Today the NYSE Euronext (“NYSE”), along with the Society of Corporate Secretaries and Governance Professionals and the National Investor Relations Institute (“NIRI”) delivered a petition to the SEC asking to shorten the 13F quarterly reporting deadline (i.e. lag) from 45 days to two days. The trio said this 45-day lag hampers corporate America’s ability to reach investors in a timely manner for their annual meetings. Given the say-on-pay movement, it appears there is some concern that eventually this lag could lead to some bigger problems down the road.
The reality is 45 days is ridiculous in today’s rapid information world and speeding up this process can only help corporate America improve its communication with shareholders. The reason the rule was set at 45 days, over 30 years ago, was that the Street had argued that the technology wasn’t available to pull the data that quickly. Today, that’s obviously not an obstacle.
As you can expect, hedge funds and a few super high profile investors – many of which, like Warren Buffett, are already given special treatment – are against the change. So the buy-side expects companies to release material information within 24 hours, but doesn’t want to offer the same kind of transparency in return? The reality is what these organizations have asked for isn’t even that transparent. For example, let’s say that Fidelity bought a large position in a XYZ’s stock on October 2nd of last year. By today’s rules, Fidelity isn’t required to tell the XYZ Corporation about that position until February 15th. Would it really matter if that trade was made public on January 2nd vs. February 15th? The argument against accelerating this filing is often that smaller investors attempt to front-run large firms like Fidelity, but that seems like a fairly absurd argument for a number of reasons: 1) there is no way for anyone to know if the position was accumulated recently (vs. almost three months ago in this example), 2) in Fidelity’s case they could have several funds buying and selling at the same time, and 3) no one knows if the buy-sider is still actively building a position in the stock on January 2nd or has changed their investment thesis.
Where I really get frustrated in this discussion is the fact that so many publicly traded companies waste a large portion of their IR budgets ($30-50K a year) on stock surveillance. Sadly, the providers of that service readily admit that it is at best a 50-50 guess, but Corporate America has been forced to do the best it can to identify its shareholders in a timely manner, and it’s time for the buy-side to do their part. My guess is 75% of the Street could care less, but day trading hedge funds have deep pockets and will likely push their trade groups and lobbyists to fight this with all they have as they need to remain opaque. The reality is we should be well past this debate and should really be talking about the disclosure of derivate and short positions quite honestly, but that’s a blog for another day.
The SEC has called asked for comments from the IR community and I encourage all IRO’s and anyone involved in the IR function across the country to please join us and make your voice heard. I’ve attached a link to the comment section here for you.