If you thought the discussion around 13F reform would quieten down after the SEC’s unpopular proposal to raise the reporting threshold last year, you’re in for another surprise at the hands of Reddit investors.
Pawel Chomicki published a Change.org petition yesterday (January 29) to demand greater market transparency through 13F reform, in response to the dramatic increase in share price of GameStop, AMC Entertainment and others, and the decision by select brokers to place a temporary halt on buying activity. The petition has received more than 12,000 electronic signatures, as of 7.00 pm EST on January 29, and has been upvoted by almost 15,000 Reddit users and shared to 10 different sub-Reddits.
Unlike the SEC’s proposed changes to 13F filings last year, which were widely panned for recommending an increase of the filing threshold to $3.5 bn, Chomicki’s petition calls for ‘a re-evaluation of transparency requirements for institutional investors.’
Chomicki tells IR Magazine he hopes the petition will bring three questions to the attention of individual investors: why are institutional investors only required to publish their holdings every three months?; why does it take one month for those filings to be released?; and why isn’t the disclosure of short positions mandated?
Chomicki studied the financial markets, mathematics and statistics at university before working in software development at Wealth Simple – a Canadian investment management app for millennials – and Delphia, which aspires to be a hedge fund for retail investors.
In his petition, Chomicki writes that ‘there is a tremendous disparity in access between retail and institutional investors, and [we] are concerned that this access is being used against us’.
Chomicki elaborates on this: ‘What’s unfortunate is that institutional investors have access to public data but also access to data that [individual investors] don’t have… the financial industry has a vested interest to maintain the status quo. But not everyone gets to have it their way. Industries change and that forces businesses to have to reinvent themselves. Retail investors have shown an appetite for quality research and due diligence and there’s probably room for lots of business models to empower active investors to make smarter decisions. Maybe that means opening up access to that data.’
Chomicki is referring to alternative data – from credit card spending to social media sentiment – which he feels creates ‘a bifurcation in the market’. Alternative investment data is now a $1 bn industry, according to a recent report in the Financial Times.
Chomicki calls on signatories of his petition to also contact the SEC and express their concern. When asked whether it had received an increase in questions from retail investors about 13F reform today, the SEC declined to comment.
Parallels with NIRI’s advocacy work on 13F reform
The concerns of Chomicki and the thousands of individual investors who have signed his petition are closely aligned with NIRI’s years-long lobbying efforts on 13F reform.
NIRI filed a petition with the SEC in 2013, along with the NYSE Group, to call for the shortening of the 45-day 13F reporting period. In 2015 NIRI filed a second petition that called for the SEC to implement a Dodd-Frank Act mandate to require the public disclosure of short positions.
In 2020 it backed another rule-making petition to address ‘short and distort’ tactics by negative activists, which was filed by Columbia University Law Professors John Coffee and Joshua Mitts. Of course, NIRI also strongly opposed the SEC’s proposed increase to 13F filing thresholds.
Ted Allen, vice president of communications and member engagement, tells IR Magazine that NIRI ‘welcomes the support of Redditors and other retail investors in encouraging the SEC to modernize the 13F disclosure rules, which have not been updated since the 1970s.
'We encourage the new SEC chair to hold a public roundtable and/or appoint a working group of issuers and investors to develop recommendations to improve ownership transparency. The events of this past week demonstrate that a significant number of retail investors share NIRI’s concerns about transparency and hedge fund activism, and we hope the SEC will finally take action.
‘NIRI also plans to support Senator Tammy Baldwin’s [D-Wisconsin] 13D modernization bill when that legislation is reintroduced this year. The SEC’s outdated 13F and 13D rules have allowed hedge funds to conceal their activities and profit at the expense of other investors, and it’s time for the SEC to provide a more level playing field for all investors.’
The global financial crisis and ‘an Occupy Wall Street sentiment’
For some of the Reddit investors who participated in GameStop, AMC Entertainment and other options trading during the last month, this represents an opportunity to inflict a form of revenge for the global financial crisis in 2008.
In an emotive 900-word post to r/WallStreetBets (WSB) yesterday, Redddit user SSauronn wrote about the toll the financial crash had on their family. ‘Do you know what tomato soup made out of school cafeteria ketchup packets taste like? My friends got to find out,’ they wrote.
Addressing Melvin Capital Management, one of the hedge funds that closed its short position in GameStop earlier this week, the Redditor said: ‘Your continued existence is a sharp reminder that the ones in charge of so much hardship during the 2008 crisis were not punished… Your ilk were bailed out and rewarded for terrible and illegal financial decisions that negatively changed the lives of millions. I bought shares a few days ago. I dumped my savings into [GameStop], paid my rent for this month with my credit card, and dumped my rent money into more [GameStop] (which for the people here at WSB, I would not recommend). And I'm holding… 'm making this as painful as I can for you.’
IR Magazine has not been able to reach the author for comment.
For Claudiu Moise, one of the Reddit users who signed the petition calling for 13F reform, this sentiment rings true. Moise tells IR Magazine that he purchased GameStop stock earlier this year because he believed in the long-term value story that was being presented by other Reddit users.
After the dramatic increase in price this week, Moise considered selling. But after Robinhood and other brokers halted users’ ability to buy shares in GameStop and 12 other companies, Moise’s perspective shifted.
‘It led to a change in sentiment,’ he tells IR Magazine. ‘It’s not just about the money, but an Occupy Wall Street sentiment. I was considering taking my money out, but when the Robinhood scandal hit, I felt that if I cashed out, I would be giving in to these dirty underhanded tactics by Wall Street and the financial elites.’
Robinhood emailed its customers on January 28 to say that it prevented users from buying some stocks to protect its customers and the markets. It added that it was not acting under the direction of any other market participant.
Today (January 29), Robinhood reinstated limited buys on the restricted stocks.