AST: SEC’s Proposal on Form 13 Filings Could Hurt Closed-End Funds, BDCs

The SEC recently proposed to amend the reporting threshold from $100 million to $3.5 billion in market value of  certain securities by issuers on Form 13F, effectively eliminating filing requirements for nearly 90% of current Form 13F filers. In a client alert, proxy servicer AST Financial says the SEC’s action is partly due to the growth of index funds and the increase in the number of smaller bespoke funds. AST wrote that if the SEC proposal is approved, closed-end funds and BDCs would have less insight into who owns shares in their funds. “While the 13F process is imperfect, it provides a quarterly snapshot of an issuer’s shareholder base, which among other things, allows issuers to engage with their shareholders throughout the year, hear their concerns and participate in best governance practices,” AST wrote. If the SEC’s proposal is approved, closed-end funds and BDCs will experience “increased mailing costs and lack of transparency the most, with lower quorums and much more challenging solicitations,” AST asserted, adding that the SEC’s proposal would leave these issuers vulnerable to “sneak attacks” by short-term activist investors who limit their holdings under the regulatory threshold of 5% of a company’s shares outstanding, allowing them to slowly build positions. The SEC said in its release that the proposed adjusted threshold would provide relief to smaller managers who are now subject to Form 13F reporting, while retaining data on over 90% of the dollar value of the securities currently reported.