On July 10, 2020, the U.S. Securities and Exchange Commission (“SEC”) released proposed changes to the rule requiring institutional managers to file Form 13F reports.
The changes include raising the reporting threshold from $100 million to $3.5 billion and eliminating the exclusion of smaller positions from the Form 13F report.
The aim of the proposed changes is to update the Form 13F reporting thresholds to ensure that they reflect the values of current equity markets instead of the values that were appropriate in 1978 when the Form 13F report was introduced. It also creates relief for smaller investment advisers that have been required to file Form 13F reports under the current threshold.
There will be a 60-day period for public comments following the publication of the proposed rule change in the Federal register.
Read the press release here.
Background on Form 13F Reports
Rule 13f-1 was introduced in 1978 in light of a 1975 statutory requirement created by the SEC to track the holdings and investment activity of large institutional managers in the equity markets.
Currently, the rule requires that institutional managers that hold over $100 million in certain equities (“13(f) securities”) as of the last day of any month during the calendar year, are required to file a 13F report with the SEC 45 days after the end of each quarter of each year in which the institutional manager maintains over $100 million in 13(f) securities.
The SEC set the reporting threshold of $100 million, which represented a proportionate amount of equities in the marketplace held by large institutional managers in 1978; however, as markets have grown exponentially over the past 45 years, the $100 million threshold has remained static and is so low that it has reduced the significance of the threshold while placing a burden on smaller managers to meet the reporting requirements.
Proposal to Update the 13F Report Thresholds
The SEC’s new proposal would do the following:
- Raise the reporting threshold from $100 million to $3.5 billion;
- Require that managers reporting 13(f) securities include smaller positions;
- Provide much need relief to smaller advisers; and
- Require that the SEC review the threshold every 5 years to ensure that it remains relevant and accurate.
By raising the threshold to $3.5 billion, the number of large institutional managers that represent the equities market would remain proportionate to the percentage of large institutional managers represented by the threshold in 1975. The new threshold requirements would retain 90% of the current market data while relieving the requirements and costs of filing 13F reports for 90% of smaller managers.
Institutional managers that would be required to continue filing Form 13F reports would need to include smaller positions, thereby eliminating the exclusion of positions that are smaller than 10,000 shares and $200 thousand. This would be done to increase transparency and provide additional data with respect to the equity securities that the institutional managers hold.
Next, by requiring that the SEC reviews the threshold every 5 years, the SEC will be ensuring that the thresholds are revisited more often to ensure that the number of institutional managers required to submit the Form 13F reports remains proportionate to the number of equities held in the market place.
Lastly, by raising the threshold the SEC will be providing much-needed relief to smaller institutional managers in order to eliminate the time and expense required of these smaller institutional managers to file the reports under the current threshold.
Read the text of the proposed rule here.
What Should I Consider When Reviewing the Proposed Form 13F Changes?
Firms should begin by reviewing the proposed rule to determine if they would be subject to submitting the Form 13F reports under the new threshold requirements. If a firm is still required to submit the Form 13F report, they should determine if any internal reporting engines or third-party programs that assist with generating the Form 13F reports need to be adjusted to meet the new requirements to capture smaller positions. Firms should also evaluate their policies and procedures and determine if they need to be amended to reflect the new requirements including the revised thresholds and inclusion of smaller positions. Additionally, Firms that currently include the holdings of other institutional managers as part of their Form 13F reports, but may no longer be required to submit Form 13F reports under the revised threshold, should consider reviewing their existing sub-advisory and co-advisory agreements to determine if the agreements need to be updated in light of the changes.
Jacko Law Group can help your firm with analyzing the SEC’s proposed rule changes; determine if your Firm is still subject to the Form 13F reporting requirements; update existing policies and procedures to ensure compliance with the revised rule should it come into effect; provide guidance on how to implement steps for reporting smaller positions; and, review existing sub-advisory and co-advisory agreements to determine if they should be updated in light of the rule change. Our team of attorneys will use our extensive experience to assist you with determining if you are still subject to the Form 13F reporting requirements under the rule changes and making sure that you have adequate controls in place to remain compliant.
Robert D. Conca is a Partner at Jacko Law Group, PC. His practice includes representation of investment advisers, broker-dealers, private funds, and non-financial industry companies, and their personnel, in a variety of ...
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