A push is on for the Securities and Exchange Commission to shorten the deadline for large, institutional investors to disclose their holdings from 45 days after the end of each quarter to just two.
A petition for rulemaking in support of that change was submitted on Feb. 1 to the SEC by NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute. Currently, every institutional investment manager overseeing at least $100 million in assets on the last day of any month must report those holdings in a Form 13F filing with the SEC within 45 days of the end of that current quarter. The petitioners request that the deadline, “which has stood for over 30 years despite massive technological advances in recordkeeping and reporting systems,” be shortened to two business days.
The Dodd-Frank Act required the Commission to promulgate rules that obligate managers to publicly report short sale activity at least once every month. The petitioners say that long-position reporting schedules should also be reconsidered with the best interests of investors and public companies in mind.
They wrote that the current delay period “keeps material information from reaching investors and public companies on a timely basis.” For example, a manager making an investment on Jan. 1 is not required to report that holding until May 15, more than four months after the transaction. “Investors have no way of knowing whether what was reported remains current,” the organizations explained.
For public companies, the delay prevents them from identifying shareholders in a timely manner. Reporting on activity during the first quarter of the year may not be accessible until after they have completed their annual proxy process. This “hampers public companies' ability to identify and engage with their shareholders, including their ability to consult [with them] regarding such corporate governance issues as “say on pay” and proxy access,” the petition says.
Public issuers, the petitioners noted, have as much need to identify who is not a shareholder, as who is. Some activist hedge funds, for example, may try to exert influence based on past positions that have already been sold. This is particularly problematic because institutional investors often have a shorter-term investment horizon. Hedge funds, which manage more than $2 trillion in assets, have an average turnover rate of 35 percent per quarter.
The three organizations dismissed claims by managers that having to disclose their holdings more quickly would negatively “tip their hand to the market.” They countered that reducing the longstanding delay would improve shareholder engagement, something they noted the American Bar Association, Business Roundtable, and proxy advisers, among many others, have championed.