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Oct 28, 2020

SEC set to ‘shelve’ 13F proposal, according to Bloomberg report

Staff surprised by opposition to proposal, say reporters

The SEC’s controversial proposal to relieve 89 percent of asset managers from filing quarterly ownership forms could be ‘shelved’, according to a report this week from Bloomberg.

The regulator received 2,238 comment letters opposing the change, and only 24 in support of it, according to analysis from Goldman Sachs. Bloomberg reporters Ben Bain and Robert Schmidt cite unnamed internal staffers who have been told the proposal will not be advanced.

Bain and Schmidt write that SEC staffers were surprised by the scale of opposition to the proposed rule change. This is corroborated by Ted Allen, vice president of strategic communications at NIRI, who has been influential in co-ordinating the association’s response.

Allen tells IR Magazine that a group of NIRI staff and members met with commissioner Hester Peirce, staffers from commissioner Elad Roisman’s office and senior staff from the investment management and corporation finance divisions earlier this month. ‘The SEC was surprised by the level of opposition to the 13F proposal and it was really not aware how important this information is to public companies,’ Allen says.

The SEC did not respond to IR Magazine’s request for comment, but submitted a response to Bloomberg, which reads: ‘It remains clear that the current threshold is outdated. The comments received illustrate that the form is being used in ways that were not originally anticipated when the form was adopted. We are focused on examining these important issues before we move forward with determining the appropriate threshold.’

Clayton expresses concern about reliance on 13Fs

This echoes comments made by SEC chair Jay Clayton last week during an interview with CNBC’s Bob Pisani, during which he admitted that the commission may need to take a look at issuers’ reliance on 13Fs to determine who their shareholders are.

Hundreds of issuers co-signed letters filed by NIRI national, local NIRI chapters, Nasdaq and the NYSE, as well as 33 companies that submitted stand-alone letters, all expressing concern about how the proposal would reduce visibility into who holds stock.

Clayton said last week that if 13F filings are ‘the only way we have to effectively identify who our shareholders are, that’s a problem. If we’re using 45-day trailing filings of a select group of people to help companies figure out who their shareholders are in the day of electronic communication, that’s something we’ve got to address.’

He added that this may require the SEC to take a look at the commission’s rules around objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBOs). These rules were introduced in the 1980s and govern how issuers interact with their investors through brokerages.

There was debate about a reform of the OBO/NOBO rules in 2010, when the Council of Institutional Investors published a detailed case for updating the rules. At the time, Broadridge and many brokerages opposed the changes. The debate was revived somewhat during the SEC’s 2018 evaluation and reform of the proxy process.

In conversations with IR Magazine, a number of corporate IR professionals and advisers in recent months have expressed their surprise at the SEC’s proposal, especially when it’s juxtaposed with the European Commission’s Shareholder Rights Directive II – legislation that enables issuers to request identifying information about their shareholders through brokers.

Calls for an issuer advisory committee

Despite SEC staffers’ apparent surprise at the amount of opposition the regulator has faced, Allen says NIRI has raised concerns over the existing timelines for 13F filings with the SEC for many years.

In 2013 NIRI, the Society for Corporate Governance and the NYSE co-filed a petition with the SEC calling to reduce the reporting deadline for investment managers from 45 days to two working days. In 2019 NIRI asked for lawmakers to support the Capital Markets Engagement and Transparency Act, which would reduce the reporting deadline to 15 days.

But regardless of NIRI’s engagement with the SEC on this issue, Allen says the commission could save itself future work by establishing an issuer advisory committee that would be able to provide feedback on mooted proposals before they’re formally announced. Such a committee would have been an early warning system for this proposal, and was called for back in 2017 during the debate surrounding the access-fee pilot.

‘The SEC says the whole point of the rulemaking process is that you put something out and see what people say about it,’ Allen says. ‘But if there was a public company advisory committee at the SEC – as there is for investors – the SEC might have saved itself a lot of work.’

Elsewhere at the SEC, William Hinman, director of the commission’s division of corporation finance, yesterday announced plans to leave before the end of the year. He joined the SEC in 2017 and played a leading role in the SEC’s recent proxy reforms and providing guidance to companies about how to frame forward-looking statements during Covid-19.

Ben Ashwell

Ben Ashwell was the editor at IR Magazine and Corporate Secretary , covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent , the global quarterly magazine from the Association of...