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Market Commentary: SEC Proposes Amendments to Update Form 13F for Institutional Investment Managers; Amend Reporting Threshold to Reflect Today’s Equities Markets
Washington D.C., July 10, 2020 —
The Securities and Exchange Commission today announced that it has proposed to amend Form 13F to update the reporting threshold for institutional investment managers and make other targeted changes. The threshold has not been adjusted since the Commission adopted Form 13F over 40 years ago.
Form 13F was adopted pursuant to a 1975 statutory directive designed to provide the Commission with data from larger managers about their investment activities and holdings, so that their influence and impact could be considered in maintaining fair and orderly securities markets.
“Monitoring equity holdings of large institutional investment managers is an important part of our regulation and oversight of the securities markets,” said SEC Chairman Jay Clayton. “Today’s proposal will update, for the first time in over 40 years, the 13F reporting threshold to a level that furthers the statutory goal of enabling the SEC to monitor holdings of larger investment managers while reducing unnecessary burdens on smaller managers.”
New Reporting Threshold
In 1978, when Form 13F was adopted, the threshold for filing the form was set at $100 million, the amount in the underlying statute and representing a certain proportionate market value of U.S. equities. Since then, the overall value of U.S. public corporate equities has grown over 30 times (from $1.1 trillion to $35.6 trillion), and the relative significance of managing $100 million has declined considerably. The Commission and staff have received recommendations to revisit the Form 13F reporting threshold from a variety of sources over the years, including from the Commission’s Office of the Inspector General.
Today’s proposal would raise the reporting threshold to $3.5 billion, reflecting proportionally the same market value of U.S. equities that $100 million represented in 1975, the time of the statutory directive. The new threshold would retain disclosure of over 90% of the dollar value of the holdings data currently reported while eliminating the Form 13F filing requirement and its attendant costs for the nearly 90% of filers that are smaller managers. In addition, since the initial 13F thresholds were established in 1978, the Commission has added other data collection tools, including N-PORT.
The proposal includes an analysis of alternate approaches to adjusting the reporting threshold, including the use of consumer price inflation and stock market returns; the increase in Form 13F filers over the past four decades; and the increase in the overall size of the U.S. equities market over time. Under the proposed amendments, the aggregate value of section 13(f) securities reported by managers would represent approximately 75% of the U.S. equities market as a whole, as compared with 40% in 1981, the earliest year for which Form 13F data is available.
Relief for Smaller Managers
The legislative history of the 1975 statute indicates that the reporting threshold of $100 million was intended to capture the largest institutional managers. The proposed adjusted threshold would provide relief to smaller managers who are now subject to Form 13F reporting, while retaining data on over 90% of the dollar value of the securities currently reported.
The proposal includes an analysis of the estimated costs and burdens on smaller managers in filing Form 13F. For example, the proposal estimates that total annual direct compliance cost savings for smaller managers who would no longer file reports on Form 13F would range from $68.1 million to $136 million. In addition, the proposal discusses indirect costs faced by smaller managers, such as those associated with potential front-running and copycatting, which may increase the costs of investing for smaller managers and hinder their investment performance, with potential effects on their portfolios’ owners.
Other Proposed Changes
Recognizing that market conditions will continue to evolve, the proposal also would direct the staff to review the Form 13F reporting threshold every five years and recommend an appropriate adjustment, if any, to the Commission. Additionally, the proposal would eliminate the ability of managers to omit certain small positions, thereby increasing the overall holdings information required from larger managers. The proposal also would require managers to report additional numerical identifiers to enhance the usability of the information provided on the form, and amend the instructions relating to requests for confidential treatment of Form 13F information.
Request for Comment
The proposal will be published on the Commission’s website and in the Federal Register. There will be a 60-day comment period following publication in the Federal Register.
The proposal includes specific requests for comment on the proposed threshold, and whether an alternative method to adjust the threshold should be considered, as well as on the estimates of the burdens and costs to investment managers, particularly smaller managers, in preparing and filing Form 13F.