SEC Alert! Reopening of Comment Period for Position Reporting of Large Security-Based Swap Positions--comments should be received before 8/21/23. Sample comment template inside.
https://public-inspection.federalregister.gov/2023-13447.pdf
- Proposed Rule: S7-32-10
- Comments already submitted from industry and others: https://www.sec.gov/comments/s7-32-10/s73210.htm
Previous Superstonk posts:
- https://www.reddit.com/r/Superstonk/comments/148qy6y/sec_alert_sec_will_hold_a_public_meeting_on/ (Meeting announcement announcing this would be considered)
- https://www.reddit.com/r/Superstonk/comments/143gioq/sec_alert_sec_adopts_rules_to_prevent_fraud_in/ (proposed rules)
- https://www.reddit.com/r/Superstonk/comments/143i34z/sec_chair_gary_gensler_congress_mandated_that_the/ (Gary's comments)
- https://www.reddit.com/r/Superstonk/comments/14esph7/sec_alert_sec_reopens_comment_period_for_position/ (post announcing comments first reopening)
BACKGROUND:
- The SEC proposed Rule 10B-1, which would be a large trader position reporting rule for security-based swaps.
The Proposed Rule would require public reporting of, among other things:
- (1) certain large positions in security-based swaps;
- (2) positions in any security or loan underlying the security-based swap position;
- (3) positions in any other instrument relating to the underlying security or loan or group or index of securities or loans.
- The Proposed Rule would include a specific quantitative threshold for when public reporting is required.
- Specifically, the Proposed Rule would, among other things:
- Require any person (and any entity controlling, controlled by or under common control with such person), or group of persons, who through any contract, arrangement, understanding or relationship, after acquiring or selling directly or indirectly, any security-based swap, is directly or indirectly the owner or seller of a Security-Based Swap Position2 that exceeds the Reporting Threshold Amount, to promptly file with the Commission a statement containing the information required by Schedule 10B on the Commission’s EDGAR system. These reports would be made publicly available immediately upon filing.
- Require that any Schedule 10B be filed promptly, but in no event later than the end of the first business day following the day of execution of the security-based swap transaction that results in the Security-Based Swap Position first exceeding the Reporting Threshold Amount.
- Provide that a group’s filing obligation may be satisfied either by a single joint filing or by each of the group members making an individual filing.
- Contain a provision intended to prevent evasion of the reporting requirement.
- Require a person who has previously filed a Schedule 10B with the Commission to file an amendment if any material change occurs in the facts set forth in a previously filed Schedule 10B including, but not limited to, any material increase in the Security-Based Swap Positions or if a Security-Based Swap Position falls back below the applicable Reporting Threshold Amount.
- Contain key definitions for determining the scope of the position to be disclosed, including for the terms “Reporting Threshold Amount” and “Security-Based Swap Position”.
- Specify the information required to be included in a Schedule 10B.
- Specify the territorial scope of the reporting requirements.
- Require filers to submit Schedule 10B using a structured, machine-readable data language.
Memorandum from the Division of Economic and Risk Analysis
In 9 of the 11 Schedule 13D filings considered, Schedule 13D Reporting Persons had equity security-based swap economic exposure in the 30-reporting day period prior to the Schedule 13D filing date.26 For these 9 Schedule 13D filings, Figures 2A through 2D show the average, maximum, and minimum aggregate equity security-based swap exposure and beneficial ownership amounts27 on a Schedule 13D filing, as a percentage of the market capitalization of the referenced class of equity securities in the filing, for each of the 30 reporting days prior to the Schedule 13D filing date. The data on beneficial ownership exposure prior to the filing date are derived from the Schedule 13D Reporting Persons’ reported transaction history under Item 5(c) of Schedule 13D, which requires the Schedule 13D Reporting Person to disclose any transactions in the class of securities reported on that were effected during the 60 days preceding the initial Schedule 13D filing. 28 Accordingly, these data are available only for the period prior to the Schedule 13D filing data (represented by “event time zero” in Figure 2)
- Figure 2A shows the average, maximum, and minimum equity security-based swap positions on a Schedule 13D filing, as a percentage of the market capitalization of the reported beneficial ownership with respect to the class of equity securities in the filing. In four of the nine filings, the equity security-based swap exposure is less than the 2.5% reporting threshold in proposed Rule 10B-1, and the Schedule 13D Lead Filer would not have had to report. In two filings, the swap exposure exceeds the 5% reporting threshold in proposed Rule 10B-1, and these two Schedule 13D Lead Filers would have had to report, likely prior to the Schedule 13D filing. In the remaining three filings, the equity security-based swap exposure is over 2.5% but less than 5%, in which instance the Schedule 13D Lead Filer would have had to report under proposed Rule 10B-1 only if the combined beneficial ownership exposure and equity security-based swap exposure on the Schedule 13D filing were more than 5%.
- Figure 2B shows the average, maximum, and minimum beneficial ownership amount on a Schedule 13D filing, as a percentage of the market capitalization of the referenced class of equity securities in the filing. In two out of the nine filings, the initial Schedule 13D filing was made after the Schedule 13D Lead Filer had previously reported on Schedule 13G without changing the amount of beneficial ownership. This explains why, in Figure 2B, the maximum beneficial ownership, across the nine Schedule 13D filings, is higher than 5% over 10 days before the filing date.
- Figure 2C shows the average, maximum, and minimum aggregate economic exposure that is gained by combining both equity security-based swap positions and beneficial ownership on a Schedule 13D filing. Three Schedule 13D filings included equity security-based swap positions that matched positions also reported in the equity SBSDR data. In other words, their beneficial ownership reports already contained a portion of the reported equity security-based swap position in the equity SBSDR data. This overlap amounts to 0.2% on average and 1.18% at most. Removing the duplication decreases the aggregate positions on these three filings,
- Figure 2D shows the average, maximum, and minimum aggregate economic exposure after adjusting for the duplication in three of the Schedule 13D filings.
Based on the data in Figure 2D, in all three Schedule 13D filings in Figure 2A for which the equity security-based swap exposure is over 2.5% but less than 5%, the combined beneficial ownership amount and equity security-based swap exposure is more than 5% (over 10 days before the Schedule 13D filing date). Accordingly, in each of these three Schedule 13D filings, the Schedule 13D Lead Filer would have had to report under proposed Rule 10B-1, prior to the date at which the Schedule 13D was filed.
Equity Security-Based Swap Positions, Generally Across Market Participants:
Request for Comment:
How to Comment:
Use the Commission’s internet comment form (https://www.sec.gov/rules/submitcomments.htm)
Sample Comment (please feel free to edit and make your own!):
As a household investor who has long been navigating the intricate world of finance, I wholeheartedly welcome the Securities and Exchange Commission's proposal for Rule 10B-1. This regulation, which mandates large trader position reporting for security-based swaps, appears to be a promising step towards enhancing transparency in our financial markets—a much-needed change for individual investors like myself. It gives everyone a clearer understanding of the securities landscape, allowing for better informed investment decisions and, ultimately, working towards leveling the playing field in a domain that often seems skewed in favor of large institutions.
As such, I urge the Commission to expedite its approval process for Rule 10B-1. Let's not slow-walk this necessary stride towards a fairer, more transparent market—it's high time we put the interests of everyday investors at the forefront.
a. The Reporting Threshold Amount should be lower if it requires the inclusion of the value of related securities owned by the holder of the security-based swap position. This would help ensure that all relevant financial exposures are taken into account and increase transparency about the risk profile of large traders.
b. Conversely, if the final rule does not require the inclusion of related securities in the calculation of the Reporting Threshold Amount, the threshold should be higher. This will prevent undue burden on traders whose security-based swap positions may not necessarily indicate a significant overall risk exposure.
c. The rule should allow for the offsetting of identical security-based swap positions. This could prevent over-reporting of positions that are effectively neutral in terms of risk exposure.
d. Consistent with the proposed rule, the final rule should require aggregation of security-based swap positions by any interconnected entities. This is important to avoid circumventing the reporting requirements through the division of positions among related entities.
e. & f. If the rule does not require aggregation across legally separate entities (unless a guarantee exists), the threshold should be lower to prevent large positions from being obscured by being split across multiple entities.
g. If the final rule requires aggregation of positions established for one’s own account and those established for others when sharing in economic risk or control, the threshold should be higher. This would acknowledge that these positions carry different levels of risk and responsibility for the reporting entity.
h. If the rule does not require the Reporting Threshold Amount to include positions entered into by an entity with a related entity, the threshold should be lower. This will ensure that risk exposure within interconnected entities remains transparent.
i. Depending on the combination of options, the Reporting Threshold Amount should be adjusted accordingly to ensure transparency and maintain a balance between regulatory oversight and the burden on reporting entities.
TLDRS:
- Proposed Rule 10B-1 would require anyone owing a security-based swap position that exceeds threshold determined by rule to promptly file with the SEC.
- OPEN for comment!
