Transcript
A bill in the House of Representatives would provide companies with more information about large stockholders. The law would, for the first time, require investment funds with more than $100 million in assets to disclose their derivatives positions on a quarterly basis, as well as their shareholdings. This would give companies information about their shareholder base that is not currently available from public sources.
Ann Beth Stebbins: I wanted to talk about something that I think boards will be very interested in, and it’s something the SEC is doing that’s sort of beneficial for management and boards for a change, and that’s giving boards and management increased visibility into their shareholder base.
I know while you were at the SEC there was an initiative by Chairman Clayton to increase the threshold from $100 million to $3.5 billion under a rule that we call 13F. Rule 13F requires investment funds who meet those thresholds to disclose their investment positions on a quarterly basis. And so, under Chairman Clayton, raising the threshold from $100 million to $3.5 billion to trigger the reporting requirement made company management—well, they were up in arms, right? Because they were using 13F as a tool to track who was investing in their stock.
So, fast-forward a year later, we have the House Financial Services Committee considering legislation that would keep the threshold at $100 million, but do something fairly dramatic, and that’s to include derivatives positions in tracking what investment positions are that these funds hold.
What’s your sense of whether or not this legislation will gain traction, and even if it doesn’t get traction in the legislature, or enough traction to get through the Senate, is this an area where we might see SEC rule making in a more comprehensive approach towards ownership and what ownership means?
Raquel Fox: As you mentioned, when the SEC’s initial proposal came out to raise the threshold, we heard right away concerns about that proposal because many companies look to 13Fs to find out about what certain large investors hold. So, kind of reading the tea leaves, even if this doesn’t pass the Senate, I think the SEC looks a lot towards the House Financial Services and their bills to see what they’re interested in and, even if they don’t take up that legislation, the SEC will often take it up in-house. So, I would say this is a serious contender for rule changes.
One thing that this would really change is it’s going to give public companies more information in closer to real time about who owns their stock, so they’ll have a better sense of a company’s investor profile, as well as how their stock is being traded and used in derivatives including for large holders.
Going back to the old rule, the big thing that it didn’t include is derivatives, so you didn’t get information about swaps, you didn’t get information about OCC options, etc. If this new rule had passed or if the SEC had done something similar—if you had a 13F filer that had 4% of your stock, so he’s not filing other 13Ds or 13Gs but he’s also trading in securities – you’d get a complete picture of what the person’s full beneficial ownership would be.
From a public company perspective, this would really help give them more visibility into what large investors may own and how they’re using derivatives to trade in their stock. So, I would say most companies would give this a thumbs up and they would really hope that either Congress or the SEC would follow through.