By raising the disclosure threshold to $3.5 billion, the SEC estimated that industry compliance costs would be cut by as much as $136 million a year. The agency added that almost 90% of smaller fund managers would no longer have to file 13Fs, but more than 90% of U.S. stock holdings currently reported would continue to be publicly disclosed.
In its proposal, the SEC discounted the impact of fewer firms submitting 13Fs because the agency gets much of the information through other means, such as different documents and its routine surveillance of markets. Smaller fund managers have advocated for being exempt from 13Fs.
An SEC spokeswoman declined to comment.
The SEC has long debated the $100 million trigger, which hasn’t changed since 1978. In its proposal, the regulator said among those advocating for an update was the agency’s own inspector general’s office, which wrote a report on the topic in 2010 suggesting that the SEC tie an increase to inflation. In today’s dollars that would be about $490 million.
Another group the SEC cited as supporting a higher reporting level is the National Investor Relations Institute, whose members include executives at 1,600 public companies.
NIRI spokesman Ted Allen said his group does back an increase but mostly as a bargaining chip. Heightening the threshold was offered as an “olive leaf to the investment community” so it wouldn’t fight NIRI policy goals of requiring shareholders to file 13F reports more frequently and the disclosure of short positions, Allen said. He added that many companies rely on 13Fs to find out who owns their stock and that the SEC’s $3.5 billion proposal is more aggressive than what NIRI had in mind.
“If this rule goes through, you will see more small and mid-sized companies getting ambushed by hedge funds,” Allen said. “This will increase activism in all of the mid-cap companies because there will be less transparency.”
Even if the SEC approves its proposal, funds that acquire more than a 5% stake in a public company would still have to disclose such holdings and any activist intentions within 10 days. Such positions must be revealed in separate filings known as 13Ds.
Andrew Park, a senior policy analyst at Americans for Financial Reform, raised an additional concern about the SEC’s plan: Elevating the threshold as high as the regulator proposes might give fund managers an incentive to cut their investments at the end of quarters, or enter into derivatives transactions that don’t count toward the $3.5 billion level.
“I’m certain you could see firms that want to cap at $3.5 billion,” said Park, whose Washington-based group is often critical of Wall Street. “There’s a pretty stark difference of having $3.49 billion versus $3.51 billion given these reporting requirements.”
This article was provided by Bloomberg News.