WallStreetBets Weighs in Against SEC's Proposal

The Securities and Exchange Commission's (SEC) proposal to weaken quarterly reporting standards for publicly traded companies has sparked widespread criticism, particularly from the popular subreddit WallStreetBets.

Community of Retail Investors Speaks Out Against Proposed Rule Change

The community of approximately 18 million retail investors on Reddit submitted an unsigned letter arguing that quarterly financial filings, known as 10-Q filings, are "the single most important leveling mechanism between retail and institutional investors in U.S. equity markets." The letter emphasizes that institutional investors have a significant advantage over retail investors due to their access to expert networks, channel checks, and alternative data, which retail investors do not have. The community argues that quarterly reporting provides retail investors with a crucial source of information, allowing them to make informed decisions about their investments.

Institutional investors have expert networks, channel checks, alternative data, satellite imagery of retailer parking lots, credit card panel data, and direct management access through conferences and one-on-one meetings that cost more than most of our portfolios. We have the 10-Q.

The proposed rule change would allow companies to elect every year whether they want to file an annual report and three quarterly reports, as is the case now, or simply one annual report and one semi-annual report. WallStreetBets argues that this would decrease the level of real-time visibility into the financial health of a publicly traded company and actively hurt the wallets of retail investors.

The Commission's release talks about reducing costs for issuers. We would like to know what the Commission thinks the cost is to a retail investor of holding a position for six months without a single mandatory disclosure from the company. The answer is not zero. The answer is the spread between what insiders know and what we know, multiplied by every share we own during the gap. Someone is going to capture that spread. We have a guess about who it will not be.

The SEC has justified its proposal by claiming that semi-annual reporting would reduce cost and time burdens associated with creating a 10-Q every quarter, as well as help companies focus more on long-term growth versus hitting Wall Street analysts' quarterly estimates. However, WallStreetBets thinks these ideas are "bunk."

We also want to register, respectfully, our objection to the suggestion that quarterly reporting is a burden the Commission can lift to help companies focus on the long term. The companies we trade are not being held back from greatness by the obligation to file four reports a year. Apple files a 10-Q every quarter and has nine hundred billion dollars in cash equivalents. Nvidia files a 10-Q every quarter and is worth more than the GDP of most G20 countries. The entire S&P 500 files a 10-Q every quarter, and the S&P 500 is at an all-time high. If quarterly reporting is crushing American capitalism, American capitalism is hiding it well. We have looked.

The retail trading subreddit is not alone in its opposition to the proposed rule change. More than 120 people have submitted negative comments to the SEC within the first week of the 60-day public comment period, including certified financial planners, hedge fund managers, and even a former SEC attorney.

The proposed rule change has even riled up both sides of the political aisle. One anonymous financial planner wrote that, "[a]fter years of fighting against ideologically driven rules that politicized corporate disclosures, I never expected to see a Republican-led Commission deliver a gift-wrapped exemption that so clearly undermines market transparency and tilts the field against everyday retail investors."

The public comment period is open until early July, and it remains to be seen how the SEC will respond to the overwhelming opposition to the proposed rule change.