Reddit users submit comment letters on SEC’s proposed 13F rule change

Jul 23, 2020
‘I feel I did my job as an American citizen and got involved,’ says one Reddit user

Reddit is one of the most visited websites in the world – with 430 mn active users per month – and is proving to be a home for early opposition to the SEC’s proposed changes to 13F filing thresholds.

In recent years, Reddit has grappled with its identity as a forum for toxic online culture and legitimate debate, entertainment and community. While it’s a home to significant discussion of politics, memes and day trading, this might be the first time Reddit users have mobilized to oppose a proposed SEC rule change.

Reddit organizes its communities into groups – known as subreddits – that individuals subscribe to. The SEC’s proposed change to 13F filing thresholds, which would exempt 89 percent of current investment managers from filing, was discussed on a number of subreddits, including r/WallStreetBets, r/Stocks, r/SecurityAnalysis, r/Biotechplays, r/LateStageCapitalism, r/DonaldTrump and even r/conspiracy.

Posts about the proposed rule change generated 187 user comments in two subreddits alone: r/WallStreetBets and r/Stocks. These subreddits have 1.4 mn and 759,000 members, respectively.

It started with an email

On July 14, Daniel Collins, the founder of WhaleWisdom.com, sent an email to roughly 40,000 people, expressing concern about the SEC’s proposed rule change. WhaleWisdom.com provides a database of 13F and 13D filings so users can ‘research and replicate portfolios of the world’s best investors’, according to its home page.

Collins is concerned about the SEC’s proposed rule change and feels it overstates the compliance costs of investment managers. He would like the filing thresholds to remain as they currently are, and have been since the SEC’s rule was first written in 1975.

‘I wanted to make sure people knew this was happening and open up a dialogue with my community,’ Collins tells IR Magazine. He says the response to the note was positive and several readers took up his call to action: to submit a comment letter to the SEC.

One of the recipients of Collins’ email was John Moy, who has held a number of contract compliance roles on the sell side. Moy has been an active Reddit user for less than a year, but he decided to post an edited version of Collins’ email to the r/WallStreetBets’ 1.4 mn members, under his alias u/Particular-Wedding.

Moy says the proposed rule is ‘concerning because the SEC’s mission is to protect the individual investor, not corporate insiders.’ He submitted a comment letter to the SEC – the first time he has done so – and encouraged other Reddit users to do the same. His post was picked up and shared across a number of other subreddits, and users started responding to say they had submitted comments to the SEC. ‘I was quite surprised by the reaction and that it was so positive,’ Moy says.

By end of day on July 16 – six days after the SEC posted the proposed rule change – there had been 179 comments submitted to the SEC, 177 of which were in opposition.

First-time commenters

Both Brock Squires and Jessica Ablamsky saw Moy’s post, or a repost by other Reddit users, and were compelled to submit comment letters to the SEC for the first time. They’d never seen a discussion of SEC action on Reddit prior to Moy’s post.

Before submitting their comment letters, Squires and Ablamsky both visited the SEC website, read up on the rule change and checked the details contained in the Reddit post. Neither of them is a professional investor, but they are both stock pickers and have family members who work in investment management. Ablamsky says she has used 13F filings to inform investing decisions in the past, while Squires uses third-party websites that gather 13F filings. 

Ablamsky says she was surprised by how seriously the r/WallStreetBets subreddit took the original post; recent posts skew more toward stock market memes, Elon Musk jokes and self-deprecating posts about losses made on Robinhood. She also uses Twitter to keep tabs on what growth investors are thinking about the market, and says she hadn’t seen any discussion of the SEC’s proposed rule change on #FinTwit – the hashtag used by Twitter users who want to discuss investing decisions.

Both Squires and Ablamsky hope to stay updated on the SEC’s final decision on changing the 13F filing thresholds. ‘I feel I did my job as an American citizen and got involved,’ Ablamsky says. ‘I hope to hear what happens with this issue in the future.’

In favor of the rule change

Miles Putnam, portfolio manager at Provident Investment Management, also received Collins’ email last week. Putnam’s firm manages around $800 mn, of which about $650 mn is invested in equities, he says. His firm files a 13F at the end of every quarter, but would no longer be required to do so if the SEC passes the rule as it’s currently written.

Putnam is concerned with copycat investing and filed one of the few comment letters in favor of the proposed rule change. ‘What I’m selling to my clients is a relationship and an investment portfolio that I think will do well for them,’ he tells IR Magazine. ‘If you require me to publish that, an entrepreneurial client could fire me and replicate my work.’

While the chances of this are slim because clients are unlikely to withdraw funds in such an abrupt manner, Putnam says a prospect client once asked him about whether Provident Investment Management files a 13F and then promptly ended the call when told it does.

Putnam says he occasionally looks at the 13F filings of other investors, but would prefer not to report his positions than to benefit from looking at the portfolios of other investors in the future. As a result, he was ‘a little offended’ by Collins’ email.

‘When I submitted my comment, [it was because of] an email I got from WhaleWisdom,’ he says. ‘If I was a stock picker, I would use [13Fs] to look over managers’ shoulders and source ideas. If you raise the reporting threshold, it would reduce that behavior and that’s a happy trade-off.’

The comment period for the SEC’s proposal will be open for 60 days after the posting to the Federal Register. It’s expected that many larger associations and institutions will submit comments closer to the deadline.

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