In July 2020, the Securities and Exchange Commission made a proposal to vastly change the reporting requirements of hedge funds. The Securities and Exchange Commission’s proposal would permit hedge funds with less than $3.5 billion in assets to stop reporting their holdings in quarterly reports to the Securities and Exchange Commission. At this time, the Securities and Exchange Commission requires quarterly disclosure of stock positions held by hedge funds that have more than $100 million in assets under management.
According to the Financial Times, during the ‘consultation period’ when the Securities and Exchange Commission considers comments made about their proposed changes, 2.262 letters were submitted to the Securities and Exchange Commission regarding the proposed change to the disclosure rules. Of these 2,262 comment letters, 99% were against the proposed rule, according to Financial Times. The result of such a large number of letters opposing the rule change is that the Securities and Exchange Commission is expected to withdraw its proposal and keep the current disclosure threshold of $100 million.
The $100 million threshold has been in place since 1975 and it requires hedge funds to file a “13-F” report each quarter to disclose their holdings. The Securities and Exchange Commission looked at the fact that the US equity market capitalization has grown from $1 trillion to an $35 trillion and decided that it was time to raise the disclosure limit. The Securities and Exchange commission also claimed that the disclosure requirements at $100 million were a burden to the smaller hedge funds. This reasoning leaves out the impact that its actions would have on the transparency of the markets. The Financial Times reports that hedge fund managers were skeptical of the Securities and Exchange Commission’s reasoning. The smaller hedge fund managers and even the CFA Institute noted that the costs to file the 13F are negligible and the process was mostly automated by today’s portfolio accounting software programs.