The Wall Street Journal this week documented several, though not all, of the types of market abuse and manipulation that the current outmoded reporting rules permit and facilitate. The existing rules give activists an over-long 10-day period before they are required to report crossing the 5% ownership threshold in publicly traded companies. According to The Wall Street Journal, during the 10-day reporting window, activist hedge funds are “tipping” each other regarding their plans as they coordinate wolf-pack attacks, while ordinary investors and the targeted companies are left in the dark. When finally made, the 13(d) reports are often market-moving. This delivers outsized returns to the activist and those they tip, while injuring investors who are deprived of the same knowledge.
In an era of high frequency trading, the 10-day reporting window adopted by the Williams Act in 1968 simply makes no sense. It is time for the SEC to act on our petition to shorten the reporting window to one day, to adopt a “cooling-off period” of two business days following the public filing of an initial Schedule 13D, during which acquirers would be prohibited from acquiring additional beneficial ownership, and to modernize the definition of “beneficial ownership” under the Section 13 reporting rules to prevent activists from acquiring significant influence and control using a variety of stealth techniques and derivative instruments to evade Section 13D reporting requirements.
The ten day window maybe made sense back in the old days when one filed everything on paper. But in these days of electronic filing, when the SEC has accelerated filing of a host of disclosures, it makes no sense to let 5% holders have 10 days of secrecy. (Assuming you buy the case for any disclosure by 5% holders, of course.)