Comment Letter for Modernization of Beneficial Ownership Proposal S7-06-22

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The original was posted on /r/Superstonk by /u/dlauer on 2023-06-27 17:16:30+00:00.

Today We The Investors posted our comment letter on the SEC proposal to modernize the definition of Beneficial Ownership.

Under current SEC rules, institutional investors purchasing shares through brokers and banks (called “beneficial owners”) are required to disclose any ownership interest they may have in a public company once such ownership interest exceeds 5% of outstanding shares. This disclosure is accomplished by filing a beneficial ownership interest report with the SEC on Schedule 13D. This report is required to be filed within 10 calendar days after a beneficial owner crosses the 5% threshold. This 10-day deadline has been in effect and unchanged since 1968. Acquiring large blocks of shares secretly for such a long period of time allows these investors to trade on asymmetric price information and continue accumulating shares from unwitting investors for almost two weeks after the 5% threshold is reached.

Further, as we saw with Archegos, cash-settled derivatives are exempted from disclosure requirements because the holders of these derivatives are not considered beneficial owners. The SEC explains that often the holders of these derivatives are still able to exert influence over the company, as the counterparty to the derivative is often holding the underlying securities. To modernize this disclosure framework and prevent another Archegos from happening, the SEC has proposed an important set of rule updates that we support.

Our comment letter pushes the SEC to go even further with a 2 day disclosure deadline. We also support the new derivative disclosure requirement, while asking the SEC to clarify that such holders, despite being deemed beneficial owners for the purposes of this rule, would not result in any change to to the voting rights or investment powers of the underlying reference securities that are the basis for these types of swaps.

For info on how to file the comment letter, or for a Word version, check out our issue page. The deadline to file comments is today (June 27) but don't let that deter you - the SEC will continue to accept comment letters!

I'm also happy to answer any questions on this issue, I know there's a lot of concern/confusion about it.