SEC: Proposal to Increase the Form 13F Reporting Threshold
The IR Society response to the Securities and Exchange Commission's proposed amendments to the Form 13F reporting requirements for institutional investment managers
Vanessa Countryman, Secretary
U.S. Securities and Exchange Commission 100 F Street, NE
Washington, DC 20549-0609
22nd September 2020
Dear Ms Countryman,
Re: Reporting Threshold for Institutional Investment Managers, Release No. 34-89290; File No. S7-08-20
Thank you for giving the Investor Relations Society (“IR Society”) the opportunity to comment on the Securities and Exchange Commission’s proposed amendments to the Form 13F reporting requirements for institutional investment managers.
The UK-based IR Society represents investor relations professionals working for publicly listed companies and consultancies. It has over 800 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250. Our mission is to promote best practice in investor relations; to support the professional development of our members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community.
The IR Society strongly believes that public companies have the right to know who their shareholders are. We believe that companies can only communicate effectively with their shareholders if they can reach them directly through transparent identification and that this in turn promotes investor engagement and responsible behaviour and voting by shareholders.
Whilst we appreciate the Commission’s attention to modernising 13F reporting, our primary concern is that the proposed increase in the reporting threshold for 13F disclosures by 35 times from $100m to $3.5 billion appears to be arbitrary and would have a negative impact on the transparency of share ownership and engagement between issuers and investors. This is contrary to wider sentiment and the tone set by politicians, issuers and investment professionals in the UK and in many overseas jurisdictions in recent times, calling for greater openness in financial markets to promote trust and integrity. The proposal is also contrary to the EU’s Shareholder Rights Directive II, which seeks to improve ownership transparency and foster better engagement between companies and institutional investors.
In our view, alongside the negative impact for US issuers highlighted by organisations such as the National Investor Relations Institute (NIRI), the proposed changes to the threshold will be detrimental to the relationships between UK issuers and US investors.
For example, a number of UK-listed issuers have American Depositary Receipt (ADR) programmes, some of which represent a significant proportion of their share registers. These issuers may be directly affected by reduced visibility over ADR ownership, with small and mid-cap issuers being particularly challenged.
Although imperfect, we believe that 13F reporting is an important tool, not only to enable shareholder identification and engagement between issuers and investors but to facilitate peer analysis and shareholder targeting. Furthermore, this disclosure requirement reduces the ability of activist funds to build undisclosed stakes in companies. Raising the threshold by such a significant amount could leave companies exposed to more disruptive shareholders who are not focused on sustainable long-term value creation.
The IR Society therefore urges the Securities and Exchange Commission not to raise the 13F threshold by 35 times to $3.5 billion, but instead to consider a rational approach, such as to increase the threshold in line with the US consumer price index. It is also supportive of additional proposals put forward by NIRI to modernise 13F reporting. This includes reducing the 45-day reporting window, increasing the frequency of reporting and requiring filers to disclose short positions.
Chair of the Investor Relations Society’s Policy Committee
+44 207 379 5151 / firstname.lastname@example.org
Published 22 September, 2020