Hedge Funds Push Back Against SEC Semiannual Reporting

Hedge funds and investors have opposed a Securities and Exchange Commission proposal that would allow public companies to report financial results every six months instead of quarterly. The formal comment period closed on July 6 and the SEC received roughly 200,000 submissions, the largest public-comment docket in the agency’s history by volume. The plan is backed by SEC Chairman Paul Atkins after a presidential call last year to end mandatory quarterly reporting.

Alternative-asset groups and hedge funds say extending reporting intervals could delay important information and make it easier for companies to hide deteriorating business trends. The Managed Funds Association urged the SEC to “retain access to timely information” while simplifying other disclosure requirements. Citadel warned semiannual reporting “could make US markets less transparent and efficient.” The Committee on Capital Markets Regulation argued investors should continue to receive material information on a quarterly basis. An analysis by Ohio State University professor Tzachi Zach of more than 151,000 submissions found roughly 99.5% of the comments he reviewed opposed the proposal.

Some large companies have supported the change. Eli Lilly and ExxonMobil have said semiannual reporting could modernize the disclosure framework, and ExxonMobil added it believes investor protections could be maintained. The SEC has stated that any new regime would not prevent companies from continuing to provide quarterly updates on a voluntary basis.

Data analyses cited by opponents examine how combining two quarters into a six-month figure can conceal short-term swings. A study of more than 2,500 companies in the S&P 1500 using data from 2010 onward constructed hypothetical six-month revenue totals by adding consecutive quarters and compared them with year-on-year quarterly changes. The study treated a quarterly movement as material if it showed at least a 5% year-on-year change. It found significant negative quarterly revenue moves would have been obscured more than twice as often as comparable positive moves under a semiannual reporting regime.

The effect increased during volatile periods. During the Covid-19 pandemic, up to 15% of material quarterly revenue declines in a year could have been hidden by combining results into six-month periods, while up to 7% of material quarterly increases could have been masked. The imbalance reflects that many large U.S. companies report growth more often than contraction, so a weak quarter is more likely to be offset by a stronger following quarter.

The energy sector illustrates the pattern. Companies in the Russell 1000 Energy Index experienced steep revenue falls and recoveries during 2020 and 2021; under a semiannual schedule, more than half of those firms would have recorded at least one material quarterly revenue move that a six-month report would have obscured.

Market analysts say the proposal could still advance, with some assigning a relatively high probability that the SEC will adopt a semiannual framework by 2027. The agency emphasizes companies would remain free to publish quarterly reports voluntarily, leaving investors to compare firms that maintain quarterly disclosure with those that report twice a year.