Securities Enforcement and Regulatory Update

SEC Proposes Amendments to Increase Form 13F Reporting Threshold

July 15, 2020

On July 10, 2020, the U.S. Securities and Exchange Commission (SEC) proposed amendments to Rule 13f-1 under the Securities Exchange Act of 1934 (Exchange Act) and Form 13F (Proposed Amendments) that, among other things, would increase the filing threshold from $100 million to $3.5 billion.¹

Currently, under Section 13(f) of the Exchange Act, institutional investment managers² who exercise investment discretion over accounts holding certain U.S. equity securities having an aggregate fair market value of at least $100 million generally are required to file quarterly Form 13F reports. The Proposed Amendments would significantly increase this reporting threshold from $100 million to $3.5 billon. In addition, the Proposed Amendments include the following other proposed changes to Rule 13f-1 and Form 13F and directives:

directing the staff to review the Form 13F reporting threshold every five years and recommend an appropriate adjustment, if any
removing the ability of managers that exceed the increased threshold to omit certain small positions from Form 13F³
requiring the reporting of certain numerical identifiers on Form 13F⁴
updating the confidential treatment instructions to conform to the standard articulated in a recent decision by the U.S. Supreme Court⁵
certain other technical changes to Form 13F⁶

The SEC indicated that the Proposed Amendments are intended to modernize Form 13F reporting requirements for institutional investment managers, which have not been updated in over 40 years. Notably, the increased reporting threshold in the Proposed Amendments would relieve the vast majority of managers from needing to file Form 13F. The SEC’s two central reasons for the Proposed Amendments are (i) the expansion in the overall size of the U.S. equities market since Rule 13f-1 and Form 13F were adopted and (ii) the compliance costs incurred by smaller managers, both directly in the course of maintaining systems to track and analyze their Form 13F filings obligations and prepare quarterly Form 13F reports and indirectly via the potential for front-running and copycat trading by other market participants.

The SEC will likely receive comments opposing the Proposed Amendments, given the resulting decrease in market disclosure, but other industry participants who are captured under the current lower threshold will probably overwhelming support them.

Comment Period

The SEC’s proposed changes to Rule 13f-1 and Form 13F will be published in the Federal Register, and comments should be submitted to the SEC on or before 60 days after it is published in the Federal Register. This means that unless extended, the comment period would expire in late September. Given the timeframe to review comments and prepare an adopting release, it is expected that any amendments to Rule 13f-1 would not occur until the end of 2020 or early 2021. The timeframe for such action, and the form of any amendments, could likely depend on the results of the 2020 election.

¹ “Reporting Threshold for Institutional Investment Managers,” Exchange Act Release No. 34-89290 (July 10, 2020), available at https://www.sec.gov/rules/proposed/2020/34-89290.pdf.

² The term “institutional investment manager” is broadly defined as an entity that either invests in, or buys and sells, securities for its own account. Institutional investment managers include, for example, banks, insurance companies, broker-dealers, corporations and pension funds that manage their own investment portfolios.

³ Per the current Form 13F Special Instructions, a manager may omit holdings otherwise reportable if the manager holds, on the period end date, fewer than 10,000 shares (or less than $200,000 principal amount in the case of convertible debt securities) and less than $200,000 aggregate fair market value (and option holdings to purchase only such amounts).

⁴ Specifically, the Proposed Amendments would require managers to provide its central registration depository (CRD) number and SEC filing number, if any, as well as the CRD and SEC filing number for other managers in the “List of Other Managers Reporting for this Manager” table on the cover page.

⁵ See Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356 (2019). The Supreme Court held that when the owner of financial information presents the information as private to the government, with the intent and continued understanding of privacy, the information is "confidential" within the meaning of the Freedom of Information Act, Exemption 4.

⁶ For example, the SEC proposed to change the rounding conventions of the Form 13F by requiring all dollar values identified on the Form 13F to be rounded to the nearest dollar rather than $1,000 as is currently required.

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