SEC Proposes Amendments to Update Form 13F

The Securities and Exchange Commission (SEC) has recently proposed to amend the reporting threshold and make certain other changes to Form 13F. It should be noted that this is the first time the reporting threshold would be adjusted in more than 40 years since the SEC first adopted Form 13F.

Background

Adopted in 1975, section 13(f) of the Securities Exchange Act of 1934, as amended (the Securities Exchange Act), requires that investment managers file a report with the SEC if they exercise investment discretion with respect to accounts holding certain equity securities having an aggregate fair market value on the last trading day of any month of any calendar year (Aggregate Value) of at least $100 million. Through SEC rulemaking, the SEC implemented the reporting requirement of section 13(f) by adopting Rule 13f-1 of the Securities Exchange Act and Form 13F.

The information reported on Form 13F becomes publicly available upon filing, unless the investment manager has filed a Form 13F CTR requesting confidential treatment of such information and the SEC has approved such request.

Reporting Threshold

As the SEC noted in its Press Release, the current reporting threshold of $100 million was intended to capture the largest institutional managers at the time the legislation was passed. This threshold obligated 300 investment managers to file Form 13F, and these 300 managers constituted approximately 75 percent of the dollar value of all institutional equity security holdings. Due to an increase in the size of the U.S. public corporate equity market of more than thirtyfold, the market significance of managing accounts with at least $100 million of Aggregate Value has substantially decreased. As a result, 5,089 investment managers now exceed the Form 13F threshold. In order to bring the Form 13F filing obligation back in line with its original intent, the SEC has proposed raising the reporting threshold to $3.5 billion.

Other Proposed Changes

The SEC also proposes having the SEC staff review the Form 13F reporting threshold every five years and recommend any appropriate adjustments to ensure that there is continued alignment with the size and structure of the equities market. In addition, the proposal would eliminate the ability of investment managers to omit disclosing certain small positions on their Form 13F filing (i.e., holdings of fewer than 10,000 shares (or less than $200,000 principal amount of convertible debt securities) and less than $200,000 aggregate fair market value). The SEC is also proposing to have investment managers include additional identifying information¹ as part of the Form 13F filing. Finally, the standard applied to evaluating requests for confidential treatment of the information disclosed in the filing would be modified. The investment manager would need to (i) demonstrate that the information being disclosed is both customarily and actually kept private by the investment manager and (ii) show how the release of this information could cause harm to the investment manager.

Effects of the Proposal

By adjusting the reporting threshold, the proposed amendments to Form 13F would significantly reduce compliance burdens for smaller investment managers. At the same time, the proposal seeks to add certain requirements for those investment managers that will meet the new threshold in an effort to enhance the collection and publication of data. Thus, it seems that part of the motivation for these proposed amendments was to provide regulatory relief to smaller investment managers and thereby seek to promote a more level playing field. The proposal notes that “for smaller managers, the … reporting threshold increase is likely not only to enhance competition by lowering the cost to participate in the market but also to promote efficiency, which can benefit investors in the form of lower management fees and/or enhanced services.”

Request for Comments

The proposal includes specific requests for comment on the proposed higher reporting threshold, whether an alternative method to adjust the threshold should be employed, and the SEC’s estimates of the costs and burdens to investment managers (in particular, small investment managers) in preparing and filing Form 13F. There will be a 60-day comment period following publication in the Federal Register.

The proposed rule can be found here.

¹ _{To the extent an investment manager has been assigned these numbers, an investment manager will have to provide (i) the number assigned to the investment manager by the Central Registration Depository system of FINRA or by the Investment Adviser Registration Depository system and (ii) a filing number assigned to the manager by the SEC.}