Activist investors may find it more difficult to quietly build stakes in US companies after the SEC outlined new rules covering the disclosure of beneficial holdings.
The US regulator has proposed cutting the deadline for revealing a stake of at least 5 percent from 10 days to five and classing certain derivatives as part of an investor’s position, making it harder to secretly accrue ownership.
‘Changes in the financial markets and technology warrant a reassessment of these filing deadlines and other aspects of the beneficial ownership rules to meet the needs of today’s investors and other market participants,’ says the SEC.
The proposed changes, which affect rules Section 13(d) and Section 13(g), would also make it clearer when two or more investors are acting as a group and therefore have to combine their holdings to see whether they reach the disclosure threshold.
‘Those circumstances would include, among other things, ‘tipper-tippee’ relationships in which a person shares non-public information about an upcoming Schedule 13D filing with another person who subsequently purchases the issuer’s securities based on that information,’ says the SEC.
Warm welcome
The announcement has been warmly received by NIRI, the US IR association, following years of advocacy over beneficial ownership rules.
‘Today’s proposed rulemaking is an important step forward in bringing more transparency to the marketplace and closing certain 13(d) loopholes that have allowed certain investors to amass large positions in company stock without adequate public disclosure,’ says Gary LaBranche, president and CEO of NIRI, in a statement.
He adds that NIRI has had ‘many allies’ in the campaign to modernize Section 13(d) but no one has played a more important role than Wisconsin Senator Tammy Baldwin.
‘Since 2017, Senator Baldwin has sponsored legislation – called the Brokaw Act – to amend the Exchange Act to shorten the disclosure deadline and close the loopholes involving derivatives,’ LaBranche says.
‘Her tireless advocacy on this issue is a major reason why the SEC issued this rule proposal today. NIRI is very appreciative of the partnership we have developed with the senator and her very capable staff.’
The SEC will now hold a comment period on the proposed rules.
