Sep. 16, 2020
Hello, In regards to RIN 3235-AM65, Reporting Threshold for Institutional Investment Managers. Here is my personal response to all the questions that were raised as well as other commentary; Should we, as proposed, adopt an amendment to rule 13f-1 that would initially adjust the reporting threshold under rule 13f-1? Is the proposed threshold of $3.5 billion appropriate? No $100 million is fine and will continue to be so until every US Citizen is a millionaire. If another threshold would be more appropriate, what should the threshold be and why? N/A. 2. Would raising the reporting threshold for Form 13F to $3.5 billion negatively affect the utility of Form 13(f) data or investor confidence in the integrity of the U.S. markets? Yes If so, how? Hedge Fund managers could be going on to CNBC or Fox Business news and state that they are building a position in a company, only to find out at minimum 45 days later that they were just trying to keep the price up for other investors to buy shares. And if so, is there a different threshold that would be more appropriate? N/A Are there any additional effects of raising the Form 13F reporting threshold that we have not considered? Individual investors will end up being the ones who are getting burned by the SEC showing us that they don't care about their confidence in the market. 3. Should we, as proposed, adopt an amendment to rule 13f-1 that would initially adjust the Form 13F reporting threshold based on the growth in the U.S. equities market? No Should we, as described above, use the Federal Reserve Board’s flow of funds data on corporate equities as a basis for this calculation? N/A. 4. Rather than adjusting the Form 13F reporting threshold based on the growth in the U.S. equities market that occurred between 1975 and December 2018 (a date certain), should we instead use an average rate of growth, which might effectively reflect market growth while minimizing the effects of market fluctuations around the time the Commission is adjusting the threshold? No For example, under this approach, we could take the market size as of the end of 2015, 2016, 2017, 2018, and 2019, average 27 those values, and compare that average to the size of the U.S. equities market in 1975. If so, why? N/A Is such a five-year period (or other period) more appropriate for calculating an average growth rate to apply over the 45 years since the threshold was initially set? No this is not fine. 5. Should we instead adjust the reporting threshold for Form 13F using stock market returns as a basis for this calculation? N/A. If so, how should we measure stock market returns? Either way is fine you can add a column with dividends and one without as some fund managers may choose to allocate capital elsewhere. For example, would dividends be included or excluded? Please see above. Is there another measure that we should use as a basis for initially adjusting the reporting threshold? Either the highest or lowest price of the security during the 3 month reporting period. 6. Should we instead adjust the reporting threshold for Form 13F to account for consumer price inflation? No If so, what measure of consumer price inflation—PCE or CPI—should we use? No Is there another measure of consumer price inflation (or other inflation measure) that we should use? How about using the Gini-coefficient and waiting until it drops to .3 or below to start raising the reporting threshold. If so, what? Income inequality would be greatly reduced and there would be greater participation in the stock market. 7. Should we adopt a different rounding convention, rather than the nearest $500 million, such as the nearest $1 billion, $250 million, or $100 million? $100 million is a good number to keep. For example, if we rounded to the nearest $100 million, the reporting threshold would be $3.6 billion based on stock market growth. If we should use a different rounding convention, why? N/A, I want to keep it at $100 Million. 8. Are the Form 13F filing obligations burdensome to smaller managers?No they are not, they can literally have a program that extrapolates the required data and it could be saved in a draft prior to being sent to the SEC. Most major brokerages can provide this service. If so, how? None, mundate at worst. Are they burdensome in absolute terms, relative terms, or both? Relative terms, Warren Buffett doesn't use a computer, but his firm manages to get the data to the SEC every quarter. Are the burdens on smaller managers different in character from the burdens on larger managers? Most smaller managers should be able to manage this, if not a service should cost no more than a few hundred dollars. 9. What, if any, are the benefits to investors and markets for the markets to have access to Form 13F data from smaller managers? This allows people to get a feel for the market and see what the "smart" money is doing. Though in the long term I might add most hedge funds fail to beat the market. Do these benefits justify the filing burdens? Yes. If so, why? Confidence in the markets. 10. Are the Form 13F filing obligations burdensome to larger managers? No. If so, how? They have capital to offset this. Is it beneficial to the markets to continue to have access to Form 13F data from larger managers? Yes. If so, why? Confidence in the markets. Do these benefits justify the filing burdens? Yes. If so, why? Virtually all filings should be electronic and automated quarterly to be sent to the SEC. 11. Who uses Form 13F data? Individual investors, other hedge funds to see what their competitors are doing. Newsmedia to publish clickbait articles, i.g. "You won't believe what this hedge fund just invested in!" RIA, brokerage houses, members of government, students, people browsing your website, etc. Are these uses beneficial to investors, market integrity, or capital formation? Yes this is beneficial to investors. Why do you think I am taking hours out of my life to answer all of these questions? Why or why not? This can give conviction on a position or sector that others hedge funds have entered to or exited from. How will these users of the data be affected if the reporting threshold is increased and fewer filers report? Less positions to see, they would also get a smaller sample size of where the smart money is going. Do those users prefer a different threshold? No. Why or why not? Don't fix what isn't broken. Can those users reasonably find alternative sources of data that meet their needs? No. Why or why not? There is only one financial market in America. 12. We estimate above direct compliance costs that smaller managers incur in connection with Form 13F. Are these estimates accurate? These costs are more inflated than a Law Enforcement drug bust of a combination of 35 kilos of Meth & Heroin valued at $11.7 million dollars. Yes this was really in the news. Compliance costs are minimal unless the firm has nepotism or doesn't know how to properly staff. What kinds of costs, and in what amounts, do smaller managers incur in connection with Form 13F? None different that larger firms. How do the costs differ for larger and smaller managers? None, larger managers would have more experienced staff or a third party to assist them. How much internal time do managers devote to compliance with Form 13F? N/A. What are the external costs, such as the cost of a third-party vendor or external legal counsel, associated with complying with Form 13F? Minimal, think of it as an industry standard to ensure public confidence. I'm sure that Brokerage houses would gladly assist with the filing requirements/reporting just for the chance to custody at minimum $100 million. We request comment on the direct compliance costs managers experience in connection with Form 13F, including the estimates in Section III below, and how these costs vary among managers. 13. We also request comment on indirect costs that may be incurred in connection with Form 13F. We discuss above some of these indirect costs, such as the potential for front-running and copycatting. Do commenters agree that these indirect costs are incurred? This just re-assures confidence in the markets, what happens if the price that they paid for went down? Are we going to blame this on short sellers? How do these indirect costs differ for larger and smaller managers? N/A Are there other or different indirect costs that are incurred in connection with Form 13F? The cost of time for individuals such as myself in arguing for keeping the status quo. What are those and how would they be affected by the proposed amendments? It would signal a loss of confidence in the markets. 14 - Consequently, Form 13F data of smaller managers may be more likely to be used by other market participants to engage in behavior that is damaging to the manager and the beneficial owners of the managed portfolio, such as front running (which primarily harms the beneficial owners) or copycatting (which potentially harms the portfolio manager), which may increase the costs of investing for smaller managers and hinder their investment performance. Frontrunning has always existed, the only thing that has changed has been the methodologies. In this case they have an entire quarter plus up to 45 days after to build a position. If the "Smart" hedge fund money cannot do this then there must be something wrong with their investment style. Copycatting further reinforces the conviction of that particular security, also lowering the amount of available float. I'm not sure how this would hinder the portfolio and how can the SEC be sure if there is no evidence in the 53 page pdf that addresses this? From Footnote 34 On page 8 it states; "Institutions have countered by raising concerns of copycatters and front-runners13 who may try to anticipate trades that are revealed too soon after the quarter end." Maybe if the hedge funds waited the 45 days they could then not be a victim of front running, this is the literal equivalent of going on CNBC & announcing that you are building up a position in ABC inc. On page 9 of the same reportit states; "Brown and Schwarz (2013) make the novel observation that hedge funds can take advantage of copycat traders by trading into these trades near the disclosure date i.e. selling shares at the disclosure when they know that the copycats will buy." I guess that the "copycats" and the "front-runners" who expect to be selling will end up being the bag holders. I also wanted to comment on the paragraph below as I believe that this paragraph is the best microcosm of the entire proposal to amend the 13F. The Commission believes that, for smaller managers, the proposed Form 13F reporting threshold increase is likely not only to enhance competition by lowering the cost to participate in the market but also to promote efficiency, which can benefit investors in the form of lower management fees and/or enhanced services. Furthermore, because the proposed Form 13F reporting threshold increase would potentially reduce the exposure of smaller managers to harmful, and in many cases inappropriate, actions by other market participants, such as front running, smaller managers would likely be encouraged to invest in small and mid-size portfolio companies that are more susceptible to the harmful effects of these behaviors. This increased investment would facilitate capital formation in smaller and medium sized companies. Similarly, protecting smaller managers from these harmful behaviors would likely promote competition between smaller and larger managers by helping to level the playing field for smaller managers. Investors would similarly benefit from the price impacts of this competition as well as any reduction in harmful trading behaviors. These hedge funds charge the normal 2 & 20, if they cannot budget properly maybe the individual investors should pull out their money. In regards to front-running why not propose to Congress to make it illegal? I'm sure that the SDNY Attorney General's office could assist your office. Another proposal is to lobby Congress to pass a law Stamp Duty tax similar to what Hong Kong has. Smaller managers would invest in what they feel aligns with their investment objectives, why do they have to invest in mid & small caps? Is there a capital requirement beyond share price that hedge fund managers must adhere to? Is there a minimum amount of shares that they need to buy? It sounds like the SEC is telling them to only buy securities in their "league." The intent of the proposal is to assist the smaller managers, what about the individual investor? This does not appear to the greater public interest in transparency.