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April 12, 2022

SEC Proposal Will Increase Transparency and Fairness by Modernizing the Beneficial Ownership Reporting Rules

WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission (SEC) on the agency’s proposal to revise its rules governing reporting by those who acquire large ownership interests in public companies.

The SEC has rightly decided that it’s time to update the beneficial ownership reporting rules to bring greater transparency, fairness, and systemic stability to the securities markets.  For over 50 years 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 requirement 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.

“We support the SEC’s proposal to shorten the reporting deadline to 5.  That may not seem like much, but that delay in reporting gives those accumulating a large stake in a company an unfair profit opportunity.  Since share prices generally rise when their large ownership interests are publicly disclosed, activists can accumulate additional shares over the 10-day period that are likely if not certain to increase in price, all at the expense of shareholders not yet aware that the stock price will change.  As we argue in our comment letter, it’s what Congress had in mind when it gave the SEC explicit authority to shorten the deadline in the Dodd-Frank Act.  And activists hoping to influence or control companies to increase long-term shareholder value will still be able to pursue those goals under the shorter reporting deadline.

“As we also argue in our comment letter, the Proposal will enhance transparency and market stability by making sure that certain types of derivatives holdings count toward the level of beneficial ownership required to be reported.  We know from the Archegos debacle last year 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.  And 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.”

Read our full comment letter here.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

Contact: Anton Becker at 202-618-6430 or abecker@bettermarkets.org

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