Speaker 1: Bloomberg Audio studios, podcasts, radio news. Public companies in the
Speaker 1: US are required to report earnings every quarter, but that
Speaker 1: could change. This week, the US Securities and Exchange Commission
Speaker 1: unveiled a new proposal that would require companies to report
Speaker 1: earnings semi annually, that's just twice a year.
Speaker 2: The current SEC chair, Paul Atkins, said the proposed change
Speaker 2: would quote provide companies with increased regulatory flexibility. Critics say
Speaker 2: less frequent reporting could heighten the risk of insider trading.
Speaker 2: Joining us now on set is a former chair of
Speaker 2: the SEC, Gary Gensler, now professor at MIT and the
Speaker 2: co host of a podcast called Power and Consequences.
Speaker 3: I'll ask you plainly first, is this a good idea?
Speaker 2: Is the move away from quarterly reporting to semi anal
Speaker 2: reporting a good idea?
Speaker 3: No?
Speaker 4: I think this is really a solution in search of
Speaker 4: a problem. I think transparency is really important in our
Speaker 4: capital markets. You just had a report about transparency about UFOs.
Speaker 4: This a little bit different, but we've been doing this
Speaker 4: actually for a very long time, and I think it's
Speaker 4: part of why our American capital markets are so good.
Speaker 5: Investors people watching this show, or.
Speaker 4: The big investors that maybe don't watch one Saturday morning.
Speaker 3: I hope they will.
Speaker 4: They get that information on a quarterly basis and so
Speaker 4: it's more timely. And what studies, economic study after economic
Speaker 4: study has shown that that's a good thing. That creates
Speaker 4: a market environment where you can get a little higher
Speaker 4: price earnings ratio and a little less cost of capital
Speaker 4: because your investor base knows what's going on.
Speaker 2: What do you say to the CEOs who complain that
Speaker 2: this is onerous and too much of their life is
Speaker 2: taken up having to prepare for these earnings releases.
Speaker 3: And earnings schools.
Speaker 1: That was pushing for this, that's my question, wants this?
Speaker 4: Yeah, you know, it's really interesting, like who really is
Speaker 4: looking for this? In President Trump's first term, which we'll
Speaker 4: call Trump forty five, okay, he also called for this,
Speaker 4: and his then SEC chair Jay Clayton, did some public roundtables,
Speaker 4: put out what's called a concept release, and then didn't
Speaker 4: do it. And I think maybe the president, even though
Speaker 4: I think he still likes Jay Clayton.
Speaker 3: He's attorney here in New York.
Speaker 4: He is, he is, but he may have felt a
Speaker 4: little slow walked on that. And Trump forty seven has
Speaker 4: come back and so it's I think the president really
Speaker 4: wants it, but I really don't think the capital markets wanted.
Speaker 1: Does this make insider trading and malfeasan's easier to conceal
Speaker 1: if you don't have to report quite as regularly.
Speaker 5: It's just a little bit easier.
Speaker 4: I want to caution, like every six months putting out
Speaker 4: information means that our markets will be a little bit
Speaker 4: more volatile those earnings releases. And this is a voluntary system.
Speaker 4: So it's interesting what the SEC is saying. They're saying,
Speaker 4: we just want to make flexibility the roots of all
Speaker 4: of this, And there's there's a great study in the
Speaker 4: nineteen sixties. The individual went on to get a Nobel prize,
Speaker 4: George Akaloff, who is Janet Yellen's husband. Yes, Yes, And
Speaker 4: George wrote about the problem with lemons, and he was
Speaker 4: talking about the used car market, and he said, the
Speaker 4: problem is is if you don't have enough information, you
Speaker 4: don't know which cars are the lemons, and thus it
Speaker 4: lowers the pricing of even the good cars. And so
Speaker 4: put that in the stock market. If you let it
Speaker 4: be flexible, the lemons might not report, but you don't
Speaker 4: know who the lemons are, and so it might lower
Speaker 4: the valuation in the overall markets.
Speaker 3: The question about the mechanics of this.
Speaker 2: So we have this proposal, sixty day period in which
Speaker 2: the publican comment. You've lived through many of these, both
Speaker 2: at the CFTC and the SEC. What happens at the
Speaker 2: end of that comment period. Where are we in this process?
Speaker 4: Well, this staff pulls together all the comments, puts together
Speaker 4: a lot of things for the commissioners. There's only three
Speaker 4: Republican commissioners now, and makes a recommendation. Generally speaking, from
Speaker 4: this time to finalizing a rule takes anywhere from eighteen
Speaker 4: to i'd say thirty months, But with the clock ticking
Speaker 4: on the Trump administration, this agency might decide to move
Speaker 4: forward within that timeframe.
Speaker 5: I think it's up to investors.
Speaker 4: I think it's up to listeners of this program to say,
Speaker 4: small investors, large investors, academics, news organizations say no, quarterly.
Speaker 5: Reporting is what we need.
Speaker 4: And then really the key is to some companies, some
Speaker 4: issuers say, you know, we should do this anyway. You know,
Speaker 4: before the SEC actually made it mandatory in nineteen seventy,
Speaker 4: the New York Stock Exchange in nineteen twenty six said
Speaker 4: we should move to quarterly reporting. This is one hundred
Speaker 4: year ago thing, and by the early nineteen fifties ninety
Speaker 4: percent of companies were doing it.
Speaker 1: But to all the points you just made, is this
Speaker 1: a FATA complete or do you think there's room for
Speaker 1: them to change their mind on this decision.
Speaker 4: I think there's a public comment period, and it really
Speaker 4: is important, whether it's the media and especially large companies,
Speaker 4: investors and so forth who might get in the ear
Speaker 4: of this White House.
Speaker 2: Another question about disclosures, and we're going to watch you
Speaker 2: definitely dodge the question that I put to you here,
Speaker 2: but no, hey, I'm gonna get comfortable with We have
Speaker 2: Elon Musk agreeing to a one point five million dollars
Speaker 2: settlement with the SEC over the fact that he didn't
Speaker 2: disclose the position that he'd taken in Twitter before he
Speaker 2: bought the company in a timely fashion that now goes
Speaker 2: before a judge this week, which I gather is customary.
Speaker 2: A judge can say, I want to hear out the
Speaker 2: reasons for coming to this settlement. Your reaction to that,
Speaker 2: I should say, you were at the SEC when this
Speaker 2: issue came about, well.
Speaker 4: And you wanted me to get up and dance because look,
Speaker 4: I ran a civil law enforcement agency, so I can't
Speaker 4: comment on any individual thing that we worked on, but
Speaker 4: it's about transparency and Congress in the nineteen sixties came together.
Speaker 4: There was a Senator Williams from New Jersey, the Williams Act,
Speaker 4: and said we need disclosure about when somebody's accumulating shares
Speaker 4: in a company. If you accumulate over five percent, which
Speaker 4: mister mus did, then you need to report to the
Speaker 4: public that you have some intent to control. And I'm
Speaker 4: proud that when I was Chair of the SEC we
Speaker 4: shorten that time period from ten days to five days,
Speaker 4: because that's really material, non public information that there's somebody accumulating,
Speaker 4: and what happens generally when it's announced the stock pops,
Speaker 4: and so Christina talked about insider trading. What happens in
Speaker 4: those five days until it's announced, and who knows about it,
Speaker 4: which lawyers know about it, what insiders not insiders in
Speaker 4: the company, now insiders in the acquirer.
Speaker 5: So that's a really important thing.
Speaker 4: This is not just a small little traffic violation that
Speaker 4: transparency in the markets really helps the public.
Speaker 1: But how is the enforcement of that? Is it robust
Speaker 1: or is it hard? To enforce a lot of these rules.
Speaker 2: This one in.
Speaker 4: Particular, well, it first comes from a little backbone from
Speaker 4: the administration.
Speaker 5: The cop on the beat matters.
Speaker 4: And if the cop on the beat, like in forests
Speaker 4: and says, and the law on this is not an
Speaker 4: intent law. It's what lawyers call per se. It's just
Speaker 4: like you've gone too long, that's a violation. I don't know,
Speaker 4: it's just sort of straightforward stuff. I want to pivot
Speaker 4: to the summit that's coming up this week.
Speaker 2: President Trump going to Beijing to meet with President she
Speaker 2: We were talking with Ambassador Burns about the work that
Speaker 2: he did laying the groundwork for the three summits that
Speaker 2: President Biden had with the Chinese president. You also were
Speaker 2: involved in these issues when you were at the SEC.
Speaker 2: We have seen over the last few weeks the Chinese
Speaker 2: administration really pushing back on foreign investment in Chinese tech
Speaker 2: companies in particular. Would love to get your sense of
Speaker 2: where things stand. They have been so reliant on Western
Speaker 2: capital for so long. Now is it worrisome? Should it
Speaker 2: be worrisome to capital markets now that we see this
Speaker 2: kind of prohibition in place by the Chinese government.
Speaker 4: I did work closely with Nick, and we worked with
Speaker 4: the Chinese and we successfully got the Chinese to agree
Speaker 4: that their companies here in the US, the Chinese companies
Speaker 4: in the US would comply with our laws. And for
Speaker 4: twenty years previously folks weren't successful. So thank you, Nick Burns.
Speaker 4: We were proud to do that as well. And I
Speaker 4: think that was good. That's good for the US capital
Speaker 4: markets that we kept those companies here because we're like
Speaker 4: half the world's capital markets. And back to our earlier point,
Speaker 4: I don't want to adopt the European approach that capital
Speaker 4: markets has semi annual reporting, it's not as good. But
Speaker 4: in terms of what's happening this week, for those of
Speaker 4: you who don't want to listen to Simon and Johnson
Speaker 4: and I do have an episode coming out Monday.
Speaker 3: Or in China shameless teez I like that.
Speaker 5: Yeah, yeah, she is on Power and Consequences.
Speaker 4: But my thought is is on the table is the
Speaker 4: Chinese do want to get a little bit loosening on Taiwan.
Speaker 5: Nick talked about that the president.
Speaker 4: Wants to have some deliverables and announceables, maybe on soybeans
Speaker 4: and other things. It's an election year for the farm
Speaker 4: belt and then business community wants a sort of a
Speaker 4: lowering of the tension on trade and tariffs, and there
Speaker 4: would be real questions will the President give President chie
Speaker 4: something On Taiwan. They're already holding up a military sale
Speaker 4: of about eleven billion dollars and Nick would like to
Speaker 4: have that continue. But it would be really interesting what
Speaker 4: happens there. And I think China has stronger today than
Speaker 4: they were eighteen months ago. I think the war in
Speaker 4: Iran has strength in China, and China now seems like, well,
Speaker 4: there may be an alternative to the US. Now how
Speaker 4: that plays out in the capital markets, of course, if
Speaker 4: they don't settle things down this week or kick the
Speaker 4: ball down the field, which I think that's what President
Speaker 4: Trump wants to do electorally, kick the ball down the field,
Speaker 4: then capital markets might fall off.
Speaker 1: We shut on time. Before I let you go, I
Speaker 1: do want to ask you about oil, which you talked
Speaker 1: about them was the whole time you were here last year,
Speaker 1: last time, so we only have one oil question. But
Speaker 1: you know, we saw Brent crude plunge nearly ten dollars
Speaker 1: a barrel early on Wednesday, after you had this report
Speaker 1: that the US and Iran were nearing an agreement, and
Speaker 1: about an hour before that was published, traders exchanged seven
Speaker 1: hundred million in oil futures, raising suspicions of possible insider information.
Speaker 1: The reporter for Axios, Barack Revied, of course, is forcefully
Speaker 1: denying those allegations. Why is this something the government is
Speaker 1: watching so closely?
Speaker 4: Well, look, there's a real challenge around protecting markets, the
Speaker 4: integrity of markets against insider trading, and over and over
Speaker 4: again we've seen it this year, these happenings where somebody
Speaker 4: gets into a market. Maybe they're going into polymarket or Calci, yeah,
Speaker 4: but here sometimes it's even going into the oil futures markets.
Speaker 4: I think the oil futures markets are better supervised than
Speaker 4: the calchhis and polymrket, so that's going to have to
Speaker 4: play out. I definitely think the Congress should pass some
Speaker 4: laws that the government actors can't trade in these prediction markets.
Speaker 3: Karyguins so great to see you.
Speaker 2: Thank you for coming in the podcast His Power and Consequence,
Speaker 2: as he co hosted with Simon Johnson, the Nobel Laureate
Speaker 2: also at MIT, Gary Agnsler.
Speaker 3: He both at MIT as professors.
Speaker 2: Appreciate your time, appreciate the around the World tour that
Speaker 2: we got there for.
Speaker 5: Frank to you so much, Thanks Garry.
Speaker 3: That was great.