In addition to the requirements of the Investment Advisers Act of 1940 and the state securities laws, there are several sections of the Securities Exchange Act of 1934 (the “1934 Act”) that a registered investment advisor should review. Four important requirements, which require certain reporting and disclosure documents, are set forth under Sections 13(d), 13(f), 13(g), and 13(h) of the 1934 Act and the subsequent rules and regulations adopted by the United States Securities and Exchange Commission (“SEC”) under those sections. Section 13(f) and the requirement to complete and file Form 13F are likely the most common of these provisions. This page provides general answers to some frequently asked questions regarding Form 13F and the temporarily imposed Form SH. The page also provides a quick overview of Section 13(d), 13(g) and 13(h). These answers are offered for educational purposes only and should not be considered a substitute for consulting with a compliance resource about your particular situation. RIA Compliance Consultants provides compliance consulting services for schedules 13D, 13F, 13G, 13H and Form SH. We are available to assist you in working with a third-party filing service.
Section 13(f) of the 1934 Act requires institutional investment managers with investment discretion over $100 million or more of certain equity securities to file quarterly reports disclosing their holdings. The quarterly reports are filed on the so called Form 13F.
According to the SEC, “the purpose of this disclosure requirement is to collect and disseminate to the public information about the holdings and investment activities of institutional money managers in order to assist investors, issuers and government regulators.” (In the Matter of Quattro Capital Management, LLC, August 15, 2007)
In the Quattro release, the SEC also stated the goal of Section 13(f) is to create a central depository of historical and current data about the investment activities of institutional investment managers. The information is gathered to assist investors and government regulators. Such information is valuable to the SEC because it allows the SEC to analyze the influence and impact of institutional investment managers on the securities markets. The SEC can use the information to determine changes in public policy and the implications of the influence institutional investment managers can have.
According to the instructions on Form 13F, “the purpose of Form 13F is to provide a reporting and disclosure system to collect specific information and to disseminate such information to the public about the holdings of institutional investment managers who exercise investment discretion over certain accounts of equity securities â€¦ (generally, exchange traded or NASDAQ-quoted securities) having, in the aggregate, a fair market value of at least $100,000,000. [The SEC] believe[s] that investors will find Form 13F report information useful in tracking institutional investor holdings in their investments and that issuers, too, will find detail as to institutional investor holdings useful because much of their shareholder list may reflect holdings in ‘street name’ rather than beneficial ownership.”
An institutional investment manager is an entity that either invests in, or buys and sells, securities for its own account. The term also includes an entity that exercises investment discretion over accounts owned by any other natural person or entity.
Some examples of institutional investment managers include registered investment advisors, banks, broker/dealers and insurance companies. However, the definition is not limited to registered entities. It includes corporations and pension funds that manage their own investment portfolios. It also includes investment advisors to hedge funds and other private investment advisors.
A natural person who exercises investment discretion over his or her own account is not an institutional investment manager.
Form 13F must be filed within 45 days of the end of each calendar quarter. The initial report must be filed at the end of the first year in which the institutional investment manager exceeds the $100 million threshold. For example if an institutional investment manager exceeds the $100 million threshold for the first time in July 2007, the firm will need to wait until January 2008 to submit its first report no later than 45 days after December 31. The firm must then file subsequent reports within 45 days of the end of each calendar quarter.
A registered investment advisor that exercises investment discretion over client accounts will generally meet the definition of institutional investment manager. If the registered investment advisor exercises investment discretion over accounts that buy or sell Section 13(f) securities and the aggregation of 13(f) securities totals at least $100 million, the registered investment advisor will need to begin filing Form 13F.
Form 13F can be viewed through the SEC’s website.
Not necessarily. Form 13F will only contain a listing of Section 13(f) securities as determined by the SEC. In fact, smaller holdings of Section 13(f) securities that meet the SEC’s de minimus reporting standards do not need to be reported.
The most current listing of Section 13(f) securities can be viewed through the SEC’s website. An institutional investment manager must visit this site every quarter to view the most current listing of Section 13(f) securities.
The SEC has posted its own set of FAQ’s located at http://www.sec.gov/divisions/investment/13ffaq.htm.
When a registered investment advisor acquires beneficial ownership of more than 5% of a class of equity securities which are registered under the 1934 Act, it must file a report on Schedule 13D with the issuer, the SEC, and the exchanges where the securities trade. When determining beneficial ownership, a registered investment advisor needs to consider two criteria to determine if it is a beneficial owner over securities held in client accounts. A registered investment advisor may be considered a beneficial owner if it has or shares either of the following: 1) the power to vote or direct the voting of the shares, and 2) the power to dispose or direct the disposition of the security.
If it is determined the registered investment advisor meets the reporting requirements of this section, it must file Schedule 13D within 10 days of becoming a 5% beneficial owner. Schedule 13D must then be updated promptly when changes occur.
Section 13(g) is very similar to Section 13(d). However, the requirements of Section 13(g) are less burdensome because Section 13(g) is designed to require reporting by qualified institutional investors and passive investors which do not raise the types of concerns underlying Section 13(d). Under this section, reporting entities must file Schedule 13G, which is very similar to Schedule 13D but requires less information and, in most cases, must only be updated on an annual basis. Schedule 13G must be filed when a qualified institutional investor exceeds 5% of a class of outstanding registered equity securities provided they hold the securities due to their normal course of business and not to affect change or influence control of the issuer. Schedule 13G is actually combined with Schedule 13D.
An investment advisor registered with either a state or the SEC could be considered a qualified institutional investor and more likely subject to Section 13(g) as opposed to Section 13(d). A passive investor would be a person or entity that trades for its own account and does not fall within the definition of qualified institutional investor, e.g. broker/dealer, investment advisor, or insurance company. Schedule 13G must be filed within 45 days of the end of the calendar year in which the qualified institutional investor exceeds the 5% threshold. Going forward, amendments are required on an annual basis. Amendments are also required within 10 days after the end of a month in which beneficial ownership exceeds 10% or more and within 10 days after the end of a month when ownership increases or decreases by at least 5%.
Under Section 13(h), Form 13H must be filed by any organization that is considered a “large trader”. A registered investment adviser qualifies as a “large trader” when the adviser has discretionary authority over one or more accounts that purchase or sell any exchange-listed security in an aggregate amount equal to or greater than 2 million shares or $20 million in a calendar day, or 20 million shares or $200 million in a calendar month.
If a registered investment adviser places trades that meet the amounts listed above, it must file Form 13H within 10 days of qualifying as a large trader. Form 13H must then be re-filed annually and updated whenever changes occur.
Upon the initial filing of the Form 13H, the SEC will assign a large trader identification number (“LTID”), which the investment adviser must disclose to all broker-dealers effecting transactions on its behalf, along with a list of all accounts at that broker-dealer to which the LTID applies. SEC-registered investment advisers who have been advised by a broker-dealer that they meet the definition of a large trader, but were unaware of such status, should immediately review their trading activity and compliance policies and procedures to ensure compliance with Rule 13h-1.
In December 2020, the SEC released a Risk Alert about its assessment of the compliance practices of SEC-registered investment advisers and broker dealers with regard to Rule 13h-1 and Form 13H. RIA Compliance Consultants encourages all SEC-registered investment advisers to review and update their compliance policies and procedures to ensure compliance with Rule 13h-1. Click here to read the SEC’s Risk Alert for Large Trader Obligations.
Unless a hardship exemption is granted, the forms must be filed electronically using the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
A registered investment advisor must first establish an EDGAR account. The report must be prepared in accordance with the EDGAR filing requirements. A registered investment advisor will first need to attain an EDGAR access code (which includes a CIK number, CCC number, and password) by filing a Form ID with the SEC.
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