Founder & CEO
The SEC’s desire to regulate the ‘wild west’ of the crypto markets may have dominated headlines of late, but for US-based funds there could soon be other changes coming down the line, particularly to the longstanding 13F rule.
On 29 July, the US House Financial Services Committee voted to advance a new bill that would shorten the 13F filing window and require short-seller disclosures to the House of Representatives. Bill HR 4618, also known as the Short Sale Transparency and Market Fairness Act, would require asset managers with more than $100m AUM to file ownership reports with the SEC 10 days after the end of each month. That would be a significant change to the current rules, which were enacted in 1934 and updated in 1979, and require managers to file 13Fs with the SEC 45 days after the end of each quarter. The proposed bill would also require asset managers to include direct or indirect derivative positions or interest in their 13F filings, and proposes that the SEC conduct a review of the terms under which asset managers can apply to file their 13Fs confidentially.
Maxine Waters, Chair of the House Financial Services Committee, said that ‘even though these large managed funds have become more dominant in the market and transactions occur at the speed of light, information in the 13F filing has not changed.’ She added: ‘In addition, many large investors now use derivatives as total return swaps or contracts for difference to quickly amass large levels of shares of a company. But these positions, which didn’t even exist in 1979, are not required to be disclosed. As a result, the information on a large fund’s 13F form is woefully incomplete.’
The Bill has the support of the National Investor Relations Institute (NIRI), the Society for Corporate Governance, the North American Securities Administrators Association and several other organizations. Despite the Bill passing 25-22, there was notable opposition from a number of Republican Representatives. Anthony Gozalez, for instance, noted that the proposed rules would do nothing to address capital requirements for broker-dealers, reduce settlement clearing times or affect total return swaps – the type of derivatives at the heart of the Archegos Capital Management implosion. Similarly, Ann Wagner questioned whether short-seller disclosure is needed, noting that since Dodd-Frank was passed 11 years ago, the SEC has never enforced the part of the bill that would require short-seller disclosure. Others said that the shortened reporting window, to just 10 days after the end of each month, opens the door to copycat investing, with managers copying one another and retail investors investing in individual securities rather than buying the funds themselves.
The proposed changes mark a major shift in tone from 2020, when the SEC had initially proposed reforms that would raise the threshold for reporting from 100m AUM to some 3.5bn AUM, which would have meant some 90% of firms no longer had to file. Those proposals were widely panned, with critics arguing that recent market turmoil demands more, not less, oversight and regulation.Having passed the Committee, the Bill will now be up for debate in the full chamber of the House of Representatives. If passed, it will then be referred to the Senate, where it will have to pass again before becoming law.