“How they square increasing liquidity with delaying information is insane.”
So said a skeptic in a ycombinator forum about the SEC’s reputed proposal to end mandatory quarterly reporting, reducing required reports from four to two.
There is no official SEC rule-filing yet. You’ll find it here when it arrives.
At Reddit, somebody called the_sound_of_cork observed, “Big 4 about to do some layoffs.”
Investor-relations professionals might meet the news with fear. Quarterly reporting is our profession’s bread and butter. What if we’re doing it half as often?
Let’s think about the history of corporate reporting requirements.
From the formation of the SEC in 1934, public companies were made to file annual reports. In 1955, reports were made semi-annual. In 1970, the SEC moved to make the 10-Q quarterly financial filing mandatory. So we’ve been doing it more than a half-century.
In the last 56 years during which reporting requirements were unchanged, think about all the things that did change:
- In 1969, the Institutional Network, or Instinet, began offering an electronic system for buying and selling stocks.
- In 1971, the National Association of Securities Dealers launched an automated quotation system and got it approved as a stock exchange called “The Nasdaq.”
- 1974: The Federal Reserve implemented Regulation T requiring banks to report margin-account data to track short interest in stocks as part of the money supply.
- 1975: The National Market System amendments were added to the Securities Acts requiring the SEC to promote a regulated exchange system. It finally happened in 2005, with the advent of Regulation National Market System.
- Also in 1975, 13F quarterly filings of institutional stockholdings were imposed.
- The first index fund launched from Vanguard in December 1975.
- In 1986, the Cincinnati Stock Exchange launched the first all-electronic exchange.
- The first ETF debuted in 1992 when State Street commodity traders mused, “What if you could trade commodity warehouse receipts in PLACE of the stuff in the warehouse?”
- In the 1990s, electronic markets exploded. Island, an Electronic Communication Network (ECN) launched in 1996 and ECNs seized 50% market-share.
- In response, the NYSE and the Nasdaq bought and integrated ECNs and shifted from mutual ownership (by brokers) to shareholder-owned entities.
- 1997-98: The SEC passed Reg ATS and the Order Handling Rules requiring brokers running stock marketplaces to register either as Alternative Trading Systems or exchanges.
- In 2001, stocks were decimalized, fundamentally reshaping trading economics and data. Activity soared.
- In 2005, the SEC implemented those 1975 legislative amendments as Reg NMS that turned the stock market into a high-speed, automated data network.
- Today the stock market is 100% electronic, 99% algorithmic, generates 20 billion shares of daily volume, $1 trillion of notional value daily, and includes 33 dark pools or ATS’s, like IntelligentCross that matches a billion daily shares, and 17 exchanges (no single one handles 20% of volume). Half the volume is at stock exchanges, half at ATS’s.
On top of all that, information is ubiquitous.
The global head of quantitative data at Point72 told me in 2021 that they consumed “all” the alternative data available. “We know more than a company knows about itself,” he claimed.
And betting around earnings has exploded.
A Millennium hedge-fund pod running a billion dollars in 2020 told me they made two-thirds of their returns betting directionally at earnings. Millennium has surpassed hundreds, thousands, of stock-picking shops to move into the top 30 13F owners of US equities.
The market is stuffed with ways to bet. Options expiring nearly every day trade trillions in notional value on directional plays. So called zero-days-to-expiration options are 60% of the volume of the S&P 500, which in turn is 90% of market cap.
The market is most days an offsetting delta/gamma hedge.
With me still? What if we bring a lot more value to our companies, IR people, by helping them deliver a tradeable product to the market then by teeing up an arbitrage trade every quarter?
I haven’t touched ETFs and the $15 trillion of assets there – and how they displace stock-investing. How Active stock-pickers are now about 36% of assets under management after losing $500 billion per year for 15 years to Passives.
Take Geode as an archetype, Fidelity’s systematic arm. It’s grown by more than $600 BILLION in a year. It’s larger than Capital Group.
The market is owned by systematic investors, asset allocators, which run macroeconomic models. Susquehanna, the top market-maker in options, saw its 13F assets rise by nearly 50% and pushing it near the top ten.
Meanwhile, Capital Group saw TMM outflows of $100 billion, American Century, $68 billion. I spot-checked 30 household bottom-up managers. All had outflows.
Hedge funds with trillions of dollars have a guaranteed Prediction Market binary bet four times per year on everybody. All they need is SOMETHING stale between what THEY know and what YOU say to jack your price up or down 10-15%.
Then ETFs drop you because you’re wrecking conformity with your volatility.
In short, the landscape of firms doing bottom-up research has disappeared under an avalanche of quantitative money.
So, are quarterly reports helping your shareholders?
They’re not. Passives need conformity. Predictability. The herd. Liquidity. Size. Stability.
Quarterly earnings reports foster bets. Not the stable, tradeable product that big systematic investors need.
Do you see? We need a new era, new plan. A new approach to the market. Embrace the change. We’re way ahead on this, and we can help you.
