Download Regulatory Filings Refresher

NSCP CURRENTS
Regulatory Filings Refresher
By Jessica Huelbig
R
egulatory filings may not be the sexiest topic among
compliance professionals. Even so, it is important to note
that the U.S. Securities and Exchange Commission (“SEC”
or “Commission”) has been giving them more attention of late.
In September, for example, the Commission charged more than
30 individuals, investment firms, and publicly traded companies
for allegedly failing to comply with various public company
holdings and transactions reporting requirements. “The reporting
requirements in the federal securities laws are not mere suggestions,
they are legal obligations that must be obeyed. Those who fail to do so
run the risk of facing an SEC enforcement action,” stated Andrew M.
Calamari, Director of the SEC’s New York Regional Office.1
Investment advisers, whether registered with the SEC or not, must
submit various regulatory filings to the Commission. In light of
recent events, firms should reevaluate their filing obligations and
make sure they have adopted appropriate processes and systems
to track regulatory filing thresholds and deadlines. To that end,
this article provides the following overview of the most common
regulatory filings required of advisers.2
Form 13F
Regulatory Background
Section 13(f) of the Securities Exchange Act of 1934 (“Exchange
Act”) requires institutional investment managers that exercise
investment discretion over Section 13(f) securities with a combined
value of at least $100 million to file Form 13F. These forms are
posted via the SEC’s Electronic Data Gathering, Analysis, and
Retrieval system (“EDGAR”) and become public upon submission.
Section 13(f) securities are primarily U.S. exchange-traded stocks,
shares of closed-end investment companies, shares of exchangetraded funds (“ETFs”), certain convertible debt securities, equity
options, and warrants. The SEC issues an Official List of Section
13(f) Securities each quarter.
Deadlines
Form 13F must be submitted no later than 45 days after the end of
each calendar quarter. If an adviser exercises investment discretion
over $100 million or more in Section 13(f) securities at any month
end during a fiscal year, it must file an initial Form 13F for the
fourth quarter of that year and additional Form 13Fs for the first,
second, and third quarters of the next year. If an adviser has less
than $100 million in Section 13(f) securities for each month during
the fiscal year, it no longer has to file Form 13F and the third1
SEC, “SEC Announces Charges Against Corporate Insiders for Violating
Laws Requiring Prompt Reporting of Transactions and Holdings,” September 10,
2014 [http://goo.gl/nOhOjV].
2
This summary is not all inclusive. An adviser may be subject to various
other filings, including Form ADV, treasury filings, state filings, and foreign
filings. Firms should consult with legal professionals to determine exactly which
regulatory filings apply to them.
ABOUT THE AUTHOR
Jessica Huelbig is a Senior Principal Consultant with ACA Compliance
Group. www.acacompliancegroup.com. She can be reached at jhuelbig@
acacompliancegroup.com.
quarter filing will be the last one required until such time as the
adviser exceeds the threshold again.
Practical Guidance
To determine whether to file Form 13F, an adviser should look
at the aggregate long market value of all U.S. exchange-traded
securities in its discretionary client accounts at the end of each
month. Short and long positions should not be netted; only long
positions should be considered in the calculation. If a manager
buys options for clients, the options’ value should be calculated
when determining whether the securities held exceed the threshold.
When recording options on Form 13F, however, firms should
report in terms of the underlying security (e.g., CUSIP, type, value,
and shares). Keep in mind that if a manager shares investment
discretion with any other managers, the managers involved may
need to cross reference each other on their Form 13F filings. In
order to avoid double counting, only one manager should report the
Section 13(f) securities.
Form 13H
Regulatory Background
Rule 13h-1 under the Exchange Act requires investment advisers
to file Form 13H and obtain a large trader identification number
(“LTID”) from the SEC if their transaction activity in National
Market System (“NMS”) securities exceeds two million shares or
$20 million during any calendar day or 20 million shares or $200
million during any calendar month. An NMS security is typically
any security or class of securities listed on a national exchange
or traded through NASDAQ. These include equities and options
such as common stock, ETFs, American depository receipts, and
warrants. Fixed income securities, exchange‐listed debt securities,
securities futures, or open‐end mutual funds are not generally
considered NMS securities. While Form 13H is filed through
EDGAR, it is not made available to the public.
Deadlines
Once a trader meets or exceeds the identifying activity level , it
must submit an initial Form 13H filing to the SEC no later than
10 calendar days after the date on which it met or exceeded the
qualifying amount. When a manager identifies itself to the SEC as
a large trader, it receives an LTID immediately via the acceptance
email sent from EDGAR. Once the LTID is obtained, large traders
must notify (that is, send the number to) all registered brokerdealers effecting transactions on their behalf within 10 calendar
days of receiving the LTID.
If changes to the Form 13H information occur, a revised Form 13H
must be filed no later than 10 days after the end of the quarter in
which the change occurs. If no changes occur, advisers must still file
Form 13H annually no later than 45 days after the year ends.
Practical Guidance
To determine if they have exceeded the threshold in a day or
month, advisers should aggregate all long and short NMS security
transactions, not just transactions in one single security. If firms
buy equity options for clients, the value and shares based on the
underlying security should be used to determine whether a Form
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NSCP CURRENTS
13H filing is required. Firms that have already filed Form 13H must
file an amendment no later than 10 days after each quarter in which
any changes, such as the addition of a new broker, occur. Firms
should also adopt a process for providing their LTID to new brokers
as part of the account opening process.
additional requirements. Per Rule 13d-1(c) under the Exchange Act,
these excluded individuals and entities may still use Schedule 13G to
disclose passive equity interests, but only if they own less than 20% of
the class. Once they exceed 20%, a Schedule 13D would be required.
Schedule 13D and 13G
Schedule 13G filings are also made through the EDGAR system and
become public upon submission.
Schedule 13D
Deadlines
Regulatory Background
The general Schedule 13G and 13G/A filing deadlines under Rule
13d-1(b) are as follows:
Section 13(d) of the Exchange Act generally requires a beneficial
owner of more than 5% of a class of equity securities registered
under the Exchange Act to file Schedule 13D. The Exchange Act
defines “beneficial ownership” broadly to include, among other
things,
•
the power to direct the voting of a security,
•
the power to direct the disposition of a security, and
•
the right to acquire beneficial ownership within 60 days
through an option or by the conversion of a security.
Schedule 13D filings are made through the SEC’s EDGAR system
and become public upon submission.
•
If the adviser exceeds 10% for the first time in a security at the
end of a month, the initial Schedule 13G must be filed no later
than 10 days after the month ends.
•
An initial annual filing must be made no later than 45 days
after the year ends if the adviser exceeds 5% in a security at the
year end.
•
If its initial 13G filing references an amount that is more than
5% but less than 10%, an adviser that then exceeds 10% at
month end must file an amendment no later than 10 days after
the end of the month.
•
If its last 13G or 13G/A filing references an amount over 10%
an adviser that experiences an up or down fluctuation of more
than 5% at month end must file an amendment no later than 10
days after the end of the month.
•
Generally, annual 13G or 13G/A amendments must be made
no later than 45 days after the end of the year in which the
previous 13G or 13G/A filings were submitted.
Deadlines
Initial Schedule 13D filings must be made no later than 10 days after
the date of the transaction that raised beneficial ownership over
the 5% level. Amendments to Schedule 13D must be filed promptly
(i.e., within two business days of the occurrence) if material changes
need to be made to the disclosures set forth in a previously filed
Schedule 13D. Material changes include, among other things, an
acquisition or disposition of securities in an amount equal to 1% or
more of the class of outstanding securities.
Schedule 13G
Regulatory Background
In general, a manager may file Schedule 13G instead of Schedule
13D if it holds more than 5% of a class of a registered equity
security passively, that is, without intention to change or influence
control of the issuer. Rule 13d-1(b) under the Exchange Act lists
several classes of entities, including SEC and state-registered
investment advisers, that may disclose passive equity interests
on Schedule 13G in a more relaxed timeframe. Note, however,
that high-net-worth individuals and private funds are subject to
To summarize, the general Schedule 13G and 13G/A deadline
requirements under Rule 13d-1(c) are as follows:
•
A manager must file an initial 13G no later than 10 days after
exceeding 5%.
•
If changes occur during the year that require amendments to
a filed Schedule 13G, the amendments must be made no later
than 45 calendar days after the end of that year.
•
If an adviser exceeds 10%, a 13G/A must be filed no later than
two days after the occurrence.
•
If the last filing submitted references an amount greater than
10% but less than 20%, an amendment must be filed promptly
if the adviser fluctuates up or down by more than 5%.
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No further amendments are required once a Schedule 13G/A is
filed for an amount less than 5%. If an investment adviser’s holdings
change from passive to active (i.e., the adviser now intends to
change or influence control of the issuer), then the adviser must
file Schedule 13D no later than 10 calendar days after the change
occurs. At that time, it will also become subject to a time out from
trading in the security or securities affected by this shift.
Practical Guidance for 13G and 13D
To determine whether a particular equity security may trigger
a Schedule 13G or 13D filing, firms may consider searching the
company on EDGAR to see if it is registered under Section 12 of
the Exchange Act. Firms may also reference public company filings
in EDGAR to determine the total number of shares outstanding
when calculating their total beneficial ownership. As a reminder,
any options, warrants, or other derivatives that could be exercised
within 60 days and result in ownership of the underlying security
should be taken into account when computing total beneficial
ownership.
Section 16 Filings
Regulatory Background
Section 16 of the Exchange Act requires certain filings (Forms
3, 4, and 5) by any direct or indirect beneficial owners of more
than 10% of any class of a registered equity security, as well as the
directors and officers of the issuer of such a security. (Note that,
typically, a Form 3 filing is not required for a registered investment
adviser with greater than 10% ownership if the security is associated
with a Schedule 13G filing and the shares are held for clients in a
fiduciary capacity, in the ordinary course of business, and without
intent to change or influence control of the issuer.) Section 16 filings
are made on the SEC’s EDGAR system and become public upon
submission.
Deadlines
A Form 3 should be filed with the SEC no later than 10 days after
the manager passes 10% ownership. If anything changes regarding
ownership, a Form 4 should be filed with the SEC promptly. A Form
5 must be filed no later than 45 days after the end of the fiscal year.
Practical Guidance
The guidance provided above for Schedule 13D and 13G generally
applies to determining beneficial ownership for Section 16 filing
purposes.
Additional Private Fund Filings
Form PF
Form PF is a web‐based form required by Rule 204(b)‐1 under
the Investment Advisers Act of 1940 and Rule 4.27 under the
Commodity Exchange Act. An investment adviser that is registered
or required to register with the SEC and that advises one or more
private funds with at least $150 million in private fund regulatory
assets under management as of their most recently completed fiscal
year must file Form PF. Filing deadlines depend on the type of funds
managed and the amount of regulatory assets under management.
Form PF is filed via the Private Fund Reporting Depository, which
is a subsystem of the Investment Adviser Registration Depository.
These filings are not made available to the public.
Form D
All issuers offering securities in reliance on an exemption under
Regulation D of the Securities Act (such as private funds) must file
Form D electronically through EDGAR no later than 15 days after
the first sale of securities and annually within 12 months of the
previous filing. Should an adviser discover any material mistake or
error on a previously filed form, it should file a corrected form as
soon as possible.
Form D is made public upon submission to EDGAR. Generally,
copies of Form D filings, filing fees, and other documents must be
sent to states where offerings are made. These requirements are
referred to as “blue sky” filings and the rules for them vary by state.
Conclusion
Firms should revisit their regulatory filing obligations whenever
new strategies are adopted, client types change, and/or assets under
management experience material shifts. Investment managers
should also adopt processes to review holdings and transactions
periodically in light of the various regulatory filing requirements
noted above. To facilitate tracking relevant filing thresholds and
deadlines, many firms use order management systems or other
automated methods to alert them when they are nearing a threshold
or deadline.
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