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E-MailGary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent public statement. The views expressed in the post are those of Chair Gensler, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.
Today [Feb. 10, 2022], the Commission proposed to shorten the deadlines by which beneficial owners of a company — those who own at least 5 percent of the company — have to inform the public and other investors of their position. I am pleased to support this proposal because it would update our reporting requirements for modern market, reduce information asymmetries, and address the timeliness of two key filings.
In 1968, Congress mandated that large shareholders of public companies disclose information that helps the public understand their ability to influence or control that company. Under current rules, beneficial owners of more than 5 percent of a public company’s equity securities who have control intent have 10 days to report their ownership.
Congress also closed a loophole in 1977 to ensure that significant owners without control intent also provided disclosure to the market (via Schedule 13G). Congress left those filing deadlines to the discretion of the Commission.
We haven’t updated these deadlines in decades. Those decades-old rules might’ve been appropriate in the past, but I think we can update them given the rapidity of current markets and technologies.
In the wake of the 2008 financial crisis, Congress came back to the issue of 13D filings. Under the Dodd-Frank Act, Congress gave the SEC the authority to shorten the beneficial ownership reporting deadline. Today’s proposal thus makes use of that authority.
The changes in today’s proposal would reduce information asymmetries and promote transparency, thereby lowering risk and illiquidity. Specifically, it would do three things:
First, it would shorten the filing deadlines for Form 13D and Form 13G from 10 to 5 days, and 45 days from the end of the year to 5 business days from the end of the month.
The filing of Form 13D can have a material impact on share price; that means activist investors currently get to withhold market moving information from other shareholders for 10 days after crossing the 5 percent threshold. This creates an information asymmetry between these investors and other shareholders.
Second, today’s proposal would clarify when and how certain derivatives acquired with control intent count towards the 5 percent threshold for reporting.
Third, today’s proposal would clarify group formation and related exemptions, largely consistent with existing staff and Commission views as well as the statutory provision itself. [1]
I am pleased to support today’s proposal and look forward to the public’s feedback. I would like to recognize and thank the hard work of our dedicated staff, specifically:
- Renee Jones, Erik Gerding, Connor Raso, Michele Anderson, Ted Yu, Nicholas Panos, Valian Afshar, Anne Krauskopf, Chris Windsor, and Wilson Guarnera in the Division of Corporation Finance;
- Dan Berkovitz, Megan Barbero, Bryant Morris, Alex Ledbetter, and David Russo in the Office of the General Counsel.
- Jessica Wachter, Oliver Richard, Lauren Moore, Jill Henderson, Robert Miller, Vlad Ivanov, Qiao Kapadia, Charles Woodworth, Tasaneeya Viratyosin, Matthew Pacino, Julie Marlowe, PJ Hamidi, Gregory Scorpino, Mike Willis, and Walter Hamscher in the Division of Economic Risk and Analysis;
- Brian Johnson and Michael Neus in the Division of Investment Management; and
- Carol McGee and Andrew Bernstein in the Division of Trading and Markets.
Endnotes
1The Commission in a ’98 release articulated policy concerns similar to those that underlie this proposed exemption. For example, in a rulemaking effort in the late 1990s, the Commission took steps to ensure that “the Section 13(d) reporting obligations [do not] restrict a shareholder’s ability to engage in proxy related activities,” including their “ability to use the proxy rule exemptions that were adopted in 1992 to facilitate communications among shareholders.” Amendments to Beneficial Ownership Reporting Requirements, Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)] at 2858. In adopting those proxy rule exemptions, the Commission noted that “[t]he purposes of the proxy rules themselves are better served by promoting free discussion, debate and learning among shareholders and interested persons.” Regulation of Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 1992) [57 FR 48276 (Oct. 22, 1992)] at 48279.(go back)
