June 25, 2023
Slade Thornburg
Fort Worth, Texas
06/25/2023
Vanessa A. Countryman
Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090
Re: File Number S7-06-22 - Modernization of Beneficial Ownership Reporting
Dear Ms. Countryman,
I am writing to express my strong opposition to the proposed rule changes outlined in the Securities and Exchange Commission's (SEC) Release No. 33-11030, dated February 10, 2022, regarding the modernization of beneficial ownership reporting.
While I understand the SEC's intent to improve the efficiency and transparency of reporting requirements, I believe that several aspects of the Proposed Amendments, as described in the release, raise significant concerns and have the potential to introduce unintended consequences that may negatively impact the integrity of the market.
Firstly, the inclusion of holders of cash-settled derivative securities as beneficial owners of the reference equity securities is a deeply flawed proposition. Derivative contracts, by their very nature, are financial instruments that derive their value from an underlying asset, and they do not confer ownership rights or voting power. Granting voting rights to derivative holders would create a misleading representation of ownership, as the economic interest and the voting power would be dissociated. This could lead to distorted corporate governance dynamics, compromising the principles of shareholder democracy and accountability.
Furthermore, the Proposed Amendments to Schedule 13D raise concerns about the disclosure requirements for derivative securities. While it is crucial to enhance transparency and promote informed decision-making, it is equally important to avoid burdensome reporting obligations that may hinder market liquidity and discourage legitimate investment activities. The proposed changes could potentially impose excessive disclosure requirements on market participants, creating a chilling effect on the use of derivative instruments and impeding their efficient functioning.
Moreover, the proposed exemptions and provisions for group formation and communication among investors raise questions about the potential for abuse and manipulation of the regulatory framework. Loosening the regulations surrounding group formation and allowing joint engagement with issuers without proper oversight and accountability could facilitate anti-competitive behavior and undermine the integrity of the market.
Lastly, the requirement to file Schedules 13D and 13G using a structured, machine-readable data language is a commendable effort to enhance data accessibility and analysis. However, it is essential to ensure that such technological advancements do not impose undue burdens on market participants, particularly smaller entities that may lack the necessary resources and technical capabilities to comply with such requirements.
In conclusion, I urge the SEC to reconsider the proposed rule changes outlined in Release No. 33-11030. While the modernization of beneficial ownership reporting is a worthy objective, it is crucial to carefully evaluate the potential implications and unintended consequences of these amendments. I believe that the proposed inclusion of voting rights for derivative holders and the associated changes to disclosure requirements and group formation raise significant concerns that could undermine the integrity and efficiency of the market.
Thank you for considering my comments on this important matter. I trust that the SEC will carefully weigh the potential impacts and strive to strike a balance between enhanced transparency and maintaining a fair and competitive marketplace.
Sincerely,
Slade Thornburg