EDITOR NOTE: The SEC is proposing changes to its Form 13F which, since 1978, required all institutional asset managers with an AUM of $100 million to report their holdings. This allowed smaller investors to see exactly what the ‘smart money’ is doing. The SEC is considering raising the reporting threshold to $3.5 billion, as the size of the industry had risen significantly in the last 40 years. As compared with most non-institutional investors, the original threshold of $100 million is still quite high. So, what this means overall in the equity markets is that there’ll be even less transparency than ever. Not helpful at all (in fact, a big disadvantage) for the average investor.
John Paulson, Stanley Druckenmiller and George Soros are among billionaire investors who would no longer have to reveal which stocks they own under a U.S. plan to ease disclosure rules -- hardly the smaller fund managers that regulators say the overhaul is supposed to benefit.
The SEC announced in a press release late last week that they were considering amending Form 13F to update a reporting threshold for institutional investors to a new standard that would all but eliminate the point of the filings to begin with.
Form 13F was put into place in 1978 to give transparency about larger institutions and their holdings. The threshold has not been changed for the last 40 years, which has prompted Jay Clayon's SEC to raise the reporting threshold to $3.5 billion.
This would cut out almost 90% of all institutions that currently file Form 13F, all but eliminating it.
SEC Chairman Jay Clayton claims the change is to reduce the burden on smaller managers while keeping the same oversight on large positions from the biggest institutional managers.
“Monitoring equity holdings of large institutional investment managers is an important part of our regulation and oversight of the securities markets. 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,” Clayton said.
The agency estimates $68 million to $136 million in compliance costs could be saved by smaller managers: "The proposal estimates that, for smaller managers that would no longer file reports on Form 13F under the proposed threshold, these direct compliance costs could range from $15,000 to $30,000 annually per manager, depending on certain factors, resulting in direct compliance cost savings for these managers per year ranging from $68.1 million to $136 million."
The SEC justifies the move by citing the growth in public equities since 1975. "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," it said.
It continued: "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."
The SEC also says the new rules will retain 90% of the dollar value that is currently being reported: "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."
However, almost 90% of all managers that are forced to report will no longer be required: "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."
The proposal will be now be published on the Commission’s website and in the Federal Register, which will be followed by a 60-day comment period.