Advocacy Action Items

Join NIRI in Opposing the SEC's Proposal to Gut 13F Transparency

On July 10, the U.S. Securities and Exchange Commission voted to propose amendments to its Form 13F disclosure rules, which would dramatically reduce the number of hedge funds and investment managers that have to report their holdings after each quarter. Under the proposal, the minimum threshold for 13F disclosure would increase by 35 times from $100 million in U.S. equities under management to $3.5 billion. As a result, 4,500 fund managers overseeing $2.3 trillion in assets (or 89 percent of current filers) would no longer have to provide disclosure.  (For more on this proposal, please review these FAQs). 

Small and mid-cap issuers, which typically have a larger percentage of mid-size fund managers owning their stock, would be more severely impacted by this rule change. 

The SEC's proposal does not include of any of the much-needed reforms that NIRI, NYSE, Nasdaq, and other organizations have called for to improve 13F transparency, such as reducing the 45-day reporting period, changing the reporting frequency to monthly, or requiring the disclosure of short positions.  The SEC also has failed to update the outdated 13D reporting rules to improve transparency. 

Commissioner Allison Herren Lee voted against the SEC's proposal, warning that the agency had not fully considered the impact on companies. 

The New York City public pension funds and hundreds of retail investors have expressed opposition to the SEC's proposal to reduce market transparency.  

NIRI plans to submit a detailed comment letter that strenuously opposes this proposed rule change. NIRI urges chapters, issuers, and individual IR professionals to share their concerns by sending comment letters to the SEC, contacting federal lawmakers, or sharing concerns with their industry trade groups. NIRI welcomes assistance from anyone who shares our goal of improving ownership transparency.  

NIRI has prepared a joint comment letter that public companies and IR counselors may sign on to. If your company or IR firm would like to join this letter, please email Ted Allen, who oversees NIRI's advocacy efforts, by Wednesday, August 19.  So far, more than 70 companies and counselors have joined NIRI's letter. 

If your company plans to submit its own comment letter, it should include data on the number (or percentage) of your investors that would no longer have to provide quarterly disclosure if the threshold was raised to $3.5 billion. NIRI has prepared a comment letter template for issuers that may be helpful. 

If you're an IR counselor or a service provider, you are encouraged to write your own letter to the SEC that discusses the potential impact on your clients. 

NIRI chapters also should share their concerns with the SEC.  NIRI has prepared a comment letter template to assist chapters with their letters.

The SEC's 13F proposal is subject to a 60-day comment period, which means that comment letters should be submitted by September 29. Comment letters to the SEC should reference "Reporting Threshold for Institutional Investment Managers, Release No. 34-89290; File No. S7-08-20" and may be submitted via the SEC's website at: https://www.sec.gov/cgi-bin/ruling-comments. You can also submit letters via email at: rule-comments@sec.gov; please include File No. S7-08-20 in the subject line. 

If you need assistance with preparing a comment letter, please review NIRI's issuer comment letter template, read NIRI's 13F FAQs, or contact Ted Allen.  Gladstone Place Partners also has prepared a comment letter template for issuers.   

NIRI is reaching out to other corporate organizations, NYSE, Nasdaq, and lawmakers to share the concerns of public companies and IR professionals. NIRI held a webinar on July 23 to discuss how issuers, counselors, and the broader corporate community can help defeat this ill-advised proposal. An archived replay of this webinar can be found here

Resources on 13F

 

The SEC Approves Final Proxy Advisor Rules

In a long-awaited victory for public companies, the U.S. Securities and Exchange
Commission voted 3-1 on July 22, 2020, to approve new regulations on proxy advisory firms
and to issue additional guidance for the institutional investors who hire them.

While the SEC did not mandate a formal pre-publication draft review process, the final
rules will require a proxy firm to provide all issuers a copy of its proxy voting advice, at
no charge, no later than the time it is disseminated to the proxy firm's clients. The rules
also will require proxy advisors to provide notice to their clients that an issuer has filed,
or has informed the proxy advisor, that it intends to submit a response to that proxy
advice.

These new standards are a significant improvement over current practice, whereby one
of the major proxy advisory firms (ISS) provides a review opportunity only to S&P 500
companies, while the other major proxy advisor (Glass Lewis) has charged issuers for
access to its proxy voting advice. 

"After more than a decade of advocacy work by dozens of members, NIRI applauds the
SEC's rulemaking to modernize proxy advisor regulation and to provide institutional
investors with more transparent and complete information," said NIRI President and
CEO Gary LaBranche. "This landmark decision will ensure that all issuers
and their IR teams will receive appropriate access to proxy reports before proxy firm
clients vote and will be able to provide responses that will be shared with those clients." 

For more on these reforms, please see this Executive Alert and visit NIRI's Proxy Advisory Firms and Proxy Systems Reform page.  



Ask the SEC to Take Action to Improve Short-Selling Disclosure

In February 2020, Columbia University Law Professors John C. Coffee and Joshua Mitts and a group of well-known law professors filed a rulemaking petition that asks the Securities and Exchange Commission to take action to address "short and distort" tactics by negative activists. Former Commissioner Robert Jackson Jr. also has endorsed this petition.  NIRI has written a comment letter that supports this petition and urges the SEC to adopt broader rules to require monthly short-position disclosure by all 13(f) institutions. NIRI encourages companies and NIRI chapters to write comment letters to the SEC that detail how they have been harmed by misleading information spread by anonymous short sellers. 

In 2015, NIRI and the NYSE Group filed a rulemaking petition that asks the SEC to require 13(f) institutions to publicly report their short positions. Nasdaq submitted a similar rulemaking petition, which was endorsed by the Biotechnology Innovation Organization (BIO), a trade association that represents biotech companies. In an August 2018 NIRI survey, 94 percent of IR practitioner respondents said they agree that the SEC should adopt new rules to improve short-position disclosure. 

In its 2017 and 2018 reports, the SEC’s Government Business Forum on Small Business Capital Formation urged the Commission adopt a short disclosure mandate; this recommendation was a top priority for smaller reporting companies. In April 2018, a coalition of eight business organizations, including the U.S. Chamber of Commerce, Sifma, and TechNet, voiced concern about the impact of “short and distort” campaigns on newly public companies and said the SEC needs to ensure “there is sufficient public information about potential market manipulation.”   

More recently, European authorities have taken action to protect companies from short abuses. In March 2020, the European Securities and Markets Authority tightened its disclosure rules for short positions in response to the COVID-19 pandemic. Under the new rules, investors who have a net short position of more than 0.1 percent of a public company's issued shares would have to disclose their positions to their national securities regulator.   

NIRI encourages members to ask their companies (or clients) to write comment letters to the SEC that support this much-needed reform to improve equity ownership transparency. A briefing paper, comment letter templates, and links to letters from public companies can be found on NIRI's Short Selling page. More than 15 companies have submitted letters so far. In addition, the NIRI Capital Area chapter has submitted a letter in August 2018 on behalf of its members who include IR officers at 20 public companies. The NIRI DFW chapter also has submitted a letter of behalf of its members, who include IR officers at 14 companies. 

In addition, Nasdaq and BIO wrote a commentary in May 2019 that makes a strong case for short-position disclosure.  

 

SEC Seeks to Modernize Shareholder Proposal Rules

The SEC also is seeking to modernize its rules on shareholder resolutions. The proposed rules call for a new economic requirements based on ownership duration.  An investor who holds a company’s shares for at least a year would have to own at least a $25,000 stake to file a proposal, while an investor holding shares for at least two years would have to own a $15,000 stake. The current $2,000 ownership threshold would be maintained, but only for investors who could show that they held their shares continuously for at least three years.  The SEC proposal also would increase the thresholds for the resubmission of proposals at the same company. A proponent would have to earn at least 5 percent support the first time that his or her resolution appeared on a company’s ballot in order to resubmit it the following year. That threshold would rise to 15 percent support in year two and 25 percent in year three and thereafter. The current resubmission thresholds, which are 3, 6, and 10 percent, respectively, have not been updated since 1954. 

NIRI supports these reforms and joined a comment letter submitted by the Corporate Governance Coalition for Investor Value
 

Thanks for Attending NIRI's 2019 Leadership Week 

NIRI expresses our sincere gratitude to the more than 60 members who attended our third-annual Leadership Week event in Washington, D.C., in September 2019.  NIRI hosted a regulatory briefing with SEC Commissioner Elad Roisman and took members to 23 House and Senate offices to share the views of IR professionals on key issues such as improving equity ownership transparency (13F and 13D modernization).  NIRI's delegation also met with senior SEC staffers and discussed proxy reforms, ESG disclosure, and the impact of MiFID II. 

Here are links to NIRI's briefing papers for Leadership Week 2019:


NIRI plans to host a virtual briefing via Zoom in late September 2020 to provide an update on regulatory developments and NIRI's advocacy initiatives. 
 

Ask Lawmakers to Improve Transparency Around Hedge Fund Activism

In 2017, U.S. Senator Tammy Baldwin (D-Wisconsin) introduced bi-partisan legislation (S. 1744) to modernize the 13D disclosure rules that apply to activist investors who obtain more than a 5 percent stake in a public company. Under current 13D rules, which have not been substantially updated in more than 40 years, activist funds don't have to disclose their stakes and intentions until 10 days until after they cross the 5 percent threshold, which allows these funds and their allies to continue to accumulate shares in secret. This legislation would reduce this reporting period to four days and broaden 13(d) disclosure to include derivatives and other instruments. In an August 2018 NIRI survey, 95 percent of respondents agreed that the 13D rules need to be updated.

NIRI encourages all members and NIRI chapters to contact their home state senators and express support for 13D modernization. Here is a link to a July 2018 NIRI statement that urges the Senate to support 13D reform. The NIRI Houston chapter submitted letters in support of S. 1744 to Senators Ted Cruz and John Cornyn. A letter template for public companies that wish to write in support of 13D reform can be found here. A list of suggested talking points on 13D can be found here. For a listing of U.S. senators and their office addresses, please visit this link


Ask the SEC to Modernize Long-Position Reporting

NIRI and NYSE have asked the SEC to modernize the outdated 13(f) rules that govern long-position reporting. The current rules, which have not been updated since 1979, require institutions to report their long positions 45 days after the end of each quarter. NIRI and the NYSE have called for a monthly reporting regime with a 15-day filing period that would generate more timely information about institutional holdings while accommodating investment managers' concerns about protecting their trading strategies. In an August 2018 NIRI survey, 97 percent of respondents agreed that the 13(f) reporting period should be shortened, while 87 percent expressed support for monthly reporting.      

 

Learn More About NIRI's Advocacy Agenda 

NIRI encourages members to review its updated Financial Regulatory Reform Issues agenda, which was approved by NIRI's Board of Directors in June 2019. 

Members also are encouraged to read NIRI's IR Update Weekly newsletter, which includes a "Regulatory Update" section with summaries and links to new SEC rules and guidance, as well as news about legislative developments in Congress. IR Update has a "Spotlight on Advocacy" section where you can find articles on regulatory trends that impact IR professionals.   
 


Reach Out to Your Chapter Advocacy Ambassador

If you are interested in learning more about NIRI's advocacy priorities, please contact your chapter's advocacy ambassador, and/or Ted Allen, NIRI's vice president for communications and member engagement, at tallen@niri.org. If your chapter doesn't yet have an advocacy ambassador and you would like to take on that role, please contact the president of your chapter.  Here is an updated fact sheet on the advocacy ambassador position

 

Regulatory News

 


SEC Seeks Public Input on Short-Termism

In July 2019, the SEC held a roundtable on short-termism in the capital markets and whether regulatory changes need to be made to promote a longer-term focus by investors and issuers. In kicking off the roundtable, Chairman Jay Clayton said the SEC would examine the the macro forces that drive short-term behavior in our markets, including earnings guidance. He said the SEC would also look at its disclosure framework to determine if it allows companies to focus on long-term performance. For news coverage of this roundtable, please see these law firm blog posts from Cooley LP and Davis Polk.

NIRI plans to submit a comment letter on these topics. If you have any input for NIRI's letter, please email Ted Allen, NIRI's vice president for communications and engagement, at tallen@niri.org.

 

SEC Panel Calls for Human Capital Management Disclosure Rule

In March 2019, the Securities and Exchange Commission's Investor Advisory Committee voted 14-6 in favor of a recommendation that the SEC adopt a human capital management disclosure rule. A coalition of 25 institutional investors with more than $2.8 trillion in assets under management has petitioned the SEC to adopt rules requiring “issuers to disclose information about their human capital management policies, practices, and performance.” For more on this topic, please see this Cooley LLP @PubCo blog post.

 

U.S. Senate Considers Proxy Advisors, 13D Reform

In June 2018, the U.S. Senate Banking Committee held a hearing to consider a variety of corporate governance issues, including proxy advisors and 13D modernization. NIRI has submitted a statement that urges the Senate to support  H.R. 4015, a U.S. House-passed bill that would direct the Securities and Exchange Commission to regulate proxy advisory firms. NIRI also supports the Brokaw Act (S. 1744), which would shorten the 13D reporting period for hedge funds and other activists who obtain significant stakes in public companies. The bill would also expand the definition of beneficial ownership under 13D to include derivatives and short positions. 

Tom Quaadman, executive vice president of the U.S. Chamber's Center for Capital Markets Competitiveness, also testified in favor of H.R. 4015. Two other witnesses, Damon Silvers, policy director at the AFL-CIO, and Harvard Law Professor John C. Coates, also voiced support for modernizing the 13D rules. 

NIRI supports both H.R. 4015 and S. 1744 and encourages IR professionals and public companies to contact their home state senators and express support for these bipartisan bills.

 

Business Coalition Calls for Proxy Reform, Short-Selling Disclosure

In April 2018, the U.S. Chamber of Commerce released a report, "Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public," that includes various recommendations to foster more IPOs and to reduce the burdens on existing public companies. NIRI was part of a broad coalition of business groups that contributed policy suggestions that made it into the final report. 

Notably, the 36-page report includes recommendations for proxy advisor reform (p. 17) and a short-selling disclosure rule (pp. 22-23), which are two of NIRI's major advocacy priorities. The report has several recommendations (pp. 13-15) to promote more sell-side research on smaller companies. On page 18, the report also includes a request for the Securities and Exchange Commission to increase the resubmission thresholds for shareholder proposals, which would reduce the number of special-interest proposals on proxy ballots. 
 

SEC Grants Reprieve to Brokers Over MiFID II Research Rules

In October 2017, the SEC issued a trio of no-action letters that will provide a 30-month delay in the implementation of the European Union's MiFID II's research rules by U.S.-based sell-side firms. This regulatory relief, which was requested by groups representing sell-side firms and mutual funds, should help U.S. companies and their IR teams by reducing the likelihood that sell-side firms would abruptly cut back their analyst coverage of small and mid-cap issuers. "Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," SEC Chairman Jay Clayton said in a press release. "These steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action." NIRI has submitted a comment letter that thanks the SEC for this relief and encourages the Commission to work with industry participants to develop recommendations to promote equity research coverage of small- and mid-cap issuers.  
 

NIRI Asks the SEC to Review Automated Proxy Voting

In an August 2017 comment letter, NIRI expressed concern over the automated proxy voting systems used by Institutional Shareholder Services and Glass Lewis & Co. and asked the SEC to investigate whether those systems are consistent with agency guidance. 

In November 2018, the American Council for Capital Formation (ACCF) published a report that documents the widespread prevalence of "robo-voting" by investment managers through automated voting platforms managed by proxy advisory firms. This report found that a significant number of Institutional Shareholder Services (ISS) clients vote in line with ISS recommendations soon after ISS reports are published. According to ACCF, there are 82 asset managers, with more than $1.3 trillion in assets under management, who vote with ISS more than 99 percent of the time.

 

Lawmakers Hear Testimony on the Burdens Faced by Public Companies

In July 2017, the House Subcommittee on Capital Markets held a hearing on “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.” The panelists, which included representatives from the NYSE and the U.S. Chamber of Commerce, provided recommendations on how to ease some of the costly disclosure burdens faced by companies. A representative from the Biotechnology Innovation Organization testified about the need for greater transparency around short positions.   

 

Nasdaq Outlines Regulatory Reform Plan 

Nasdaq has published a blueprint for market reform that includes a number of recommendations that are consistent with NIRI's views. Here is a link to an IR Update Q&A with Nasdaq CEO Adena Friedman on the exchange's Project Revitalize recommendations.