The Securities and Exchange Commission today sped up the reporting times for public companies and insider stock trades, acting in response to legislation passed in July.
Companies with market capitalizations over $75 million must file their quarterly and annual reports faster in 2003, and even faster than that in 2004:
Days to File in Calendar '02 '03 '04 After end of quarter (Form 10-Q) 45 40 35 After end of fiscal year
(Form You're Welcome, I mean 10-K) 90 75 60
Investors will also receive insider-trading news faster. Insiders and 10%-or-greater shareholders must file within two business days:
Current New (Eff. Aug. 29) Market trades 40 days 2 business days Trades with company 1 year 2 business days
So is faster better? Not necessarily.
For the quarterly and annual reports, you could argue that what investors want is accuracy. Forcing speed only encourages mistakes, and reforms might be better targeted at accounting issues such as the failure to expense stock options. Frankly, if we've made a long-term investment, we don't think knowing the numbers five, 10, or even 15 days in advance should affect our investing decisions much, if at all.
But shorter time frames will address one gripe we have at The Motley Fool. Most corporations release their balance sheets and income statements in a huge PR flurry, but they withhold the more useful cash flow statement -- which they certainly have available, regardless of their whinnying -- until a quiet SEC filing some days or weeks later. While we doubt that shorter reporting times will mean more cash flow statements at press-release time, at least the wait will be less.
With insider trading, fast reporting matters a lot. First, no officer may trade when in possession of material, non-public information. But what's "material"? We don't want corporate mangers to be calling a press conference or dropping a bundle on a PRNewswire or Business Wire release every time an order comes in or one customer delays. We do want to know when, say, CiscIntSoft (Ticker: BIGG) becomes a customer of or cancels all orders with PunyCorp (Ticker: MINI).
Yet a manager who sees the day-to-day operations can draw conclusions about the business without necessarily knowing anything "material." Let's say she sees the sales people working round the clock and traveling all the time, while her competitor down the street has an empty parking lot filled with tumbleweeds. We'd like to know if she's buying. Insider sells, by themselves, are less revealing. An exec may have a house to buy or college tuition or a divorce settlement to pay, but if we see a lot of execs selling, that's telling. We ought to know that sooner than 40 days or a year into it. Now we will.