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00:00U.S. are required to report earnings every quarter, but that could change this week.
00:04The U.S. Securities and Exchange Commission unveiled a new proposal that would require
00:08companies to report earnings semi-annually. That's just twice a year.
00:11The current SEC chair, Paul Atkins, said the proposed change would, quote,
00:14provide companies with increased regulatory flexibility.
00:18Critics say less frequent reporting could heighten the risk of insider trading.
00:21Joining us now on set is a former chair of the SEC, Gary Gensler,
00:24now a professor at MIT, and the co-host of a podcast called Power and Consequences.
00:30I'll ask you plainly first. Is this a good idea?
00:32Is the move away from quarterly reporting to semi-annual reporting a good idea?
00:36No. I think this is really a solution in search of a problem.
00:42I think transparency is really important in our capital markets.
00:46You just had a report about transparency about UFOs. This is a little bit different.
00:50But we've been doing this actually for a very long time,
00:54and I think it's part of why our American capital markets are so good.
00:59Investors, people watching this show, or the big investors that maybe don't watch one Saturday morning.
01:06I hope they will.
01:07They get that information on a quarterly basis, and so it's more timely.
01:13And what studies, economic study after economic study has shown,
01:17that that's a good thing.
01:19That creates a market environment where you can get a little higher price-earnings ratio,
01:25and a little less cost of capital because your investor base knows what's going on.
01:30What do you say to the CEOs who complain that this is onerous and too much of their life is
01:34taken up
01:35having to prepare for these earnings releases and earnings calls?
01:38And is that who's pushing for this? That's my question.
01:39I think in part.
01:40Who wants this? Yeah.
01:41You know, it's really interesting.
01:43Like, who really is looking for this?
01:45In President Trump's first term, which we'll call Trump 45,
01:49he also called for this, and his then-SEC chair, Jay Clayton,
01:54did some public roundtables, put out what's called a concept release, and then didn't do it.
02:00And I think maybe the president, even though I think he still likes Jay Clayton,
02:04He might have felt—
02:05Is he a U.S. attorney here in New York?
02:06He is. He is.
02:07But he may have felt a little slow walked on that, and Trump 47 has come back.
02:12And so I think the president really wants it, but I really don't think the capital markets want it.
02:18Does this make insider trading and malfeasance easier to conceal if you don't have to report quite as regularly?
02:25It's just a little bit easier.
02:29I want to caution, like, every six months putting out information means that our markets will be a little bit
02:37more volatile,
02:38those earnings releases, and this is a voluntary system.
02:42So it's interesting what the SEC is saying.
02:44They're saying, we just want to make flexibility the roots of all of this.
02:49And there's a great study in the 1960s.
02:54The individual went on to get a Nobel Prize, George Ackaloff, who is Janet Yellen's husband.
03:00Husband, yes.
03:00Yes.
03:00And George wrote about the problem with lemons, and he was talking about the used car market.
03:08Okay.
03:08And he said the problem is if you don't have enough information, you don't know which cars are the lemons,
03:14and thus it lowers the pricing of even the good cars.
03:18And so put that in the stock market.
03:20If you let it be flexible, the lemons might not report, but you don't know who the lemons are,
03:27and so it might lower the valuation in the overall markets.
03:30Interesting.
03:31Just a question about the mechanics of this.
03:32So we have this proposal, 60-day period in which the public can comment.
03:36You've lived through many of these, both at the CFTC and the SEC.
03:39What happens at the end of that comment period?
03:41Where are we in this process?
03:42Well, the staff pulls together all the comments, puts together a lot of things for the commissioners,
03:47there's only three Republican commissioners now, and makes a recommendation.
03:52Generally speaking, from this time to finalizing a rule takes anywhere from 18 to, I'd say, 30 months.
04:00But with the clock ticking on the Trump administration, this agency might decide to move forward within that time frame.
04:09I think it's up to investors.
04:10I think it's up to listeners of this program to say, small investors, large investors, academics, news organizations say,
04:18no, quarterly reporting is what we need.
04:20And then, really, the key is, do some companies, some issuers say, you know, we should do this anyway?
04:27You know, before the SEC actually made it mandatory in 1970, the New York Stock Exchange in 1926 said we
04:35should move to quarterly reporting.
04:36This is a 100-year-ago thing.
04:38And by the early 1950s, 90% of companies were doing it.
04:43But to all the points you just made, is this a fait accompli, or do you think there's room for
04:46them to change their mind on this decision?
04:48I think there's a public comment period, and it really is important, whether it's the media and especially large companies,
04:57investors, and so forth, who might get in the ear of this White House.
05:02Another question about disclosures, and we're going to watch you deftly dodge the question that I put to you here.
05:06No, David, no.
05:08Hang on, I'm going to get comfortable.
05:10We have Elon Musk agreeing to a $1.5 million settlement with the SEC over the fact that he didn't
05:16disclose the position that he'd taken in Twitter before he bought the company in a timely fashion.
05:20That now goes before a judge this week, which I gather is customary.
05:24A judge can say, I want to hear out the reasons for coming to this settlement.
05:27Your reaction to that?
05:28I should say you were at the SEC when this issue came about.
05:32Well, and you wanted me to get up and dance because, look, I ran a civil law enforcement agency, so
05:38I can't comment on any individual thing that we worked on, but it's about transparency.
05:43And Congress in the 1960s came together.
05:48There was a Senator Williams from New Jersey, the Williams Act, and said, we need disclosure about when somebody's accumulating
05:56shares in a company.
05:57If you accumulate over 5 percent, which Mr. Musk did, then you need to report to the public that you
06:06have some intent to control.
06:07And I'm proud that when I was chair of the SEC, we shortened that time period from 10 days to
06:13five days because that's really material, non-public information that there's somebody accumulating.
06:20And what happens generally when it's announced, the stock pops.
06:24And so Christina talked about insider trading.
06:27What happens in those five days until it's announced and who knows about it, which lawyers know about it, what
06:33insiders, not insiders in the company now, insiders in the acquirer.
06:37So that's a really important thing.
06:39This is not just a small little traffic violation.
06:43That transparency in the markets really helps the public.
06:47But how is the enforcement of that?
06:49Is it robust or is it hard to enforce a lot of these rules, this one in particular?
06:53Well, it first comes from a little backbone from the administration.
06:57The cop on the beat matters.
06:59And if the cop on the beat enforces and says – and the law on this is not an intent
07:06law.
07:07It's what lawyers call per se.
07:09It's just like you've gone too long.
07:12That's a violation.
07:13I don't know.
07:14It's just sort of straightforward stuff.
07:16I want to pivot to the summit that's coming up this week, President Trump going to Beijing to meet with
07:21President Xi.
07:21We were talking with Ambassador Burns about the work that he did laying the groundwork for the three summits that
07:25President Biden had with the Chinese president.
07:27You also were involved in these issues when you were at the SEC.
07:30We have seen over the last few weeks the Chinese administration really pushing back on foreign investment in Chinese tech
07:36companies in particular.
07:38I would love to get your sense of where things stand.
07:40They have been so reliant on Western capital for so long now.
07:44Is it worrisome?
07:45Should it be worrisome to capital markets now that we see this kind of prohibition in place by the Chinese
07:49government?
07:49I did work closely with Nick, and we worked with the Chinese, and we successfully got the Chinese to agree
07:55that their companies here in the U.S., the Chinese companies in the U.S. would comply with our laws.
08:02And for 20 years previously, folks weren't successful.
08:06So thank you, Nick Burns.
08:08We were proud to do that as well.
08:09And I think that was good.
08:10That's good for the U.S. capital markets that we kept those companies here because we're like half the world's
08:16capital markets.
08:17And back to our earlier point, I don't want to adopt the European approach.
08:21That capital markets has semi-annual reporting.
08:23It's not as good.
08:25But in terms of what's happening this week, for those of you who don't want to listen to Simon &
08:31Johnson and I do have an episode coming out Monday on China.
08:36Shameless tease.
08:36I like that.
08:37Yeah, yeah.
08:37Shameless tease on power and consequences.
08:39But my thought is on the table is the Chinese do want to get a little bit loosening on Taiwan.
08:47Nick talked about that.
08:48The president wants to have some deliverables and announceables maybe on soybeans and other things for it's an election year
08:55for the farm belt.
08:57And then business community wants sort of a lowering of the tension on trade and tariffs.
09:03And there would be real questions.
09:05Will the president give President Xi something on Taiwan?
09:09They're already holding up a military sale of about $11 billion.
09:14And Nick would like to have that continue.
09:17But it would be really interesting what happens there.
09:19And I think China is stronger today than they were 18 months ago.
09:24I think the war in Iran has strengthened China.
09:29And China now seems like, well, there may be an alternative to the U.S.
09:34Now, how that plays out in the capital markets, of course, if they don't settle things down this week or
09:41kick the ball down the field, which I think that's what President Trump wants to do electorally, kick the ball
09:47down the field.
09:49Then capital markets might fall off.
09:52We're short on time.
09:53Before I let you go, I do want to ask you about oil, which you talked about almost the whole
09:55time you were here last year, last time.
09:57So we only have one oil question.
09:58But, you know, we saw Brent crude plunge nearly $10 a barrel early on Wednesday after you had this report
10:04that the U.S. and Iran were nearing an agreement.
10:06And about an hour before that was published, traders exchanged $700 million in oil futures, raising suspicions of possible insider
10:14information.
10:15The reporter for Axios, Barack Ravid, of course, is forcefully denying those allegations.
10:19Why is it something the government is watching so closely?
10:22Well, look, there's a real challenge around protecting markets, the integrity of markets against insider trading.
10:29And over and over again, we've seen it this year, these happenings where somebody gets into a market.
10:37Maybe they're going into poly market or calci.
10:39Yeah.
10:40But here sometimes it's even going into the oil futures markets.
10:44I think the oil futures markets are better supervised than the calcies and poly market.
10:51And so that's going to have to play out.
10:53But I definitely think that Congress should pass some laws that the government actors can't trade in these prediction markets.
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