July 14, 2020
The proposal to raise the reporting threshold for Form 13F directly opposes the SEC's mission of maintaining fair and efficient markets, as freedom of information is the critical force behind this efficiency. I strongly recommend the Commission revisits this proposal to amend or abandon this rule change.
Having previously performed fund administration functions at a $1-$2b manager, including the responsibility of producing the data for 13F reports, I can attest to the fact that the compliance burden for this report is minimal compared to other reports and many firms have efficiently automated this responsibility. The beneficial transparency to other market participants is disproportionately higher than the effort required to produce it. As the comment prompts in the proposal indicate, this process is slightly more automated for larger managers who have the resources to construct and maintain large compliance systems, but the direct cost estimates are grossly exaggerated. The simple knowledge of fund holdings is something that all managers - regardless of size - monitor daily, if not in real-time as trades are executed intraday. Providing this information in a public filing is therefore less onerous than the production of reporting that is not valuable to the manager, and is only then complicated by the information that is omitted from the report, not what is included. In the interest of reducing the compliance burden as this proposed rule seeks to, I support the decision to remove the omission threshold regardless of whether the reporting threshold changes. While the information gained by investors from knowledge of de minimis holdings is dubious, the requirement adds marginally to the complexity of the compliance task for all firms, not just those under the materiality threshold.
While I appreciate the desire to adjust the threshold to inflation to improve the relevancy of reported holdings, recalibrating the current threshold will cause a significant and immediate gap in the data going forward from firms that have reported holdings for several years but are now no longer required to do so. Alternatively, applying CPI-based adjustments going forward is a sensible approach to maintain the quality of data by ensuring that even smaller firms are not subject to inclusion in the future, while not harming investors through a loss of information in the near term. I agree with the Commission's assessment that fixing the threshold to market returns rather than an inflation metric would cause volatile changes to the threshold. Firms at the margin would need to constantly review guidance and their own performance to determine whether they were required to report, causing more of a burden than they experience today. This is also not an appropriate benchmark for many managers, specifically those that are not managing assets with long equity strategies.
Regards,
Rob Kimball, CFA