MFA submitted a letter to the Securities and Exchange Commission (SEC) alongside a Report assessing economic analysis of the SEC’s cost-benefit analysis of semiannual reporting.
The Report found the following insights:
- The Proposed Amendment monetizes paperwork and compliance-cost savings while leaving
significant capital-market costs largely unquantified. - The Proposed Amendment’s estimated net benefits depend heavily on a single, assumed 20%
adoption rate that receives limited support in the Proposed Amendment and is materially higher than available real-world evidence. - The Commission acknowledges but does not quantify several important cost channels that may arise from reduced reporting frequency, including increased information asymmetry, reduced liquidity, higher costs of capital, reduced price informativeness, diminished comparability, weaker investor monitoring, and switching-related costs.
- Even modest increases in issuers’ cost of equity could generate shareholder losses that dwarf
the Commission’s estimated compliance cost savings. - The Proposed Amendment creates a recurring reporting-cadence election that may allow issuers to act on private information, raising agency-cost and adverse-selection concerns.
- Reasonable alternatives could preserve issuer flexibility while reducing transparency-related
costs and opportunistic switching incentives.
