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Proposed Amendments to Form 13F Would Increase the Reporting Threshold from $100 Million to $3.5 Billion, Among Other Changes
On July 10, 2020, the U.S. Securities and Exchange Commission (SEC) issued a proposed rule (the “Proposal”) that would raise the Form 13F reporting threshold for investment managers (including non-U.S. investment managers and investment advisers) to $3.5 billion in Section 13(f) securities, up from the $100 million threshold that has been in effect since the Form 13F filing obligations were adopted in 1978.
The SEC estimates that the increased threshold would eliminate Form 13F filing requirements for approximately 90% of managers, while retaining disclosure for over 90% of the dollar value of the holdings data currently reported. The increased threshold is designed to reflect proportionally the increase in the market value of publicly traded U.S. equities since 1975.
The Proposal would also eliminate the omission threshold that currently permits managers to exclude certain small holdings and amend the instructions for requesting confidential treatment. The Proposal would also direct SEC Staff to review the Form 13F reporting threshold every five years and recommend an appropriate adjustment, if any, to the SEC.
The Proposal is subject to a 60-day public comment period.
Form 13F was adopted by the SEC in 1978, pursuant to Section 13(f) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). Section 13(f) was added to the Exchange Act as part of the Securities Act Amendments of 1975 (the “1975 Amendments”), following a study the SEC commissioned at the direction of Congress that found that there were certain “gaps in information about the purchase, sale and holdings of securities by major classes of institutional investors.”
Section 13(f) gives the SEC broad rulemaking authority to determine the size of the institutions required to file reports, the format and frequency of the report requirements and the information to be disclosed.
Goals of the 13(f) Disclosure Program
The Proposal notes that in adopting the 1975 Amendments, Congress was concerned that the increase in concentration of institutional ownership, coupled with lack of trading data available to the regulators and the market, hampered the SEC’s ability to maintain fair and orderly markets.
The Proposal also notes that the Section 13(f) disclosure program had three primary goals: (i) to create a central data repository for the investment activities of institutional investment managers; (ii) to better understand both the influence of institutional investment managers on securities markets and the public policy implications of that influence; and (iii) to increase investor confidence in the integrity of the U.S. securities markets.
The Proposal further notes that, in 1975, approximately 300 managers were subject to the 13F reporting requirement by virtue of the $100 million threshold. Today, over 5,000 managers exceed the $100 million threshold and are subject to the reporting requirement.
SEC Consideration of Use of Form 13F Data
The SEC acknowledges that the Proposal would, relative to current reporting, limit the data available to the market, noting that Form 13F data is currently used for a wide variety of purposes. While Form 13F was originally designed to assist regulators and the public in understanding the effects of institutional equity ownership on the markets, the Proposal notes that the pool of users of the data has expanded over time to include academics, the media, issuers of 13(f) securities seeking to determine the beneficial holders of their publicly traded stock and, especially, market participants themselves.
In the Proposal, the SEC notes that it was mindful of alternative sources of holdings data available today. Form N-Port requires registered investment companies (generally speaking, mutual funds and ETFs) to prepare monthly holdings reports and submit them to the Commission on a quarterly basis, which information is made publicly available with a 60-day delay. The SEC also cites the implementation of the Consolidated Audit Trail (CAT) and the SEC’s increased use of technology to capture current market data, including daily transactions, as having reduced the need for the SEC to rely on Form 13F for purposes of market analysis or surveillance.
The Proposal acknowledges the particular burden of Form 13F reporting requirements on smaller managers, noting that smaller managers have described to SEC Staff that Form 13F reporting involves significant compliance burdens for them. The Proposal states that, based on Staff analysis and discussions with managers, the SEC estimates annual direct compliance costs of $15,000 to $30,000 per manager, depending on volume and complexity of holdings, the type of third-party legal and compliance review undertaken prior to filing and the filer’s experience with Form 13F.
SEC Consideration of Different Approaches to Increasing the Reporting Threshold
The SEC considered three different approaches to increasing the reporting threshold:
Rationale for Raising the Reporting Threshold to $3.5 Billion
The SEC ultimately chose to propose an increase in the reporting threshold to $3.5 billion. The SEC determined that a “Stock Market Growth” model, which adjusts the reporting thresholds based on growth in the stock markets from the time of the adoption of the reporting requirements, better reflects the original intent of the 13(f) disclosure program as it would only apply to managers whose holdings of section 13(f) securities are large relative to the overall size of the U.S. equities market. The SEC also noted that the legislative history indicates that the 13(f) reporting threshold was designed to focus on larger managers.
The $3.5 billion threshold would retain disclosure of 90.8% of the dollar value of the Form 13F holdings data currently reported while eliminating the reporting obligation of approximately 4,500 Form 13F filers, or approximately 89.2% of all current filers.
The Proposal would eliminate the omission threshold that permits the exclusion of certain small holdings, namely holdings of fewer than 10,000 shares (or less than $200,000 principal amount of convertible debt securities) and less than $200,000 aggregate fair market value. The original rationale for the omission threshold was to allow the SEC to collect meaningful holdings data while minimizing the Form’s reporting burdens. The SEC viewed a reporting requirement for holdings under the omission threshold as de minimis, potentially burdensome (especially on comparatively smaller managers) and unlikely to have the potential to materially impact the market.
As the Proposal would entirely eliminate the reporting requirements for most smaller managers, the SEC has determined that managers still subject to the 13(f) disclosure program would find the incremental increase in cost of including all of their securities holdings information on Form 13F to be immaterial.
Pursuant to Section 13(f)(4) of the Exchange Act, the SEC may prevent or delay public disclosure of information reported on Form 13F in accordance with the provisions of the Freedom of Information Act. In 2019, a U.S. Supreme Court decision changed the standard for determining whether information is “confidential” under exemption 4 of the Freedom of Information Act. The Proposal seeks to harmonize the instructions for Confidential Treatment Requests on Form 13F with that decision.
The Proposal would amend Form 13F instructions that currently state that a manager may apply to the SEC to receive confidential treatment for certain holdings if the manager is able to demonstrate that failure to grant a request for confidential treatment “would be likely to cause substantial harm to the Manager’s competitive position.” Under the Proposal, managers seeking confidential treatment would need to (i) demonstrate that the information is customarily and actually kept private by the manager and (ii) to show how the release of this information “could cause harm to the manager.”
Under the Proposal, managers subject to Form 13F reporting requirements, including non-U.S. managers and investment advisers, would face a comparatively lower burden for making a Confidential Treatment Request.
The SEC has requested comment on several aspects of the Proposal, issuing 34 specific requests for comment, including the following:
The SEC will accept comments on the Proposal for 60 days following publication in the Federal Register. It is important to note that managers exceeding the current reporting threshold must continue to file Forms 13F until such time as the Proposal is adopted and effective. If you have any questions or concerns, please contact a member of our team.
 See SEC, “Frequently Asked Questions About Form 13F,” Question 5 (February 24, 2020) (hereinafter “13F FAQs”).
 See 13F FAQs, Question 4.
 See SEC Release No. 34-89290 (July 10, 2020), “Reporting Threshold for Institutional Investment Managers,” (the “Proposing Release”). Section 13(f) securities are securities described in Section 13(d)(1) of the U.S. Securities Exchange Act of 1934. Section 13(f) securities are listed on the Official List of Section 13(f) Securities, published quarterly by the SEC and primarily include U.S. exchange-traded stocks, shares of closed-end investment companies and shares of ETFs. Certain convertible debt securities, equity options and warrants are also on the Official List.
 See SEC Press Release, “SEC Proposes Amendments to Update Form 13F for Institutional Investment Managers; Amend Reporting Threshold to Reflect Today’s Equities Markets” (July 10, 2020).
 Proposing Release at p. 8.
 Proposing Release at p. 16. Staff compiled this data by reviewing filings made on Forms 13F and 13F-HR during the relevant period (while excluding 1,570 Form 13F-NT filings). We also note that Section 13(f)(1) of the Securities Exchange applies to non-U.S. managers who may sometimes qualify as institutional investment managers for considerable periods of time before they become aware of U.S. reporting requirements and submit the required filings.
 See our Client Note “SEC Modifies Form N-Port Filing Timeline” (March 6, 2019).
 Proposing Release at p. 18.
 The SEC calculated the growth of the U.S. equities market from 1975 to 2018 using statistical data provided by the Federal Reserve System. See Federal Reserve Board, Flow of Funds Chart L.223 for domestic corporate equities, (“Federal Reserve Data”). The ratio of U.S. equities market value in 2018 to U.S. equities market value in 1975 is 3,571.41 percent. The SEC multiplied that ratio by $100 million and rounded to the nearest $500 million, which resulted in a dollar value of $3.5 billion.
 The Proposal notes that the SEC assembled monthly value-weighted market returns with dividends reinvested from the Center for Research in Security Prices. Staff compounded these returns from January 1976 to December 2018, and multiplied that product by $0.100 billion, which resulted in $9.33 billion.
 5 U.S.C. 552(b)(4).
 5 U.S.C. 552(b)(4). See Food Marketing Institute v. Argus Leader Media, 139 S.Ct. 2356 (2019).
 Form 13F Instruction 2.d for Confidential Treatment Requests.
 Proposing Release at p. 50 (proposed amendments to Instruction 2.d for Confidential Treatment Requests of Form 13F).