Author: Ian Meiksins
The SEC has proposed a substantial leap in the reporting threshold of Form 13F. Form 13F, as it currently stands, requires advisors who manage $100 million or more in exchange trade equities to publicly disclose their holdings. The SEC’s new proposal would move the $100 million marker to $3.5 billion.
The original rule that required the filing of Form 13F was adopted in 1975 and has remained relatively unchanged in the subsequent 45 years. Even by the slow-moving pace of regulatory rule changes, this change seems long overdue.
The SEC claims that around 4,500 investment managers currently file a 13F. Under the new reporting threshold, only about 1,200 managers would exceed the $3.5 billion threshold, based on the total assets reported on ADVs in March 2020. The number of actual filers would likely be significantly lower, with advisors having positions deemed “not-reportable” under the 13F rule such as, cash and open-end mutual funds. Even with lowering the number of advisors reporting, the SEC estimates that 75% of the U.S. equities market would be reported under the new 13F.
Not all SEC commissioners were entirely pleased with the proposed rule. Commissioner Allison Lee dissented strongly and raised concerns regarding lack of authority to increase the threshold and the analysis the SEC conducted on savings in compliance costs:
“I am concerned that the projected cost savings in today’s proposal are greatly overstated and wholly inconsistent with the Commission’s past analysis—and, importantly, that the actual cost savings do not justify the loss of visibility into portfolios controlling $2.3 trillion in assets”
It should be noted that the proposal also eliminated some parts of the current 13F filing, for example the ability for advisors to omit small positions and it would require the SEC to review Form 13F every five years to recommend adjustments. Unfortunately, the proposal still calls for the 13F to be filed with the existing EDGAR system, which feels as if it was created in 1975 along with the original rule.
The SEC is requesting comments during the 60-day period following its proposed rule. We will continue to track the progress of updates to this rule, as it would have an impact on a large number of advisors in the industry.