Better Markets filed a comment letter in response to the Securities and Exchange Commission’s proposal to revise its rules governing reporting by those who acquire large ownership interests in public companies.
Why It Matters. Under the securities laws, any person who acquires beneficial ownership of more than 5% of a class of securities must disclose that fact by filing a public report with the SEC within 10 days. The basic purpose of the report is to alert companies and other investors that a bid to influence or gain control of the company may be underway, information that can affect the share price and long-term prospects of the company. The SEC is proposing to shorten the reporting deadline to 5 instead of 10 days. That may not seem like much, but it’s generating controversy, because some shareholder activists claim that the more timely reporting will hamper their strategic efforts to improve corporate value for the benefit of all shareholders. Others say that the reporting deadline should be even shorter than 5 days. They argue that the delay between the acquisition of 5% of a company and the reporting deadline gives those activists an unfair profit opportunity. Since share prices generally rise when their large ownership interests are publicly disclosed, the activists can accumulate additional shares over the 10 day period that are likely if not bound to increase in price, all at the expense of shareholders not yet aware that the stock price will change.
What We Said. In our comment letter, we support the SEC’s proposal. It’s what Congress intended when it authorized the SEC in the Dodd-Frank Act to shorten the reporting deadline, and it helps protects all investors from an unfair informational disadvantage. Moreover, the change from 10 to 5 days is unlikely to unduly hamper activists’ efforts. And any such burdens would equally impact those groups seeking predatory changes purely for profit, along with those groups seeking positive changes in corporate governance. We also support other aspects of the SEC’s proposal, including a provision that would rightly deem certain types of derivatives holdings to count toward the level of beneficial ownership required to be reported. We know from the Archegos debacle that derivatives can be used to acquire massive, highly leveraged, and systemically risky interests in companies, all of which should be subject to greater transparency. Finally, we support the SEC’s effort to prevent evasion of the reporting requirement by ensuring that those acting together in groups are appropriately subject to the reporting requirement.
Bottom Line. Better Markets supports the Commission’s efforts to bring greater transparency, fairness, and systemic stability to the securities markets by updating and strengthening the beneficial ownership reporting requirements.
Read our full Comment Letter here.