13F and 13D – Changes on the Horizon?

13F and 13D – Changes on the Horizon?

Chair Gensler has been beating a drum signaling that changes to the U.S. transparency regimes are likely.

In prepared remarks for City of London Week (published June 23, 2021), Gensler indicated that he had asked SEC staff to propose updates to beneficial ownership reporting, including possibly shortening the reporting deadlines. Currently, under Section 13D, beneficial owners of more than five percent of a public company’s equity securities who have control intent have 10 days to report their ownership.

In addition, Gensler indicated that increased transparency was warranted around short selling and derivatives (e.g. security-based swaps that provide exposure to a company without traditional equity ownership).

These remarks are in line with Gensler’s May 2021 testimony to the House Financial Services Committee (HSFC) in the GameStop-related hearings, in which he indicated his support for expansion of Form 13F to include disclosure of derivatives – specifically mentioning the lack of current reporting on securities-based swaps.

In the same hearings, Gensler noted that Dodd-Frank had charged the Commission with updating 13F reporting to require monthly reporting of aggregate information in the short-selling market. This mandate – now 12 years old – is one of only three mandatory rulemaking provisions on which the SEC has yet to act. (67 have already been adopted; eight others are in the proposal stage; three remain.)

Congress is marching in the same direction.

Gensler’s recent remarks are very much in line with draft bills Congress released for discussion in May in connection with the GameStop related hearings. For example, the Capital Markets Engagement and Transparency Act of 2021 proposed modifying Section 13(f) to redefine the scope of the rule to cover both shorts and derivatives, and also to increase the frequency of reporting — it would require monthly reporting within 5 business days after the end of each month. Current Form 13F is due within 45 days after the end of each quarter.