July 15, 2020
The purpose of Form 13F filing requires is to provide transparency and instill confidence in securities markets. Filings from a large number of institutional market participants is essential to meet this end.
The rationale of the proposed rule change is twofold. First, a large percentage of the total assets tracked with 13F filings would continue to be tracked, and thus, the rule change would not materially alter whether or not the 13F filing requirement is serving its purpose. Second, the new proposed AUM requirement of 3.5 billion USD is approximately the inflation-adjusted value of the requirement when the requirement was first adopted. I will respond to each of these points separately.
Tracking a significant number of assets via 13F filings is a necessary but not sufficient condition for instilling public confidence in securities markets. Imagine a hypothetical economy in which Berkshire Hathaway's trading was responsible for 10% of the total market value, for example. Now imagine that Form 13F was required to be filing only by Berkshire Hathaway. Despite the fact that 10% of publicly traded assets would be tracked in this situation, there are a number of problems related to insuring public confidence in securities markets, including but not limited to:
1. As a result of it's size, it may be unfeasible for Berkshire Hathaway to invest in securities with small and medium sized market capitalizations. Having oversight of holdings in only large-cap securities is insufficient.
2. Observing potential collusion between institutional money management firms would be impossible since data would only be required for 1 firm.
While it is true that the proposed change would more accurately reflect the original intend of the Form 13F requirement, in 2020, more disclosure is needed in securities markets than was needed 40 years ago. The public has been particularly suspicious of finance and institutional money management since the 2007/2008 financial crisis. We should not be this quick to forget the "Occupy" movement which started in New York and spread quickly across the United States.
In 2020, more information is publicly available in general there is a public expectation of transparency that was absent decades ago. Finally, concerns regarding collusion, market manipulation, and "rigging the deck" are at an all-time high. These concerns, if ignored by the passing of S7-08-20, could cause devastating effects to the U.S. securities markets if investors lose faith. The amplification effects that social media could have on the faith of skeptical investors should not be understated. Based on the aforementioned concerns, the amount of oversight required among investment managers in the way of Form 13F filings to maintain public confidence is likely to increase over time, not remain stagnant.
I urge you to not pass S7-08-20.