situation, the audited balance sheets may also be as of
the end of the two fiscal years preceding the most recently completed
fiscal year and the filing must include an additional balance sheet as
of an interim date specified in proposed paragraph (c)(1).\99\ We do
not propose any changes to the three conditions.
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\99\ The three conditions would be set out in proposed Rules 3-
01(b)(2)(i) through (iii) and continue to provide: (i) the
registrant is subject to Exchange Act reporting and has filed all
required reports; (ii) for the most recently completed fiscal year
for which audited financial statements are not yet available, the
registrant reasonably and in good faith expects to report income
attributable to the registrant after income taxes; and (iii) for at
least one of the two fiscal years immediately preceding the most
recently completed fiscal year, the registrant reported income
attributable to the registrant after income taxes.
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<bullet> Proposed Rule 3-01(b)(3), which would be similar to the
second sentence of current Rule 3-01(a), would require the filing of an
audited balance sheet dated as of a date not more than 134 days before
the date of the filing if the
[[Page 24983]]
registrant was not in existence as of the end of its fiscal year.
<bullet> Proposed Rule 3-01(b)(4), which would be the same as Rules
3-01(b) and 3-12(c),\100\ would require that, notwithstanding the
requirements of this section, the filing must be updated with audited
financial statements for the most recently completed fiscal year if
they become available prior to the filing date.
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\100\ While current Rule 3-01(b) does not explicitly state this
requirement as Rule 3-12(c) does and as proposed Rule 3-01(b)(4)
would do, this requirement is implicit in current Rule 3-01(b). We
believe it is clearer to registrants to set this requirement out
explicitly.
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The proposed amendments to Rules 3-01 and 8-08 reflect the
replacement of references to filing dates from the current text of
``within'' a certain number of days after a milestone (e.g., filing
date or end of the fiscal year or quarter) to ``more than'' or ``no
more than'' a certain number of days.\101\ We believe this change will
clarify the filing requirements and ensure alignment of financial
statement updating dates with the Forms 10-K, 10-Q, and 10-S filing
deadlines. A registration or proxy statement filed on the same date a
periodic report is due would be required to include the financial
statements required in that periodic report. We are making similar
clarifying amendments to Exchange Act Rules 13a-13 and 15d-13.
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\101\ See proposed Rule 3-01(b)(1), (2), and (3) and Rule 8-
08(a)(1) and (2). For example, current Rule 3-01(c)(1) references
filings ``made after 45 days but within the number of days of the
end of the registrant's fiscal year specified in paragraph (i) of
this section.'' Instead, proposed rule 3-01(b)(2) references filings
``made more than 45 days but no more than 59 days (for large
accelerated filers, as defined in Sec. 240.12b-2 of this chapter),
74 days (for accelerated filers, as defined in Sec. 240.12b-2 of
this chapter), or 89 days (for all other registrants).''
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We are proposing to place the rules regarding an interim balance
sheet in Rule 3-01(c).
<bullet> Proposed Rule 3-01(c)(1) would require that, when an
audited balance sheet for the most recently completed fiscal year is
not included in the filing, the interim balance sheet must be as of the
end of the third fiscal quarter of the most recently completed fiscal
year for quarterly filers or as of the end of the first fiscal
semiannual period of the most recently completed fiscal year for
semiannual filers. This proposed rule would be similar to current Rule
3-01(b) and Rule 3-12(b), except that it would require a semiannual
filer to file an interim balance sheet as of the end of its semiannual
period.
<bullet> Proposed Rule 3-01(c)(2) would set forth requirements for
an interim balance sheet when an audited balance sheet for the most
recently completed fiscal year is included in the filing. We discuss
proposed Rule 3-01(c)(2)'s requirements for an interim balance sheet
for the current fiscal year in detail in Section III.B.2 below on
determining the age of interim financial statements.
<bullet> Proposed Rule 3-01(c)(3) would be substantively unchanged
from current requirements in Rules 3-01(f) and 3-12(a) and would
provide that an interim balance sheet provided in accordance with
proposed Rule 3-01(c) need not be audited and need not be presented in
greater detail than is required by Sec. 210.10-01.
We are proposing to renumber current Rule 3-01(g), regarding
registered management investment companies, as Rule 3-01(d). Likewise,
we are proposing to renumber current Rule 3-01(h), regarding foreign
private issuers, as Rule 3-01(e)(1). We are proposing to incorporate
current Rule 3-12(f) regarding financial statements of a foreign
business into proposed Rule 3-01(e)(2).
We are proposing to delete current Rule 3-01(d), which requires--
when filings are made after 45 days but within a number of days of the
end of the registrant's fiscal year based on its filer status and the
three conditions in Rule 3-01(c) are not met--that balance sheets for
the two most recently completed fiscal years must be included. We
believe current Rule 3-01(d) is redundant with current Rule 3-01(a) and
is unnecessary to include in Rule 3-01 as proposed to be revised,
because we believe it is clear if the required conditions in current
Rule 3-01(c) are not met, then the registrant must provide the balance
sheet for the two most recently completed fiscal years as required by
current Rule 3-01(a) and as would be required by proposed Rule 3-
01(b)(2).
We do not propose to integrate current Rule 3-12(d) into Rule 3-01
as proposed to be revised, as we believe it would be redundant with
proposed Rule 3-01(b). Current Rule 3-12(d) requires the age of the
registrant's most recent audited financial statements included in a
registration statement filed under the Securities Act or filed on Form
10 under the Exchange Act to be no more than one year and 45 days old
at the date the registration statement becomes effective if the
registration statement relates to the security of an issuer that was
not subject, immediately before the time of filing the registration
statement, to the reporting requirements of Exchange Act Section 13 or
15(d). Because a registrant in this situation would not satisfy the
first of the three conditions in proposed Rule 3-01(b)(2), it would be
required to file an annual balance sheet for the most recently
completed fiscal year, which would be as of a date more current than
one year and 45 days.
Because proposed Rule 3-01 would integrate current Rule 3-12, as
described above, we are proposing to eliminate Rule 3-12. We are also
proposing technical amendments to rules that currently refer to Rule 3-
12 to reflect its integration into Rule 3-01.\102\
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\102\ See proposed amendments to replace references to Rule 3-12
with references to Rule 3-01 in: Instruction 1 to 17 CFR 210.11-
02(c)(3); 17 CFR 210.15-01(c); and 17 CFR 230.485; proposed
amendments to 17 CFR 210.15-01(b) to replace reference to Rule 3-12
with reference to 17 CFR 210.3-20 (Rule 3-20 of Regulation S-X).
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Smaller reporting companies apply Rule 8-08 to determine the age of
financial statements. We are proposing amendments to Rule 8-08 to
conform its organization to proposed Rule 3-01, as described above.
With respect to annual financial statements, we are proposing to
eliminate the introductory text of Rule 8-08 and revise paragraph (a)
to address annual financial statements. Consistent with proposed Rule
3-01(b), proposed paragraph (a) of Rule 8-08 would require a registrant
to file, in filings other than on Form 10-K, audited annual financial
statements for the registrant and its predecessors, as required by Rule
8-02. We are also proposing to move current paragraph (a) to paragraph
(a)(1) of Rule 8-08 and revise the rule to require that if the
effective date of a registration statement or anticipated mailing date
of a proxy statement is no more than 45 days after the end of the most
recently completed fiscal year, the filing may include financial
statements as of the end of the two fiscal years preceding the most
recently completed fiscal year and for the years then ended and must
include interim financial statements, the requirements for which we
propose to move to a revised paragraph (b). We are proposing to move
the requirements in current paragraph (b) of Rule 8-08, that address
the requirements when the effective date of a registration statement or
mailing date of a proxy statement is more than 45 days but not more
than 90 days after the end of the most recently completed fiscal year,
to a new proposed paragraph (a)(2) of Rule 8-08. The proposed
amendments would not change the age of annual financial statements
requirements for a smaller reporting company.
With respect to interim financial statements, we are proposing to
revise paragraph (b) of Rule 8-08 to include the interim financial
statement requirements. Proposed paragraph (b)(1) of Rule 8-08 would
require that, if
[[Page 24984]]
audited financial statements for the most recently completed fiscal
year are not included in the filing, a quarterly filer must file
interim financial statements as of the end of the third fiscal quarter
of the most recently completed fiscal year and for the nine months then
ended and a semiannual filer must file interim financial statements as
of the end of the first fiscal semiannual period of the most recently
completed fiscal year and for the semiannual period then ended.
Proposed paragraph (b)(2) of Rule 8-08 would require that, if audited
financial statements for the most recently completed fiscal year are
included in a filing, the registrant must file interim financial
statements as of the end of the most recently completed fiscal quarter
(for quarterly filers) or semiannual period (for semiannual filers) and
for the year-to-date interim period then ended that has been filed, or
is required to be filed on or before the filing date, in a Form 10-Q or
Form 10-S. A registrant that is not subject to Exchange Act Section
13(a) or 15(d) would apply this rule as if it were required to file
Form 10-Q or Form 10-S.
These proposed interim requirements in Rule 8-08 would replicate
the requirements in proposed Rules 3-01(c)(1) and (2). Proposed
paragraph (b)(3) of Rule 8-08 would require that interim financial
statements must be prepared and presented in accordance with Rule 8-03,
which would replicate proposed Rule 3-01(c)(3).
2. Determining Age of Interim Financial Statements
As noted in Section III.B.1 above, proposed Rule 3-01(c)(2) would
address age requirements for interim financial statements (and proposed
Rule 8-08(b)(2) would address age requirements for smaller reporting
companies). These proposed amendments would revise how the date of an
interim balance sheet is determined in registration or proxy
statements. Currently, Rule 3-01(e) requires that, for filings made
after 129 days or 134 days (depending on filer status) after fiscal
year end, the filing must include a balance sheet as of an interim date
within 130 days or 135 days of the date of filing (depending on filer
status). Rule 3-12 similarly requires that, if the financial statements
in a filing are as of a date 130 days or 135 days (depending on filer
status) or more before the date the filing is expected to become
effective, or the proposed mailing date in the case of a proxy
statement, the financial statements must be updated with a balance
sheet as of an interim date within 130 days or 135 days (depending on
filer status). Rule 8-08 contains a similar age requirement for the
filing of interim financial statements in a registration or proxy
statement.
Under the proposed amendments, a registrant would no longer assess
the number of days from the filing date or from the effective date of
the registration statement (or mailing date of a proxy statement) to
the date of the most recent balance sheet to determine if the balance
sheet falls within 130 days or 135 days, as applicable. Rather, under
the proposed amendments to Rules 3-01(c)(2) and 8-08(b)(2), a
registrant, in determining if interim financial statements are required
when audited financial statements for the most recently completed
fiscal year are included in the filing, would include the interim
financial statements as of the end of the most recently completed
fiscal quarter (for quarterly filers) or semiannual period (for
semiannual filers) that has been filed, or is required to be filed on
or before the filing date, in a Form 10-Q or Form 10-S.\103\ A
registrant that is not subject to Exchange Act Section 13(a) or 15(d)
would apply this rule as if it were required to file Form 10-Q or Form
10-S. In this regard, for a non-reporting company that filed a
registration statement that has not yet become effective, these
provisions of proposed Rules 3-01(c)(2) and 8-08(b)(2) (regarding the
interim financial statements that would have been required in a Form
10-Q or Form 10-S) would mean that the non-reporting company must file
in a registration statement the interim financial statements that would
have been required in periodic reports if that non-reporting company
were an Exchange Act reporting company.\104\ For example, the Form 10-Q
or proposed Form 10-S for a company that is a large accelerated filer
or accelerated filer would be due 40 days after the end of the interim
period (or 45 days for all other registrants). For an interim period
ending on June 30, the Form 10-Q or proposed Form 10-S would be due by
August 10 for a large accelerated or accelerated filer (August 14 for
all other registrants). Under the proposed amendments, a registration
statement filed by a large accelerated or accelerated filer on August
10 (or August 14 for all other registrants) would be required to
include financial statements for the interim period ended June 30.
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\103\ The filing of Form 12b-25 in accordance with 17 CFR
240.12b-25 to provide notification of an inability to timely file a
Form 10-K, 10-S, or 10-Q would not impact when financial statements
are required to be updated in a registration or proxy statement.
\104\ This simplified approach in the proposed rules is similar
to the approach in current Rule 8-08's introductory text, which
requires that financial statements not be less current than the
financial statements that would be required in Forms 10-K and 10-Q
if such reports were required to be filed. In this manner, Rule 8-08
would continue to use this same approach except, in connection with
our proposed revisions of Rule 8-08, the introductory text would be
eliminated and this requirement would be found in Rule 8-08(b)(2).
Current Rule 3-01 does not use this approach, so the proposed
revisions to Rule 3-01 would differ compared to that current rule
and instead employ the approach currently found in Rule 8-08.
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We are proposing this change to simplify the updating requirements
in current rules and to align the date upon which the interim financial
statements of a quarterly filer's second quarter would be required to
be updated with that of a semiannual filer's first semiannual period.
In this regard, with respect to semiannual filers, if we were to simply
add 90 days to the existing 135-day window, based on the application of
current Rule 3-12 of Regulation S-X, the date upon which a semiannual
filer would have to update its interim financial statements for the
semiannual financial statements could differ by one or two days
compared to the date upon which a quarterly filer would have to update
its second quarter financial statements.\105\ The proposed amendments
to Rule 3-01(c)(2) and 8-08(b)(2) would avoid disparate treatment
between semiannual filers and quarterly filers with respect to the age
of the interim financial statements requirements.
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\105\ For example, a quarterly filer with a February 28 fiscal
year would be required to update a registration statement with
interim financial statements as of the end of the second quarter of
August 31 on October 13 (or 135 days from the end of the first
quarter of May 31). If we were to instead add 90 days to the 135-day
interval, then a semiannual filer with the same February 28 fiscal
year end would be required to update a registration statement with
semiannual financial statements as of October 11 (or 225 days from
the Feb 28 fiscal year end), two days earlier than October 13 for
the quarterly filer.
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The 1980 Regulation S-X Adopting Release stated that Rule 3-12
would result in requirements for the age of financial statements in
registration statements that ``correspond with the requirements for
quarterly data under the 1934 Act on Form 10-Q.'' \106\ While the
requirements correspond, they are not identical: Rule 3-12 requires
updated financial statements to be as of a date within 130 days or 135
days of effectiveness (depending on filer status); while a Form 10-Q is
due 40 days or 45 days after the end of the fiscal quarter (depending
on filer status). As a result of this difference, under current rules,
the financial statements in a registration statement or proxy statement
may be
[[Page 24985]]
required to be updated one or two days before those same financial
statements are required to be filed on Form 10-Q. Such a difference
results from the number of days in a quarter that exceeds 90 days.\107\
Our proposed rule would align the financial statement age requirements
of registration statements (and proxy statements) with the filing
deadlines of Form 10-Q and Form 10-S, eliminating such one- or two-day
differences. Proposed Rule 3-01(c)(2) results in both quarterly filers
and semiannual filers having the same date on which the financial
statements would be required to be updated because both filers would
determine the date from the end of their most recently completed
interim period as opposed to, for example, the quarterly filer's
determination being from the end of the first quarter and the
semiannual filer's determination being from the end of the fiscal year.
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\106\ 1980 Regulation S-X Adopting Release, at 63685.
\107\ For example, assume a calendar year registrant that is a
non-accelerated filer that files a registration statement on August
13. The second quarter Form 10-Q would be due on August 14. However,
a registration statement filed on August 13 would require updated
financial statements, for the quarter ended June 30, in order to
comply with current Rule 3-12. This difference of one day between
August 14 and August 13 is due to April, May, and June containing 91
days instead of the 90-day quarterly period implicit in the 135
days.
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Under the proposed amendments to Rule 3-01(c), the interim
financial statement period required in a registration or proxy
statement would be as of the end of a registrant's fiscal quarterly or
semiannual period, as applicable. This would differ from current Rule
3-12, which permits interim financial statements as of any date so long
as they cover a period within the prescribed number of days from the
date of effectiveness or mailing date. We observe that virtually all
registrants file interim financial statements as of the end of a
quarter, since those financial statements would be filed in future
Exchange Act reports on Form 10-Q. Further, registrants who wish to
file interim financial statements as of a date that does not align with
a quarterly or semiannual period may request a substitution of
financial statements under 17 CFR 210.3-13 (Rule 3-13 of Regulation S-
X). As a result, we do not expect that this aspect of the proposed
amendments would result in any change in today's practice.\108\
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\108\ The proposed amendments would not have any effect on the
accommodations available for issuers that submit draft registration
statements for nonpublic review.
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When interim financial statements for a semiannual filer are
required in a registration or proxy statement, proposed Rule 3-01(c)(2)
would require those interim financial statements to be for a semiannual
period. Under the proposed rules, depending on when the registration
statement becomes effective or the proxy statement is mailed, an
investor in a registrant that is a semiannual filer may not receive
interim financial statements that are as current as would be required
today. For example, if a non-reporting registrant with a calendar
fiscal year that elects semiannual reporting files a registration
statement as late as August 13, proposed Rule 3-01(c)(2) would not
require any interim financial statements to be included in the
registration statement. In contrast, under the current requirements and
under the proposal for those registrants that continue to report
quarterly, the filing would include interim financial statements for
the first fiscal quarter. As discussed in Section I, we are proposing
these amendments that may result in less current interim financial
statements in a registration statement to reduce regulatory burden and
align the requirements for updating interim financial statements with
the requirements for periodic reporting under the Exchange Act,
including the proposed semiannual reporting option.
3. Other Proposed Amendments to Regulation S-X
We are proposing amendments to Rules 10-01 and 8-03 of Regulation
S-X to reflect that registrants would have the option to report
semiannually on Form 10-S. Specifically, we are proposing to amend
Rules 10-01(c) and 8-03 to clarify that ``interim'' for quarterly
filers represents a fiscal quarterly period (except when the rule
addresses a year-to-date interim period) and that ``interim'' for
semiannual filers represents a fiscal semiannual period. To facilitate
these changes, the proposed revisions to Rules 10-01 and 8-03 would
refer to the new proposed definitions of quarterly filer and semiannual
filer discussed above.
Under the proposed amendments to Rule 10-01, where required, a
semiannual filer would provide an interim balance sheet as of the end
of the first semiannual period and a balance sheet as of the end of the
preceding fiscal year. A balance sheet as of the end of the first
semiannual period from the preceding fiscal year would not be required
unless necessary for an understanding of the impact of seasonal
fluctuations on the registrant's financial condition. Under the
proposed amendments to Rule 10-01, where required, a semiannual filer
would provide interim statements of comprehensive income and cash flows
for the first semiannual period and the corresponding period of the
preceding fiscal year; a semiannual filer would also have the option to
present these statements for the cumulative twelve-month period ending
as of the end of the semiannual period.\109\
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\109\ We are also proposing technical amendments to Rules 10-
01(c)(2) through (4) to change ``twelve month period ended during .
. .'' to ``twelve-month period ending as of the end of . . .''
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Under the proposed amendments to Rule 8-03,\110\ where required, a
semiannual filer would provide in Form 10-S a balance sheet as of the
end of the issuer's first semiannual period, a balance sheet as of the
end of the preceding fiscal year, and statements of comprehensive
income and statements of cash flows for the interim period up to the
date of the interim balance sheet date and the comparable period of the
preceding fiscal year.
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\110\ For Rule 8-03, we are proposing to renumber the
introductory text as paragraph (a), renumber paragraph (a) as
paragraph (b), and renumber paragraph (b) as paragraph (c).
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We are also proposing related technical amendments to Rules 10-
01(b)(6), 10-01(d), and 8-03(b)(5) (which as renumbered would become 8-
03(c)(5)) to indicate that the rules apply to Form 10-S, in addition to
Form 10-Q. We are proposing amendments to Rules 8-03(a)(5) (which as
renumbered would become Rule 8-03(b)(5)) and 10-01(a)(7) to change
``interim'' to ``quarterly'' and clarify that the requirement to
disclose subtotals in the statement of changes in stockholders' equity
for each quarterly period applies only to quarterly filers. We are
proposing to relocate current Instruction 1 to Rule 8-03, which
requires that statements of comprehensive income for the most recent
quarter and the comparable quarter of the preceding fiscal year be
provided when the year-to-date interim period is more than one quarter,
to Rule 8-03(a)(2) to enhance its prominence.
Lastly, we are proposing a technical amendment to reinsert
Instruction 2 to Rule 8-03 concerning management adjustments to
financial statements that was inadvertently deleted in a 2018 adopting
release, except this provision would be reinserted as paragraph (c)(2)
of Rule 8-03.\111\
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\111\ Disclosure Update and Simplification, Release No 34-83875
(Aug. 17, 2018) [83 FR 50148 Oct. 4, 2018)] (adopting amendments to
Rule 8-03, including to Instruction 1, and indicating through the
use of five asterisks at the end of Instruction 1 that Instruction 2
was not amended).
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Request for Comment
35. Should the Commission adopt the proposed amendments to
Regulation S-X to effectuate semiannual reporting? Are there any other
changes beyond
[[Page 24986]]
those proposed that the Commission should make to Regulation S-X to
effectuate semiannual reporting?
36. In connection with registration and proxy statements, are the
proposed changes to Regulation S-X necessary to take into account
semiannual reporting? If the proposed changes to Regulation S-X were
not made and the relevant rules remained structured around quarterly
reporting, would this have a negative impact on semiannual filers
seeking to raise capital or solicit proxies?
37. What impact would the proposal have on the ability of
semiannual filers to conduct public offerings? Would reporting
companies that elect to become semiannual filers nonetheless decide to
include quarterly or more recent financial information in Securities
Act registration statements or prospectuses based on market practices
or liability concerns and, if so, would that reduce the cost savings
that would otherwise be generated by less frequent interim reporting?
For example, would semiannual filers continue to retain independent
public accountants to review their financial statements on a quarterly
basis to facilitate capital-raising by the company in offerings
registered under the Securities Act?
38. Should we change how the age of financial statements in a
registration statement is determined in order to precisely align with
the deadlines of Exchange Act reporting requirements as proposed? Would
our proposed changes to consolidate Rule 3-12 into Rule 3-01 help to
streamline Regulation S-X's requirements so that they are easier for
registrants to apply?
39. Should we have the deadlines that apply at the time of filing
and that apply at the time of effectiveness (for registration
statements) or mailing (for proxy statements) centrally located in the
same rule as we propose? Why or why not? With respect to this dual role
the revised Rule 3-01 would serve, does new paragraph (a) make clear to
registrants that--in considering what age requirements apply with
respect to effectiveness or mailing--they should substitute
effectiveness or mailing dates for the filing dates explicitly
mentioned in the rule?
40. Instead of the amendments we propose, should we retain the
current 135-day age requirement for quarterly filers and adopt a 225-
day age requirement for semiannual filers--even if that means
semiannual filers may have to update one or two days sooner than
quarterly filers? \112\ Why or why not?
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\112\ See supra note 107 and accompanying text (providing an
example of a one-day difference).
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41. As discussed above, the proposed elimination of the 135-day
provisions of the current rules would mean that registrants could no
longer provide a mid-period dated financial statement but would need to
provide financial statements that coincide with fiscal interim period
ends or annual fiscal year end. Are there any registrants who employ
the 135-day provision to provide mid-period financial statements today?
If so, why and under what circumstances do registrants do this? Does
providing this ability for some registrants justify the added
complexity these provisions may create for other registrants?
42. Are there any other changes needed to simplify the age of
financial statement requirements? Are there any other changes we should
make to reduce the compliance burdens associated with Regulation S-X's
requirements in connection with proposed optional semiannual reporting?
43. Should we adopt changes to Rule 10-01 and Rule 8-03 regarding
the contents of interim financial statements as proposed? Do the
proposed amendments appropriately incorporate the reporting of
semiannual periods on Form 10-S without changing how the interim
financial statement rules apply to a registrant reporting on Form 10-Q?
44. When a registrant acquires a significant business, financial
statements of that business are required to be filed on Form 8-K and
must comply with the age requirements of Rule 3-01 at the date the
initial Form 8-K reporting the acquisition is filed. Depending on the
timing of the acquisition, pre-acquisition interim financial
information for upwards of six to nine months may never be required to
be filed by semiannual filers. Should we require other financial
information (e.g., summarized financial information) to inform
investors of pre-acquisition results of operations, financial
condition, and cash flows of the acquiree beyond the information that
would be required under Rule 3-01 as proposed to be amended?
C. Proposed Amendments Regarding Transition Reports
We are proposing amendments to Exchange Act Rules 13a-10 and 15d-
10, which set forth the Commission's requirements with respect to
transition reports upon a change in fiscal year, to incorporate the
proposed semiannual reporting option. Specifically, we are proposing to
amend Rule 13a-10(e) and Rule 15d-10(e) to place the requirements
applicable to quarterly filers, which are unchanged, in a new
subparagraph (1) and place the requirements applicable to semiannual
filers in a new subparagraph (2). New proposed Rule 13a-10(e)(2)) and
Rule 15d-10(e)(2) for semiannual filers would mirror the rules
applicable to quarterly filers.
We do not propose to replicate current Rule 13a-10(e)(4), which
addresses the reporting of a ``gap period'' by quarterly filers who
change their fiscal year closing date. A ``gap period'' is the period
of one or two months between the latest quarter end under the old
fiscal year and the start of the quarterly reporting period under the
new fiscal year. Because such a ``gap period'' would not arise due to a
change in fiscal year by a semiannual filer, we are not proposing an
analog for semiannual filers.
We are also proposing related technical changes to Rules 13a-10 and
15d-10 to indicate that the relevant rules apply to Form 10-S in
addition to Form 10-Q.\113\
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\113\ See proposed amendments to Rule 13a-10(c), Rule 13a-
10(d)(2)(ii), Rule 13a-10(d)(2)(iii), Note to Rule 13a-10(c) and
(e), Rule 13a-10(f), Rule 13a-10(j)(2), Rule 15d-10(c), Rule 15d-
10(d)(2)(ii) and (iii), Note to Rule 15d-10(c) and (e), and Rule
15d-10(f).
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Request for Comment
45. Should the Commission make any other changes to transition
reports under Rules 13a-10 and 15d-10 to effectuate semiannual
reporting?
D. Proposed Technical Amendments
We are proposing a number of technical amendments to conform
existing rules and forms to the proposed flexible approach to interim
reporting by inserting references to semiannual reporting or new Form
10-S and to make corrective deletions of references to previously
rescinded forms. These proposed amendments include:
<bullet> changes to several items in Regulation S-K,\114\ an item
in
[[Page 24987]]
Regulation M-A,\115\ and several proxy rules; \116\
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\114\ 17 CFR 229.10 (General); 17 CFR 229.101 (Description of
business); 17 CFR 229.103 (Legal proceedings); 17 CFR 229.201
(Market price of and dividends on the registrant's common equity and
related stockholder matters); 17 CFR 229.302 (Supplementary
financial information); 17 CFR 229.303 (Management's discussion and
analysis of financial condition and results of operations); 17 CFR
229.308 (Internal control over financial reporting); 17 CFR 229.402
(Executive compensation); 17 CFR 229.407 (Corporate governance); 17
CFR 229.408 (Insider trading arrangements and policies); 17 CFR
229.601 (Exhibits); 17 CFR 229.701 (Recent sales of unregistered
securities; use of proceeds from registered securities); 17 CFR
229.1100 (General).
\115\ 17 CFR 229.1010 (Financial statements).
\116\ 17 CFR 240.14a-5 (Presentation of information in proxy
statement); 17 CFR 240.14a-8 (Shareholder proposals); 17 CFR
240.14a-101 (Schedule 14A. Information required in proxy statement).
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<bullet> changes to rules regarding determination of market
capitalization, among other things,\117\ and rules providing
definitions; \118\ and
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\117\ 17 CFR 240.3a55-1 (Method for determining market
capitalization and dollar value of average daily trading volume;
application of the definition of narrow-based security index).
\118\ 17 CFR 230.158 (Definitions of certain terms in the last
paragraph of section 11(a)); 17 CFR 230.405 (Definitions of terms);
17 CFR 232.11 (Definition of terms used in this part).
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<bullet> changes to rules regarding research reports,\119\
underwriter status,\120\ and liability under the securities laws.\121\
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\119\ 17 CFR 230.138 (Publications or distributions of research
reports by brokers or dealers about securities other than those they
are distributing); 17 CFR 230.139 (Publications or distributions of
research reports by brokers or dealers distributing securities); 17
CFR 230.139b (Publications or distributions of covered investment
fund research reports by brokers or dealers distributing
securities).
\120\ 17 CFR 230.144 (Persons deemed not to be engaged in a
distribution and therefore not underwriters).
\121\ 17 CFR 230.175 (Liability for certain statements by
issuers); 17 CFR 240.3b-6 (Liability for certain statements by
issuers); 17 CFR 240.10b5-1 (Trading ``on the basis of'' material
nonpublic information in insider trading cases); 17 CFR 260.0-11
(Liability for certain statements by issuers).
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We are proposing the same types of technical amendments to rules
related to several aspects of the process of filing forms and schedules
with the Commission regarding incorporation by reference; \122\ data
tagging; \123\ definitions; \124\ late filing; \125\ certifications;
\126\ disclosure controls and internal control over financial
reporting; \127\ foreign private issuers; \128\ and beneficial
ownership schedules.\129\ We are also proposing such technical
amendments to a rule regarding Office of Management and Budget
(``OMB'') control numbers.\130\ Finally, we are proposing such
technical amendments to several Commission forms.\131\
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\122\ 17 CFR 232.303 (Incorporation by reference).
\123\ 17 CFR 232.405 (Interactive Data File submissions); 17 CFR
232.406 (Cover Page XBRL Data Tagging).
\124\ 17 CFR 240.12b-2 (Definitions).
\125\ 17 CFR 240.12b-25 (Notification of inability to timely
file all or any required portion of a Form 10-K, 20-F, 11-K, N-CEN,
N-CSR, 10-Q, or 10-D).
\126\ 17 CFR 240.13a-14 (Certification of disclosure in annual
and quarterly reports); 17 CFR 240.15d-14 (Certification of
disclosure in annual and quarterly reports).
\127\ 17 CFR 240.13a-15 (Controls and procedures); 17 CFR
240.15d-15 (Controls and procedures).
\128\ 17 CFR 240.13a-16 (Reports of foreign private issuers on
Form 6-K (17 CFR 249.306)); 17 CFR 240.15d-16 ((Reports of foreign
private issuers on Form 6-K (17 CFR 249.306)).
\129\ 17 CFR 240.13d-1 (Filing of Schedules 13D and 13G).
\130\ 17 CFR 200.800 (OMB control numbers assigned pursuant to
the Paperwork Reduction Act).
\131\ 17 CFR 239.11 (Form S-1); 17 CFR 239.13 (Form S-3); 17 CFR
239.18 (Form S-11); 17 CFR 239.25 (Form S-4); 17 CFR 239.31 (Form F-
1); 17 CFR 239.33 (Form F-3); 17 CFR 239.34 (Form F-4); 17 CFR
239.40 (Form F-10); 17 CFR 249.306 (Form 6-K); 17 CFR 249.308 (Form
8-K); 17 CFR 249.310 (Form 10-K); 17 CFR 249.322 (Form 12b-25--
Notification of late filing).
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Request for Comment
46. Should the Commission make any other technical, conforming,
clarifying, or implementing changes to effectuate semiannual reporting?
47. We are not proposing any technical amendments to references to
``quarter'' in Forms F-8 and F-80 (related to the calculation of U.S.
holders), because companies that use those forms are foreign private
issuers, which do not report quarterly currently. Is there any need for
technical amendments to those forms to include references to semiannual
reporting?
E. General Request for Comment
We request and encourage any interested person to submit comments
on any aspect of our proposal, other matters that might have an impact
on the proposed amendments, and any suggestions for additional changes.
With respect to any comments, we note that they are of greatest
assistance to our rulemaking initiative if accompanied by supporting
data and analysis of the issues addressed in those comments and by
alternatives to our proposal where appropriate.
IV. Other Matters
This proposing release is an economically significant regulatory
action under Section 3(f)(1) of Executive Order 12866, as amended, and
has been reviewed by OMB. This action, if finalized as proposed, is
expected to be an Executive Order 14192 deregulatory action.
V. Economic Analysis
We are attentive to the costs that would be imposed by and the
benefits that would be obtained from the proposed amendments.\132\ The
discussion below addresses the potential economic effects of the
proposed amendments, including the likely benefits and costs, as well
as the likely effects on efficiency, competition, and capital
formation. We also analyze the potential costs and benefits of
reasonable alternatives to the amendments.
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\132\ Securities Act Section 2(b) and Exchange Act Section 3(f)
require us, when engaging in rulemaking that requires us to consider
or determine whether an action is necessary or appropriate in the
public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition,
and capital formation. 15 U.S.C. 77b(b), 78c(f). Exchange Act
Section 23(a)(2) requires us, when making rules under the Exchange
Act, to consider the impact that the rules would have on competition
and prohibits the Commission from adopting any rules that would
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act. 15 U.S.C.
78w(a)(2).
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A. Introduction
As discussed in Section III, the proposed amendments would provide
companies subject to reporting obligations under Exchange Act Section
13(a) or 15(d) with the option of filing interim reports on a
semiannual basis rather than on a quarterly basis. This flexibility
would allow reporting companies to choose the reporting frequency that
best aligns with their business needs and investor expectations.
Currently, Exchange Act reporting companies must file quarterly
reports on Form 10-Q. These interim reports can be costly to prepare
and provide. Reporting companies dedicate time and resources for
preparing quarterly reports and associated voluntary disclosures (i.e.,
earnings announcements and management guidance), for independent public
accountant's reviews of quarterly financial statements, and for related
investor engagements such as earnings conference calls. Further, more
frequent disclosure increases the risk of disclosing proprietary
information that could benefit competitors to the detriment of the
reporting company.\133\ Reporting companies that reduce their reporting
frequency could potentially redirect resources towards strategic
priorities and other business needs while reducing the risk of
disclosing proprietary information.
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\133\ The proposed amendments would not change what is required
to be disclosed in the interim reports, simply the frequency. The
impact of the proposed rules on the disclosure of proprietary
information would be limited to instances where delaying
competitively sensitive information contained in the interim reports
or aggregating quarterly information into semiannual information
decreases the value of the information to competitors.
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Conversely, the efficiency of financial markets rests on material
information becoming public in a timely fashion. In addition to
protecting investors, greater availability of material information
allows securities prices to better reflect their issuers' fundamental
value and ultimately promotes capital formation as issuers have access
to lower cost of capital and investors in those issuers' securities
have access to higher liquidity, as discussed in detail below. A
reduction in the frequency of interim reporting could result in delayed
disclosure of material information,
[[Page 24988]]
reduced comparability, and some lost information. Therefore, there
exists a tradeoff between reducing regulatory burdens so that reporting
companies can reallocate their resources to potentially more value
enhancing activities, which would ultimately benefit investors, and
promoting efficient financial markets through timely disclosure. The
optimal reporting frequency may differ across reporting companies and
industries, depending on their size, business model, investor base, and
other factors. Under the proposed rules, reporting companies could
choose the frequency of reporting that best fits their circumstances.
This flexibility is intended to allow reporting companies to make firm-
specific choices that reflect the unique needs and preferences of their
investors. Barring significant agency costs, this could lead to a more
efficient, firm specific choice for reporting frequency that would
benefit both issuers and investors.
Reporting companies that would choose to report on a semiannual
basis could also decide whether to supplement with voluntary
information on a quarterly basis. For instance, these companies may
still voluntarily provide earnings announcements or similar disclosures
during the first or third quarter or both.\134\ Reporting companies
that would be impacted by the proposed rules would fall into three
broad groups: (1) companies that would file a Form 10-S semiannual
report and choose not to voluntarily provide information for the first
and third quarters; (2) companies that would continue to file Form 10-Q
quarterly reports; and (3) companies that would file a Form 10-S
semiannual report and choose to voluntarily provide information for the
first or third quarter or both.\135\ For purposes of our analyses, we
discuss these groups separately and refer to the first group of issuers
as semiannual reporters, the second group of issuers as quarterly
reporters, and the third group of issuers as hybrid reporters.
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\134\ See supra note 61 and accompanying text for a discussion
of quarterly earnings releases and the fact that there is no
requirement that they be reviewed by an independent public
accountant or prepared in accordance with U.S. GAAP, among other
regulatory requirements that apply to quarterly reports filed with
the Commission on Form 10-Q.
\135\ There is a wide range of information that these issuers
could choose to disclose voluntarily for the first or third quarter
or both. The economic effects of the proposed rules would therefore
vary based on the amount of information these issuers provide and
the costs of producing this information. Specifically, both the
benefits and costs for an issuer would generally be reduced as more
information is voluntarily disclosed.
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Overall, the impact of the proposed rules would depend on the
number and type of reporting companies that decide to provide interim
reports on a semiannual basis instead of a quarterly basis and the
extent to which those companies supplement with voluntary disclosure.
Because the decision to switch reporting frequency is voluntary and
firm-specific, the aggregate effects will reflect a range of company
and investor preferences. While we are unable to quantify the number of
companies that would switch to semiannual reporting, we discuss factors
that likely would influence reporting frequency decisions in Section
V.D.4 below.
B. Broad Economic Considerations
This section summarizes a number of broad economic considerations
regarding the frequency of periodic disclosures to provide context for
the more detailed analysis of potential outcomes and the associated
economic costs and benefits that follow.
The production of financial reports and disclosures on a periodic
basis is a significant undertaking by reporting companies, involving
internal staff time as well as the use of external service providers
and requiring the attention of management. Additional voluntary efforts
to engage with investors on some or all of the content of the
disclosures, such as through earnings releases and conference
calls,\136\ may increase the burden of periodic reporting on company
resources and, in particular, on management time. Periodic disclosures
may also affect a company's value by increasing proprietary costs of
revealing information that has competitive value to rival
companies.\137\ Reducing the frequency of periodic disclosures can, for
some companies, provide savings of time and cash flow for other
purposes. For companies that face financing constraints or limited
managerial capacity, such savings may be directed to potentially more
productive uses, such as strategic planning or capital investments. In
other cases, savings may be returned to shareholders. A reduced burden
of periodic disclosures on reporting issuers could also be a positive
factor in encouraging additional companies to raise capital through
registered securities offerings or to become or remain a public
company.\138\
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\136\ These disclosures generally exist because of the interim
reports. While the proposed rules would not directly impact such
voluntary disclosure, the proposed rules would have an indirect
impact, at least to the extent that semiannual filers would forgo
providing such voluntary disclosure for quarters for which they
would no longer file interim reports.
\137\ See, e.g., Robert E. Verrecchia, Discretionary Disclosure,
5 J. Acct. & Econ. 179 (1983) (showing, theoretically, how
proprietary costs can result in a manager withholding information
when disclosure is discretionary).
\138\ Studies have found that costs associated with mandated
reporting may affect companies' going public decision as well as the
decision to exit public markets. For example, there is some evidence
of favorable effects of emerging growth company accommodations on
IPO activity, see, e.g., Michael Dambra et al., The JOBS Act and IPO
Volume: Evidence that Disclosure Costs Affect the IPO Decision, 116
J. Fin. Econ. 121 (2015). There is also evidence suggesting that
costs associated with the Sarbanes-Oxley Act regulations encouraged
companies to exit U.S. public stock markets. See, e.g., Francesco
Bova et al., The Sarbanes-Oxley Act and Exit Strategies of Private
Firms, 31 Contemp. Acct. Rsch. 818 (2014) (finding that ``SOX
appears to have shifted the preferences of private firms from going
public to exiting the private market via acquisition by a public
acquirer''); Ellen Engel et al., The Sarbanes-Oxley Act and Firms'
Going-Private Decisions, 44 J. Acct. & Econ. 116 (2007) (finding
that ``the quarterly frequency of going-private transactions has
increased after the passage of SOX''); Christian Leuz et al., Why do
Firms Go Dark? Causes and Economic Consequences of Voluntary SEC
Deregistrations, 45 J. Acct. & Econ. 181 (2008), (``document[ing] a
spike in going dark that is largely attributable to the Sarbanes-
Oxley Act. Firms experience large negative abnormal returns when
going dark. We find that many firms go dark due to poor future
prospects, distress and increased compliance costs after SOX'').
While savings associated with the proposed amendments may be one
factor in a company's decision to go public (or to stay public), we
also acknowledge that non-regulatory factors may play a more
significant role in driving initial public offering activity. Some
academic research has found that regulatory costs have likely played
only a limited role in the decrease in the number of public
companies in the U.S. after the 1990s. See, e.g., Michael Ewens et
al., Regulatory Costs of Being Public: Evidence from Bunching
Estimation, 153 J. Fin. Econ. 103775 (2024) (estimating that
regulatory costs may explain about 7% of the decline in the
likelihood of initial public offerings after 2000, and stating that
non-regulatory factors, such as abundant private equity financing,
changing economies of scale and scope, and changing acquisition
behavior, are likely to have played a more important role); Xiaohui
Gao et al., Where Have All the IPOs Gone? 48 J. Fin. & Quantitative
Econ. 1663 (2013) (documenting various patterns in initial public
offering activity, small firm profitability, mergers and
acquisitions activity, and other trends that the authors find to be
inconsistent with a regulatory costs explanation for the decline in
initial public offerings after 2000 but consistent with increases in
the importance of economies of scope over time).
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On the other hand, reducing the frequency of periodic disclosures
may delay the public disclosure of material information about a
company. Such decreased transparency may make it more difficult for
investors to make well-informed decisions and may increase the expected
return (i.e., the cost of capital) that they demand for holding a
company's securities. In particular, less frequent disclosures may
result in a higher cost of capital if investors receive less precise
information about a company's cash flows and how they covary with other
companies' cash flows \139\ and/or if there
[[Page 24989]]
is an increased risk of information asymmetry across investors as a
result of the increased time gaps between public disclosures.\140\ A
higher cost of capital, in turn, may discourage companies from raising
funds for new investments.
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\139\ See, e.g., Richard Lambert et al., Accounting Information,
Disclosure, and the Cost of Capital, 45 J. Acct. Rsch. 385 (2007)
(``Lambert et al. 2007 Study'') (finding that higher quality
disclosures reduce investors' assessed covariances of the firm's
cash flows with other firms' cash flows, thereby reducing the
proportion of non-diversifiable risk in these cash flows and,
thereby, the firm's cost of capital); Puneet Handa & Scott C. Linn,
Arbitrage Pricing with Estimation Risk, 28 J. Fin. & Quantitative
Analysis 81 (1993) (finding that assets for which a greater amount
of information is available should, ceteris paribus, trade at higher
prices, i.e., reflect a lower cost of capital, due to the reduction
in estimation risk borne by investors); Xiaofei Zhao, Does
Information Intensity Matter for Stock Returns? Evidence from Form
8-K Filings, 63 Mgmt. Sci. 1382 (2017) (finding that a greater
frequency of current reports on Form 8-K is associated with a lower
cost of capital and attributing this reduced return demanded by
investors to reduced uncertainty). The Lambert et al. 2007 Study
also identifies indirect effects on the cost of capital to the
extent that the quality of disclosures affect decisions made by
management, which in turn affect the distribution (and covariances)
of the issuer's cash flows.
\140\ See, e.g., Douglas W. Diamond & Robert E. Verrecchia,
Disclosure, Liquidity, and the Cost of Capital, 46 J. Fin. 1325
(1991); David Easley & Maureen O'Hara, Information and the Cost of
Capital, 59 J. Fin. 1553 (2004). These articles, however, also
describe limited theoretical circumstances under which greater
disclosure could lead to a higher cost of capital, such as in the
case where public disclosures are so extensive that they reduce
incentives for market making.
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It is unclear what frequency of periodic reporting would strike the
best balance between the potential benefits related to lower company
reporting burdens and reduced disclosure of competitive sensitive
information on the one hand, and the potential costs related to a
reduction or delay of information to investors on the other hand, and
such an optimal frequency may vary across issuers. Fundamentally, in a
discounted cash flow valuation framework, both the savings from reduced
reporting costs and potential productivity gains from reallocating
managerial and other resources would have a positive effect on an
issuer's valuation by increasing the expected cash flows it is able to
generate from its business and new investments. In contrast, any
resulting increase in the cost of capital would negatively affect the
valuation by increasing the discount factor that would apply to produce
the total value investors are willing to place on those expected cash
flows today.
Allowing issuers to choose their own frequency of interim reporting
would mitigate some of the risk of a suboptimal tradeoff between the
opposing economic effects discussed above by allowing individual
issuers to weigh which effects are likely to dominate in their unique
situation. An issuer whose quarterly reports would not tend to reflect
any material changes beyond those already made public in current
reports may determine that the costs of producing quarterly reports
would outweigh the benefit of providing these reports to investors and
thus choose to report semiannually. For example, commenters have noted
that pre-revenue biotechnology companies' securities may trade more
based on the outcome of clinical developments and regulatory events
than their quarterly financial reporting.\141\ Conversely, companies in
other industries or with different investor bases may find that more
frequent reporting better serves their needs. Issuers can best estimate
their own costs of more frequent reporting and should be incentivized
to evaluate the impact of more frequent reporting on investors and
other market participants. For instance, if investors demand more
frequent interim reporting and issuers fail to meet that demand, the
issuers could experience negative market effects such as higher cost of
capital or lower liquidity.\142\ Under the proposed optional semiannual
reporting approach, individual issuers would be able to make a more
tailored trade-off between the costs and the benefits of reporting
frequency for interim reports, which they do not have the ability to do
under the current system of mandated quarterly reporting. Because
issuers are incentivized to consider how their frequency of interim
reports would impact investors, having the option to choose between
quarterly reporting and semiannual reporting could lead to a more
optimal reporting frequency for both the issuers and investors.
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\141\ See supra note 53. See also letter from Davis Polk &
Wardwell LLP (Mar. 21, 2019) (``Davis Polk 2019'').
\142\ See supra notes 139 and 140 (all sources).
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That said, there are various reasons why issuers may be likely to
provide less disclosure when given optionality in their reporting
frequency than would be optimal for investors and the market as a
whole. For example, there is substantial literature discussing
circumstances in which the incentives of managers are not perfectly
aligned with those of their shareholders.\143\ There may also be
numerous additional costs and benefits for investors and issuers
associated with the frequency of periodic reporting and also associated
with any variation in this frequency across issuers, many of which may
not be fully accounted for by managers when making these tradeoffs for
a particular issuer.
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\143\ See, e.g., Michael C. Jensen & William H. Meckling, Theory
of the Firm: Managerial Behavior, Agency Costs and Ownership
Structure, 3 J. Fin. Econ. 305 (1976). More specifically, career
concerns or certain compensation arrangements may incentivize
managers to conceal bad news, particularly when facing limited
litigation risk. See, e.g., S.P. Kothari, et al., Do Managers
Withhold Bad News? 47 J. Acct. Rsch. 241 (2009); Iv[aacute]n
Marinovic & Felipe Varas, No News is Good News: Voluntary Disclosure
in the Face of Litigation, 47 Rand J. Econ. 822 (2016).
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For example, researchers have found that longer gaps between issuer
disclosures increase information asymmetry between investors, because
some investors are more able than others to access or process
information from alternative, often third-party, channels that provide
indirect insight into an issuer's financial status or performance.\144\
Recent advancements in alternative data collection, surveillance, and
data processing technologies may exacerbate such information
asymmetry.\145\ Information asymmetry, in turn, is associated with
reduced liquidity and increased transactions costs for investors.\146\
Widespread information asymmetry can also diminish perceptions of
fairness, which can erode trust in markets and reduce capital market
participation.\147\ To the extent these potential negative
externalities borne by market participants from increased information
asymmetry may not be fully internalized
[[Page 24990]]
by individual companies when choosing semiannual reporting under the
proposed amendments, it could result in less disclosure than optimal
for the market.
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\144\ See, e.g., Robert Stoumbos, The Growth of Information
Asymmetry Between Earnings Announcements and Its Implications for
Reporting Frequency, 69 Mgmt. Sci. 1901 (2023) (``Robert Stoumbos
2023'') (finding that information asymmetry grows steadily between
earnings announcements, until a new earnings announcement causes it
to fall, and that semiannual reporting is associated with greater
information asymmetry than quarterly reporting in the second half of
each semiannual period). For theoretical work in this area, see,
e.g., Nils H. Hakansson, Interim Disclosure and Public Forecasts: An
Economic Analysis and a Framework for Choice, 52 Acct. Rev. 396
(1977) (``Hakansson 1977 Study'') and Baruch Lev, Toward a Theory of
Equitable and Efficient Accounting Policy, 63 Acct. Rev. 1 (1988).
See also 17 CFR 243.100 through 17 CFR 243.103 (Regulation FD)
(generally prohibiting public companies from disclosing nonpublic,
material information to selected parties unless the information is
distributed to the public first or simultaneously).
\145\ See, e.g., Zsolt Katona et al., On the Capital Market
Consequences of Big Data: Evidence from Outer Space, 60 J. Fin. &
Quantitative Analysis 551 (2025) (``Katona et al. 2025 Study'')
(studying the introduction of access to satellite imagery data for
certain sophisticated investors and finding that such access led to
increased information asymmetry and lower stock liquidity around the
reports of retailers with satellite coverage).
\146\ See, e.g., Lawrence R. Glosten & Paul R. Milgrom, Bid,
Ask, and Transaction Prices in a Specialist Market with
Heterogeneously Informed Investors, 14 J. Fin. Econ. 71 (1985). (As
noted above, increased information asymmetry can also increase an
issuer's cost of capital.) See supra note 140 (discussing studies by
Douglas W. Diamond & Robert E. Verrecchia and David Easley & Maureen
O'Hara) and accompanying text.
\147\ See, e.g., Luigi Guiso et al., Trusting the Stock Market,
63 J. Fin. 2557 (2008).
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Less frequent periodic disclosures may also result in securities
prices that deviate for longer periods of time from their issuers'
fundamental value.\148\ Reduced information about an issuer can result
in deviations not only in the market prices of its own securities but
also in the prices of other issuers' securities and other traded
assets, given the interdependence of asset valuations on the risk and
return profiles of other investible assets.\149\ Increasing the delay
before information is released thereby risks obscuring the
attractiveness of investment opportunities and impeding the direction
of capital to its most productive uses. In effect, the delayed
incorporation of information into pricing can result in suboptimal
investor portfolios and a misallocation of capital at the market level.
These pricing effects may also result in increased ``jump'' volatility
(given that prices may update by larger amounts under a less frequent
periodic disclosure schedule, rather than more incrementally across
multiple shorter disclosure cycles) which may reduce liquidity.\150\
Less frequent financial reporting by an issuer may also reduce the
efficiency of production if managers of that issuer or of other issuers
thereby have access to less data (i.e., less informative market prices
and less frequent information from peer companies) on which to base
their operating and investing decisions.\151\ The aforementioned
negative effects on market dynamics from less frequent reporting are
additional examples of potential negative externalities borne by market
participants that may not be internalized by an individual issuer when
choosing its reporting frequency under the proposed amendments.
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\148\ See, e.g., Jeff L. McMullin et al., Increased Mandated
Disclosure Frequency and Price Formation: Evidence from the 8-K
Expansion Regulation, 24 Rev. Acct. Stud. 1 (2019).
\149\ See, e.g., Lambert et al. 2007 Study.
\150\ See letter from Alon Kalay (Mar. 18, 2019), available at
<a href="https://www.sec.gov/comments/s7-26-18/s72618-5144730-183368.pdf">https://www.sec.gov/comments/s7-26-18/s72618-5144730-183368.pdf</a>
(attaching revised copy of Dan Amiram, et al., The Information
Environment, Volatility Structure, and Liquidity (Colum. Bus. Sch.,
Rsch. Paper No. 15-62, Feb. 21, 2019), available at <a href="https://ssrn.com/abstract=2618424">https://ssrn.com/abstract=2618424</a> (retrieved from SSRN Elsevier database).
\151\ See, e.g., Shane Heitzman & Mengjie Huang, Internal
Information Quality and the Sensitivity of Investment to Market
Prices and Accounting Profits, 36 Contemp. Acct. Rsch. 1699 (2019);
Darren Bernard et al., Information Flows Among Rivals and Corporate
Investment, 136 J. Fin. Econ. 760 (2020); Brad Badertscher et al.,
Externalities of Public Firm Presence: Evidence from Private Firms'
Investment Decisions, 109 J. Fin. Econ. 682 (2013); Thierry Foucault
& Laurent Fresard, Learning from Peers' Stock Prices and Corporate
Investment, 111 J. Fin. Econ. 554 (2014).
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These asymmetric information effects and market pricing and
volatility effects may be mitigated by the presence of alternative
sources of information,\152\ including private information collection
and analysis or by market discipline. Such mitigation is most likely in
situations where alternate data is available, significant incentives
for private collection of such data are present, and the market is
efficient at incorporating such information into prices.\153\ For
example, with large companies, investors may have abundant and
lucrative opportunities for private data collection and analysis, which
creates opportunities to trade on the basis of the resulting
information, which may result in the incorporation of significant
amounts of information into these issuers' security prices even in the
absence of public disclosure. Even in such cases, however, the extent
of price discovery may be less complete than in the case of public
disclosure \154\ and the process of price discovery may be less
efficient (e.g., because of the resources directed towards information
collection rather than other productive purposes).\155\
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\152\ See, e.g., Dan Givoly & Dan Palmon, Timeliness of Annual
Earnings Announcements: Some Empirical Evidence, 57 Acct. Rev. 486
(1982) (finding a reduction in the market reaction to annual
earnings announcements when the reporting lag between the end of the
period in question and the disclosure date is lengthy and suggesting
this implies that the information in more lagged disclosures becomes
partially available through other channels, including possible leaks
or the disclosures of other issuers in the same industry).
\153\ Under some circumstances, reduced public disclosures could
increase the incentives for private information collection
sufficiently that price discovery could even be improved rather than
impaired. See, e.g., Itav Goldstein & Liyan Yang, Information
Disclosure in Financial Markets, 9 Ann. Rev. Fin. Econ. 101 (2017),
available at <a href="https://doi.org/10.1146/annurev-financial-110716-032355">https://doi.org/10.1146/annurev-financial-110716-032355</a>.
\154\ Private information collection may not fully replicate the
information that the issuer could disclose publicly. See, e.g., Jack
Hirshleifer, The Private and Social Value of Information and the
Reward to Inventive Activity, 61 Amer. Econ. Rev. 561 (1971)
(demonstrating that relying on private, individual incentives to
collect information can result in a level of information collection
that diverges significantly from the optimal level of public
information for the economy). Further, the availability of
information to selected market participants and their strategic
trading on the basis of that information does not guarantee that it
is incorporated into prices in a timely manner. See, e.g., Katona et
al. 2025 Study (studying the introduction of access to satellite
imagery data for certain sophisticated investors and finding limited
evidence of any acceleration of price discovery as a result of the
availability of this data to select investors).
\155\ See, e.g., Douglas W. Diamond, Optimal Release of
Information by Firms, 40 J. Fin. 1071 (1985) (discussing the
``savings of real resources which would be devoted to private
information acquisition if public information were not released'');
Hakansson 1977 Study (discussing the ``social disutility of having a
subset of investors forego `productive' employment in favor of time-
consuming but profitable private search for information'').
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Less frequent periodic disclosures may also have implications for
the ability of investors and other market participants to hold
corporate management accountable. For example, less frequent
disclosures may reduce the ability of investors and other market
participants to monitor the issuer and its management because they
would receive less frequent signals about issuer performance and
managerial decision-making. Such a reduced frequency of information
revelation can delay investors from intervening when they are concerned
with management's choices, whether through direct engagement with
management or by making their views known through their trading
activity and thus market prices.\156\ These delays can result in poor
management decisions compounding into bigger issues (e.g., poor
investments, deficient business strategies, or inefficient operations)
before investors can react. Reduced disclosure also could reduce the
incentives of analysts to cover an issuer and thus reduce this source
of scrutiny and its associated benefits,\157\ such as enhanced
liquidity for the issuer's securities.\158\ To the extent a reduced
[[Page 24991]]
frequency of interim disclosure is accompanied by fewer interim reviews
and less interim testing by independent public accountants to support
their annual financial statement or integrated audit, the independent
auditors may be slower to identify certain accounting misstatements and
deficiencies in internal control, which could negatively impact the
timeliness and reliability of the audited annual financial
statements.\159\ This impact could be more prevalent for smaller
reporting companies, particularly for those with fewer qualified
accounting staff or other resources available to them.
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\156\ See, e.g., Benedikt Downar et al., The Monitoring Effect
of More Frequent Disclosure, 35 Contemp. Acct. Rsch. 2058 (2018)
(finding evidence consistent with the argument that more frequent
disclosure provides shareholders with the opportunity for timelier
monitoring and the ability to better constrain managers from
misusing corporate resources); Frank Gigler et al., How Frequent
Financial Reporting Can Cause Managerial Short-Termism: An Analysis
of the Costs and Benefits of Increasing Reporting Frequency, 52 J.
Acct. Rsch. 357 (2014) (``Gigler et al. 2014 Study'') (showing,
theoretically, that periodic disclosures enable market prices to
impose discipline on the firm's choices, thereby limiting the
initiation of negative net present value projects, and that greater
reporting frequency provides more effective discipline).
\157\ See, e.g., Mark H. Lang & Russell J. Lundholm, Corporate
Disclosure Policy and Analyst Behavior, 71 Acct. Rev. 467 (1996);
Alexander Dyck, et al., Who Blows the Whistle on Corporate Fraud?,
65 J. Fin. 2213 (2010); Bryan Kelly & Alexander Ljungqvist, Testing
Asymmetric-Information Asset Pricing Models, 25 Rev. Fin. Stud, 1366
(2012); Tao Chen, et al., Do Analysts Matter for Governance?
Evidence from Natural Experiments, 115 J. Fin. Econ. 383 (2015);
Fran[ccedil]ois Derrien et al., The Real Effects of Financial
Shocks: Evidence from Exogenous Changes in Analyst Coverage, 68 J.
Fin. 1407 (2013); Jeong-Bon Kim et al., Analyst Coverage and
Expected Crash Risk: Evidence from Exogenous Changes in Analyst
Coverage, 94 Acct. Rev. 345 (2019).
\158\ See, e.g., Darren. T. Roulstone, Analyst Following and
Market Liquidity, 20 Contemp. Acct. Rsch. 552 (2003); Karthik
Balakrishnan et al., Shaping Liquidity: On the Causal Effects of
Voluntary Disclosure, 69 J. Fin. 2237 (2014).
\159\ See, e.g., Brant. E. Christensen et al., Archival Evidence
on the Audit Process: Determinants and Consequences of Interim
Effort, 38 Contemp. Acct. Rsch. 942 (2021).
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Less frequent periodic disclosures may affect management
incentives. If less frequent disclosure reduces scrutiny of issuers as
discussed above, then this could reduce potential managerial incentives
to overly focus on short-term outcomes to the detriment of long-term
performance.\160\ Survey evidence has found that management feels
pressure to meet short-term earnings benchmarks, with a majority
reporting a willingness to make corporate investment or operating
decisions that smooth earnings (i.e., reduce their volatility), even if
such decisions would reduce long-term value by a small amount.\161\
Still, reductions in the reporting frequency are less likely to affect
decision-making regarding long-horizon outcomes, such as investment
decisions that are intended to generate profits five or ten years down
the road. Further, other factors may play a larger role in short-
termism concerns than the periodic disclosure cycle, such as executive
compensation design or messaging to investors through, for example,
earnings guidance.
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\160\ See, e.g., Gigler et al., 2014 Study (showing,
theoretically, that more frequent reporting can increase the
probability of inducing managerial short-termism).
\161\ See, e.g., John R. Graham et al., The Economic
Implications of Corporate Financial Reporting, 40 J. Acct. & Econ. 3
(2005) (finding, based on a survey of 400 executives, that managers
place a great deal of importance on meeting earnings benchmarks,
with 78% of the surveyed executives indicating a willingness to
sacrifice at least a small amount of long-term value to smooth
earnings).
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Overall, the economic tradeoffs involved in the choice of interim
disclosure frequency are complex and difficult to measure,\162\ and the
ideal frequency may differ across companies and industries. Allowing
issuers the flexibility to report either semiannually or quarterly may
help to better balance certain issuer-specific benefits against the
issuer-specific costs of interim disclosure. The discussion above,
however, identifies externalities borne by investors, other issuers,
and the economy resulting from interim disclosure frequency that an
individual issuer is unlikely to consider when selecting its own
frequency of interim disclosure.\163\ The existence of flexibility in
interim disclosure frequency may itself result in additional concerns.
For example, such flexibility may reduce the efficiency by which
investors digest and use disclosures, because issuers disclosing at
different frequencies may complicate comparative evaluations and
analyses. The ability of an issuer to change its interim disclosure
frequency in the future may also make it difficult for issuers who
select a more frequent disclosure frequency to credibly convey to the
market that they will continue to disclose at that frequency. This lack
of a commitment device could reduce the benefi
[…truncated; see source link]Indexed from Federal Register on May 7, 2026.
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