r/WallStreetBets really hates the SEC’s proposal to weaken quarterly reporting

The Securities and Exchange Commission formally proposed last week to weaken quarterly reporting standards for publicly traded companies. So far, public comments submitted to the financial regulator on the idea have been mostly negative. But the best objection was made yesterday by the popular Reddit site, WallStreetBets.

The community of “nearly 18 million retail investors on Reddit” argued in the unsigned letter that quarterly financial filings — known as 10-Q filings — are “the most important settlement mechanism between individual and institutional investors in U.S. stock markets.”

“Institutional investors have expert networks, channel screening, alternative data, satellite images of retail store parking lots, credit card dashboard data, and direct access to management through conferences and one-on-one meetings that cost more than most of our portfolios. Our 10-Q,” the letter read.

While the SEC has not gotten rid of the 10 questions, the regulator’s proposal suggests that companies would be able each year to choose between whether they want to file an annual report and three quarterly reports (as is the case now) or just one annual report and one semi-annual report. The rule change is particularly significant as SpaceX — which is expected to allocate an unprecedented share of its IPO to retail investors — and a string of other AI and emerging technology startups begin lining up for initial public offerings.

WallStreetBets says this will not only reduce real-time visibility into the financial health of a publicly traded company — which are also referred to by the Commission and in this letter as “issuers” — but will also hurt retail investors’ portfolios:

The committee’s statement talks about reducing costs for exporters. We would like to know what the committee thinks it costs retail investors to hold a position for six months without a single mandatory disclosure from the company. The answer is not zero. The answer is the difference between what insiders know and what we know, multiplied by each share we own during that gap. Someone will catch this spread. We have a guess as to who it won’t be.

The SEC justified its proposal by claiming that semiannual reporting would reduce the cost and time burdens associated with creating a 10-Q each quarter. It also says the move will help companies focus more on long-term growth versus hitting Wall Street analysts’ quarterly estimates.

WallStreetBets thinks these ideas are just bunk:

We also want to respectfully register our objection to the suggestion that quarterly reporting represents a burden that the Commission could lift to help companies focus on the long term. The companies we trade are unhindered by a commitment to reporting on greatness four times a year. Apple files a 10-Q every quarter and has the equivalent of $900 billion in cash. Nvidia posts a 10-Q every quarter and is worth more than the GDP of most G20 countries. The entire S&P 500 posts a 10-Q every quarter, and the S&P 500 hits all-time highs. If the quarterly reports crush American capitalism, American capitalism hides it well. We’ve looked.

The retail subreddit is not alone. The SEC’s arguments were soundly rejected by more than 120 people in the first week of the 60-day public comment period. This group includes a number of individual investors, some of whom filed anonymously, as well as certified financial planners, hedge fund managers, and even a former SEC attorney (who, to be fair, also used the opportunity to promote his book).

The proposed rule change has drawn ire from both sides of the political aisle. One anonymous financial planner wrote that “[a]After years of fighting against ideologically driven rules that have politicized corporate disclosures, I never expected to see a Republican-led committee advance a gift-wrapped exemption that clearly undermines market transparency and tilts the field against ordinary individual investors.

Even the (very) few people who provided comments in support of the rule tended to attach caveats, such as suggesting companies release monthly revenue statements and balance sheets rather than more detailed quarterly reports.

The public comment period is open until early July, and as law professor Anne Lipton (who first highlighted WallStreetBets’ commentary on Bluesky) recently pointed out, larger institutional investment firms haven’t weighed in yet.

But for now, no one has voiced their opposition as sharply as the WallStreetBets crew, which has been buzzing since the GameStop frenzy five years ago. She even relied on this history in her letter, in an unsurprisingly sarcastic tone:

Some of us are very good at this and others, in terms of technical securities law, are terrible at it. Many of us learned what a 10-Q was the hard way—that is, we bought a stock, watched it fall 40% on the earnings announcement, and then read the filing to find out why. This is stupid for operations and we admit it. But it is also the entire mechanism that enables a generation of individual investors to teach themselves to read financial statements, and now the Commission is proposing to halve this mechanism.