In July, the SEC announced proposed amendments to 13F Reporting, to update the reporting threshold for institutional investment managers, as well as a number of other ancillary changes. The major proposed amendment was the increasing of the reporting threshold from $100 million to $3.5 billion.
Recently, it has been reported that the proposal has been resoundingly rejected by the public. As the public comment period for the rule has ended, Goldman Sachs reviewed the 2,262 letters filed with the SEC and found 99% of those to be opposed to the changes, with only 24 in favour.
When the threshold changes were proposed, SEC Chairman Jay Clayton justified the change by suggesting it was needed to “reduce unnecessary burdens on smaller managers”. For those unfamiliar with the 13F filing process, it is a quarterly report, required to be submitted by all institutional investment managers within 45 days of the end of a calendar quarter that discloses their equity holdings. It is a fairly straight forward process, made even easier if you use an automated system like ours – more on that here. It is not something managers, small or large, are having sleepless nights over.
Overall, the rationale for the change to just 13F does not seem to outweigh the potential harm and increased lack of transparency it would bring if implemented. However, if we look at the bigger picture, and remove Jay Clayton’s statement in isolated context of the 13F rules, and apply it to global shareholder disclosure rules, the statement has far greater credibility.
The global shareholders disclosure rules in their current form are an example of pointless and costly complexity. If a Manager is investing in 80+ jurisdictions, then they will have hundreds of different disclosure rules to monitor against and to report for using multiple forms.
The unnecessary differences include:
- Who the rules apply to? (discretionary investment manager, controller of voting rights, legal entity, portfolio, strategy)
- How should positions be aggregated with affiliates and associates
- What are the disclosure thresholds?
- Are the thresholds based on movement from the last holding or passing through a threshold? (swinging or static)
- Whether the limits apply going up through a threshold or also down through a threshold. My favourite is the French private notifications and 0.5% increases and 1% falls in the same issuer.
- Following on from the above – does the company have its own private threshold?
- Does the threshold apply based on the market capitalisation of the company?
- What assets should be included – e.g. whether the rules extend to exposure through convertible securities, derivatives, and depositary receipts
- Do you need to decompose indices and ETFs?
- Delta adjusted?
- What is the relevant country of disclosure?
- How do you treat dual listed stocks?
- Are long and short positions netted?
- When do you calculate your position? Intraday? End of day? Midnight? Last working day of the week? Last day of the month?
- Are there exemptions?
- What is the deadline for disclosure?
- Which form?
- What denominator to use? (Shares Outstanding, Total Voting Rights (inl/excl treasury), Shares Issued, NSI)
The list is endless, but all these questions and more need to be asked regardless if you are a manger investing in 1 jurisdiction or across the world.
Even at a European level where the Transparency Directive was introduced to provide a “harmonised approach” to major shareholder rules, there is still too much inconsistency, with the attempt at harmonisation undermined by the different thresholds, notification forms, and numerous other nuances and national interpretations of the Directive.
So perhaps SEC Chairman Jay Clayton was onto something when he suggested there is a need to “reduce unnecessary burdens”, just not in the isolated context of 13F.
Since 1975, when the 13F rule came into force, market capitalisation is not the only thing to have grown – more managers are now investing in more countries across the globe. This global approach to investing needs to be addressed with a global standardised approach to shareholder disclosures. Only then will we be able to reduce the real unnecessary burdens on managers whilst maintaining transparency and protecting investors.
How we can help!
Whilst a global standardised approach to shareholder disclosure rules may be a long, long way off, if you are interested in reducing your burden immediately, get in touch to learn more about our automated shareholder disclosure offering.
Our automated shareholder disclosure monitoring software provides automated monitoring of global shareholder disclosure rules across 80+ countries on a single platform. This includes the monitoring of:
- Major Shareholdings
- Takeover Disclosures
- Short Selling
- Foreign Investment Rules
- Sensitive Sector Rules
In part 2 of this blog, we will discuss the way forward and a potential global solution to the unnecessary complexity of global shareholder disclosure rules.
