Crypto Stocks on High Alert Over SEC's Semi-Annual Reporting Proposal... Will Stock Prices Crash If Quarterly Reports Are Abolished?

▲ U.S. Securities and Exchange Commission (SEC)/ChatGPT generated image

As the U.S. Securities and Exchange Commission (SEC) proposed a plan to ease the quarterly reporting obligation for listed companies to an optional semi-annual reporting system, considerable repercussions are expected for virtual asset-related stocks as well.

BeInCrypto reported on May 5 (local time) that the SEC proposed a rule amendment allowing listed companies to choose a new semi-annual report, Form 10-S, instead of the existing quarterly report, Form 10-Q. If this system is introduced, listed companies can fulfill their interim disclosure obligations by reporting only twice a year, instead of four times a year. The SEC's position is that companies and investors should be able to choose a reporting cycle that suits their business structure and information needs.

This proposal could be an attractive option for small and medium-sized listed companies as it can reduce corporate regulatory compliance costs. Companies that choose the new Form 10-S will submit their reports within 40 to 45 days after the end of the first half of the year. BeInCrypto cited a petition from the Long-Term Stock Exchange, stating that preparing a quarterly report can take more than 1,000 hours and cost over $100,000 per instance. Bitcoin (BTC)-related companies like MicroStrategy and Coinbase, as well as digital asset issuers, also bear auditing and review costs every quarter.

However, concerns about weakened transparency are as significant as the cost-saving effects. If the reporting cycle is reduced to semi-annual, investors will receive information about a company's financial status and business changes later. Especially for virtual asset-related companies, where information gaps can act as a stock price discount factor due to the rapid reflection of impacts from highly volatile items such as Bitcoin holding value, trading volume, custodial assets, and regulatory risks.

BeInCrypto pointed out that companies choosing semi-annual reporting might experience decreased analyst coverage, reduced trading volume, and wider bid-ask spreads. If liquidity decreases, investors will demand a higher risk premium, which could lead to increased capital raising costs for mid-cap stocks and virtual asset-related stocks. It is pointed out that companies opting for short-term cost savings could face a permanent valuation discount in the long run.

SEC Chairman Paul Atkins expressed the view that the market can be largely supplemented through voluntary disclosures and 8-K reports. He explained that the rigidity of current SEC rules has prevented companies and investors from determining the most appropriate interim reporting cycle themselves. On the other hand, those who prioritize investor protection worry that mandatory quarterly reporting is a core advantage of the U.S. market, and reducing it could weaken oversight of management.

This proposed rule will undergo a 60-day public comment period after being published in the Federal Register, then proceed to a final SEC vote. The key issue is whether voluntary disclosures and 8-K reports can sufficiently fill the gap left by mandatory quarterly reporting. If this cannot be proven, virtual asset-related companies could pay the price of losing market trust and liquidity instead of saving on regulatory costs.

*Disclaimer: This article is for investment reference only and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*