Jun. 28, 2023
Dear Securities and Exchange Commission, I am composing this letter to provide some crucial insights regarding the Proposed Rule (S7-06-22) recently introduced by the Securities and Exchange Commission (SEC). This rule aims to modernize the reporting of beneficial ownership. First and foremost, it is essential to express gratitude for the SEC's endeavor to update the reporting requirements for significant investment positions and enhance market transparency. Transparency and fairness are fundamental principles that should serve as the foundation of our financial markets, ensuring the integrity and trust necessary for sustainable economic growth. While I acknowledge the SEC's proposal to reduce the reporting timeframe from 10 calendar days to 5 calendar days for disclosing ownership positions exceeding 5% of outstanding shares, I encourage the Commission to take it a step further. I believe that a reporting deadline of two (2) business days would be more appropriate and effective in achieving the intended objectives. A shorter reporting timeframe would significantly reduce the opportunity for investors to clandestinely accumulate large stock positions, exploiting informational advantages that are not available to the wider market. By minimizing information asymmetry, the proposed rule would level the playing field and enhance market efficiency. I firmly support this objective and urge the SEC to take decisive action by adopting a two-business-day reporting requirement. Furthermore, it is vital to include holders of cash-settled equity swaps within the definition of beneficial ownership to ensure fairness and transparency. This inclusion allows us to obtain a more accurate understanding of individuals or entities who possess a substantial stake in a company. Even though they do not directly own the shares, these individuals or entities may wield significant influence or control over the company's decisions. In today's financial markets, derivative instruments such as cash-settled equity swaps play a significant role in shaping ownership positions. For example, if a hedge fund or a large corporation holds a substantial stake in a company without disclosing it to the public, the lack of transparency provides them with an unfair advantage, enabling market manipulation and potential deception of other investors. Therefore, by incorporating these agreements in the determination of ownership stakes exceeding 5% in a company, we can expose these concealed positions and a potential for bias. This action becomes particularly important when we consider the threat posed by unscrupulous actors exploiting the system for personal gain, undermining the integrity of the stock market. By bringing these undisclosed holdings to light, we can uncover any attempts to deceive, defraud, or manipulate the market. To summarize, the inclusion of holders of cash-settled equity swaps in the definition of beneficial ownership fosters fairness and transparency. It safeguards against the risk of malicious individuals exploiting secret positions to deceive and harm others, ultimately preserving the integrity of the stock market and ensuring a more equitable environment for all investors. To avoid any confusion, it is imperative that the rule clarifies that the inclusion of cash-settled equity swaps does not confer voting rights or investment powers to the swap instrument. This clarification is crucial to ensure that the disclosure requirements align with the actual decision-making and control exercised by the investor, maintaining clarity for market participants. By clearly distinguishing this, we preserve transparency and prevent any misunderstanding or misrepresentation of an investor's actual influence over a company. Market participants need a precise understanding of who holds voting rights and possesses decision-making powers to make informed choices and accurately assess a company's ownership structure dynamics. In simpler terms, I want to ensure that the rule explicitly states that including cash-settled equity swaps in beneficial ownership does not grant these instruments the ability to control or make decisions on behalf of the company. This clarification assists market participants in comprehending the true power and decision-making authority held by investors, ensuring transparency and avoiding any misinterpretation of their level of control. Moreover, I believe that the Proposed Rule should address the matter of reporting short positions. While the focus is appropriately placed on disclosing long positions, it is equally important to enhance transparency concerning short positions. I urge the SEC to seriously consider revisions to Rule 13f-2, establishing consistent and comprehensive reporting requirements for both long and short positions. In conclusion, I appreciate the SEC's efforts to modernize beneficial ownership reporting, but I firmly believe that further enhancements are necessary to safeguard investors' interests and uphold market integrity. By adopting a two-business-day reporting timeframe, expanding the definition of beneficial ownership to encompass cash-settled equity swaps, and addressing and strengthening short position reporting, the SEC can establish a robust regulatory framework that promotes fairness, transparency, and trust in our financial markets. I sincerely appreciate your consideration of our comments and suggestions during this significant rule-making process. I remain dedicated to supporting the SEC's mission to enhance transparency and equality within our market. Best regards, David M. Reilly