SEC considers tighter disclosure deadlines for hedge funds that build large stakes in companies

Chairman of the Securities and Exchange Commission Gary Gensler said on Wednesday that the regulator is eyeing tighter disclosure deadlines for hedge funds that build significant stakes in companies.

Gensler said the agency is considering changing the rules under which hedge funds disclose that they have purchased a 5% stake in a public company, Gensler said during a virtual Q&A at the Exchequer Club.

The so-called 13-D Schedule submission is currently set at 10 days, which gives hedge funds more than a week to keep purchases secret.

“I predict we’ll have something of that,” Gensler said, adding that he’s worried about “information asymmetry,” because the public doesn’t know there’s a big player. are buying stocks in a 10-day period.

“Right now, if you’ve crossed the 5% threshold on the first day and you have 10 days to apply, that activist can in that period, just go from 5 to 6% or they have could go from 5 to 15. But there are nine days when the public sale shareholders don’t know that information,” Gensler said.

The 13D Disclosure Rule was adopted in the 1960s to protect company managements by informing them of activities from active shareholders and company reviewers. In other words, large investors will not be able to secretly accumulate large shares to take over a company without giving it a chance to defend itself.

Critics of the rule argue that the 10-day deadline is too tight and that hedge fund managers have a harder time making a profit if they have to reveal their strategy to the public so soon.

“It’s important non-public information that there is a stock buyback activist who intends to influence and, in general, is going to be a standout if you look at the economics from the day they announced it. … there’s usually a boom in stocks of as little as one percent,” Gensler said. “So stockholders sold in those days didn’t have some important information.”