A Conversation with Matthew Brusch
This month, we delve into the 13F proposal, championed by NIRI, NYSE, and SGC, with Matthew Brusch, CEO of NIRI. This initiative, which addresses outdated regulations and aligns with technological advancements in trading, seeks to provide U.S. companies with more immediate knowledge of their major shareholders, bolstering market integrity and investor confidence.
What is the 13F proposal, endorsed by NIRI, NYSE and SGC? Lack of shareholder transparency is the number one concern of investor relations professionals in the US and has been for decades. In the US, an investor can take a position on the first trading day of the year and not report that until May 15. This reporting structure, created in the 1970s, is antiquated given how dramatically technology has transformed financial markets. Equity markets are moving to T+1 settlement and computers execute stock trades in millionths of seconds, yet unlike other developed international markets, US institutional investors only report their share positions 45 days after the end of the quarter. The upshot is that public companies do not definitively know in a timely manner their largest shareholders. NIRI recently joined with the Society for Corporate Governance (SCG) and the New York Stock Exchange (NYSE) to file a rulemaking petition with the SEC to modernize this system. We present a compelling case for improving the reporting deadline from 45 days to a more reasonable 5 business days, in line with the recently streamlined 13D reporting deadline. We encourage all public companies to read the petition and submit a supporting comment letter to the SEC. This is their opportunity to speak directly to the SEC and advocate for improving the timeliness of these important disclosures.
In terms of transparency and decision-making, how will it impact the investment community? We believe improved shareholder transparency will increase investor confidence in the integrity of the US securities markets. In our petition, we review the history of these disclosures including the many times the SEC itself has referred to the benefits of these disclosures for all market participants. For example, in a related 2020 rulemaking, the SEC said, “While Form 13F was originally designed to assist regulators and the public in understanding the effects of institutional equity ownership on the markets, the pool of data users has expanded to include academics, market researchers, the media, attorneys, and market participants (including institutional investors) who use the data to enhance their ability to compete,” the release explained.
There are other examples, too. In its comment letter on the SEC’s 2020 rulemaking, S&P Global provided a great outline of the many ways that market participants use 13F data:
the general public, for whom 13F data helps create an environment of confidence in the markets;
for investors and fund managers to be able to compare their monthly reports with the 13F data.
The information contained in these disclosures is in high demand. A group of academics, for example, analyzed historical data and found that there were 289 million EDGAR downloads of Form 13F between 2003 and June 2017.
What potential challenges or concerns do you foresee in implementing these changes? There will always be resistance to change. But in our petition, we cite supportive comments from organizations representing investors, and institutional investors about the importance of these disclosures to the market.
Can you elaborate on the potential impact on investor behavior, particularly for smaller companies who tend to be more volatile? Great question which we discuss in our petition. These disclosures are essential to help smaller companies attract capital by identifying prospective institutional investors. Investor relations officers at these companies routinely review 13F data to see which fund managers are investing in peer companies and may be inclined to hear their company’s investment thesis. Given that capital formation is a component of the SEC’s mission, we believe the Commission should consider the potential impact on smaller companies’ capital-raising activities, and modernize 13F to improve the utility, completeness, and timeliness of these disclosures.
What’s on your nightstand? I read a lot and have more books than shelf space! I usually have a book or two open at any time, in hard copy and Kindle. I’m about to start The Wide Wide Sea by Hampton Sides about the final voyage of Captain Cook, and recently finished Eat & Run by ultramarathoner Scott Jurek. Another I recently enjoyed was Tanker War: America’s First Conflict with Iran, 1987–88, about operation Earnest Will in the Persian Gulf, a quasi-war that most people don’t know about. I participated onboard USS Taylor (FFG-50), and it was fascinating to learn about the bigger picture beyond the microcosm of my seat at the Weapons Control Console in Taylor’s Combat Information Center.
