Bloomberg Audio studios, podcasts, radio news. Public companies in the US are required to report earnings every quarter, but that could change. This week, the US Securities and Exchange Commission unveiled a new proposal that would require companies to report earnings semi annually, that's just twice a year.
The current SEC chair, Paul Atkins, said the proposed change would quote provide companies with increased regulatory flexibility. Critics say less frequent reporting could heighten the risk of insider trading. Joining us now on set is a former chair of the SEC, Gary Gensler, now professor at MIT and the co host of a podcast called Power and Consequences.
I'll ask you plainly first, is this a good idea?
Is the move away from quarterly reporting to semi anal reporting a good idea?
No?
I think this is really a solution in search of a problem. I think transparency is really important in our capital markets. You just had a report about transparency about UFOs. This a little bit different, but we've been doing this actually for a very long time, and I think it's part of why our American capital markets are so good.
Investors people watching this show, or.
The big investors that maybe don't watch one Saturday morning.
I hope they will.
They get that information on a quarterly basis and so it's more timely. And what studies, economic study after economic study has shown that that's a good thing. That creates a market environment where you can get a little higher price earnings ratio and a little less cost of capital because your investor base knows what's going on.
What do you say to the CEOs who complain that this is onerous and too much of their life is taken up having to prepare for these earnings releases.
And earnings schools.
That was pushing for this, that's my question, wants this?
Yeah, you know, it's really interesting, like who really is looking for this? In President Trump's first term, which we'll call Trump forty five, okay, he also called for this, and his then SEC chair Jay Clayton, did some public roundtables, put out what's called a concept release, and then didn't do it. And I think maybe the president, even though I think he still likes Jay Clayton.
He's attorney here in New York.
He is, he is, but he may have felt a little slow walked on that. And Trump forty seven has come back and so it's I think the president really wants it, but I really don't think the capital markets wanted.
Does this make insider trading and malfeasan's easier to conceal if you don't have to report quite as regularly.
It's just a little bit easier.
I want to caution, like every six months putting out information means that our markets will be a little bit more volatile those earnings releases. And this is a voluntary system. So it's interesting what the SEC is saying. They're saying, we just want to make flexibility the roots of all of this, And there's there's a great study in the nineteen sixties. The individual went on to get a Nobel prize,
George Akaloff, who is Janet Yellen's husband. Yes, Yes, And George wrote about the problem with lemons, and he was talking about the used car market, and he said, the problem is is if you don't have enough information, you don't know which cars are the lemons, and thus it lowers the pricing of even the good cars. And so
put that in the stock market. If you let it be flexible, the lemons might not report, but you don't know who the lemons are, and so it might lower the valuation in the overall markets.
The question about the mechanics of this.
So we have this proposal, sixty day period in which the publican comment. You've lived through many of these, both at the CFTC and the SEC. What happens at the end of that comment period. Where are we in this process?
Well, this staff pulls together all the comments, puts together a lot of things for the commissioners. There's only three Republican commissioners now, and makes a recommendation. Generally speaking, from this time to finalizing a rule takes anywhere from eighteen to i'd say thirty months, But with the clock ticking on the Trump administration, this agency might decide to move forward within that timeframe.
I think it's up to investors.
I think it's up to listeners of this program to say, small investors, large investors, academics, news organizations say no, quarterly.
Reporting is what we need.
And then really the key is to some companies, some issuers say, you know, we should do this anyway. You know, before the SEC actually made it mandatory in nineteen seventy, the New York Stock Exchange in nineteen twenty six said we should move to quarterly reporting. This is one hundred year ago thing, and by the early nineteen fifties ninety percent of companies were doing it.
But to all the points you just made, is this a FATA complete or do you think there's room for them to change their mind on this decision.
I think there's a public comment period, and it really is important, whether it's the media and especially large companies, investors and so forth who might get in the ear of this White House.
Another question about disclosures, and we're going to watch you definitely dodge the question that I put to you here, but no, hey, I'm gonna get comfortable with We have Elon Musk agreeing to a one point five million dollars settlement with the SEC over the fact that he didn't disclose the position that he'd taken in Twitter before he bought the company in a timely fashion that now goes before a judge this week, which I gather is customary. A judge can say, I want to hear out the
reasons for coming to this settlement. Your reaction to that, I should say, you were at the SEC when this issue came about, well.
And you wanted me to get up and dance because look, I ran a civil law enforcement agency, so I can't comment on any individual thing that we worked on, but it's about transparency and Congress in the nineteen sixties came together. There was a Senator Williams from New Jersey, the Williams Act, and said we need disclosure about when somebody's accumulating shares in a company. If you accumulate over five percent, which mister mus did, then you need to report to the
public that you have some intent to control. And I'm proud that when I was Chair of the SEC we shorten that time period from ten days to five days, because that's really material, non public information that there's somebody accumulating, and what happens generally when it's announced the stock pops,
and so Christina talked about insider trading. What happens in those five days until it's announced, and who knows about it, which lawyers know about it, what insiders not insiders in the company, now insiders in the acquirer.
So that's a really important thing.
This is not just a small little traffic violation that transparency in the markets really helps the public.
But how is the enforcement of that? Is it robust or is it hard? To enforce a lot of these rules.
This one in.
Particular, well, it first comes from a little backbone from the administration.
The cop on the beat matters.
And if the cop on the beat, like in forests and says, and the law on this is not an intent law. It's what lawyers call per se. It's just like you've gone too long, that's a violation. I don't know, it's just sort of straightforward stuff. I want to pivot to the summit that's coming up this week.
President Trump going to Beijing to meet with President she We were talking with Ambassador Burns about the work that he did laying the groundwork for the three summits that President Biden had with the Chinese president. You also were involved in these issues when you were at the SEC. We have seen over the last few weeks the Chinese administration really pushing back on foreign investment in Chinese tech companies in particular. Would love to get your sense of
where things stand. They have been so reliant on Western capital for so long. Now is it worrisome? Should it be worrisome to capital markets now that we see this kind of prohibition in place by the Chinese government.
I did work closely with Nick, and we worked with the Chinese and we successfully got the Chinese to agree that their companies here in the US, the Chinese companies in the US would comply with our laws. And for twenty years previously folks weren't successful. So thank you, Nick Burns. We were proud to do that as well. And I think that was good. That's good for the US capital markets that we kept those companies here because we're like
half the world's capital markets. And back to our earlier point, I don't want to adopt the European approach that capital markets has semi annual reporting, it's not as good. But in terms of what's happening this week, for those of you who don't want to listen to Simon and Johnson and I do have an episode coming out Monday.
Or in China shameless teez I like that.
Yeah, yeah, she is on Power and Consequences.
But my thought is is on the table is the Chinese do want to get a little bit loosening on Taiwan.
Nick talked about that the president.
Wants to have some deliverables and announceables, maybe on soybeans and other things. It's an election year for the farm belt and then business community wants a sort of a lowering of the tension on trade and tariffs, and there would be real questions will the President give President chie something On Taiwan. They're already holding up a military sale of about eleven billion dollars and Nick would like to have that continue. But it would be really interesting what
happens there. And I think China has stronger today than they were eighteen months ago. I think the war in Iran has strength in China, and China now seems like, well, there may be an alternative to the US. Now how that plays out in the capital markets, of course, if they don't settle things down this week or kick the ball down the field, which I think that's what President Trump wants to do electorally, kick the ball down the field, then capital markets might fall off.
We shut on time. Before I let you go, I do want to ask you about oil, which you talked about them was the whole time you were here last year,
last time, so we only have one oil question. But you know, we saw Brent crude plunge nearly ten dollars a barrel early on Wednesday, after you had this report that the US and Iran were nearing an agreement, and about an hour before that was published, traders exchanged seven hundred million in oil futures, raising suspicions of possible insider information. The reporter for Axios, Barack Revied, of course, is forcefully
denying those allegations. Why is this something the government is watching so closely?
Well, look, there's a real challenge around protecting markets, the integrity of markets against insider trading, and over and over again we've seen it this year, these happenings where somebody gets into a market. Maybe they're going into polymarket or Calci, yeah, but here sometimes it's even going into the oil futures markets. I think the oil futures markets are better supervised than the calchhis and polymrket, so that's going to have to
play out. I definitely think the Congress should pass some laws that the government actors can't trade in these prediction markets.
Karyguins so great to see you.
Thank you for coming in the podcast His Power and Consequence, as he co hosted with Simon Johnson, the Nobel Laureate also at MIT, Gary Agnsler.
He both at MIT as professors.
Appreciate your time, appreciate the around the World tour that we got there for.
Frank to you so much, Thanks Garry.
That was great.