SEC Considers Shortening 10-Day Window for Investors to Disclose Large Stakes in Companies

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WASHINGTON—The Securities and Exchange Commission is considering speeding up the deadline for investors to alert the market when they amass an ownership stake of more than 5% of a company’s stock.

SEC Chairman

Gary Gensler

on Wednesday said he has asked staff to consider updating those rules, which have been a point of contention for years between activist investors and public companies.

At present, investors generally have 10 days to disclose a stake in a company above the 5% threshold, a 50-year-old rule that dates to the period when market participants filed their disclosures on paper forms with the government.

“Those rules might’ve been appropriate for the 1970s, but I have my doubts about whether they continue to make sense given the rapidity of current markets and technologies,” he said, speaking virtually to a City & Financial Global conference in London.

Investors who hold a stake in a public company above the 5% threshold and plan to be active, or press for corporate change, file a form known as a 13-D. Such filings can boost a company’s shares as investors anticipate a major change sought by the large shareholder, such as board seats, a stock buyback or the sale or breakup of the company.


‘Those rules might’ve been appropriate for the 1970s, but I have my doubts about whether they continue to make sense given the rapidity of current markets and technologies.’


— SEC Chairman Gary Gensler

The disclosure isn’t required if an investor uses derivatives known as swaps to build the equivalent of a significant stake in a publicly traded corporation. That appears to have been the case with Archegos Capital Management, whose bets on

ViacomCBS Inc.

and other stocks stayed under the radar until its strategy backfired earlier this year.

Activists may object to changes in the reporting timetable since they use the 10-day window to build positions and avoid having the stock price rise before they have built their stake.

Critics of the 10-day window, including prominent corporate law firm Wachtell, Lipton, Rosen & Katz, have argued that the current rule is outdated because technology has made it easy to quickly report ownership.

Wachtell told the SEC in a 2011 rule-making petition that hedge-fund manager Pershing Square Capital Management had built a stake far in excess of 5% in retailer J.C. Penney Co. by the time Pershing made its disclosure. Wachtell asked for the SEC to move the deadline up to one day.

Wachtell said tardy disclosure robs shareholders of material information that might affect their willingness to buy or sell the stock. It also makes it harder for companies to prepare for any demands the large shareholder might make. “The markets rely on the expectation that material information will be disseminated promptly and widely, in no small part due to the impact of the internet and online information exchange,” Wachtell wrote. “In today’s world, 10 days is an eternity.”

A person familiar with Pershing told The Wall Street Journal at the time that the firm was following the rules in its effort to effect change at the company.

Mr. Gensler also gave some additional insight into how the SEC could draft disclosure rules for public companies related to climate-change risks. The SEC already has sought industry input, much of which arrived last week, for a rule proposal that could be issued by October.

Mr. Gensler said the SEC would consider “a range of specific metrics” for companies to disclose, such as their greenhouse-gas emissions. Some public companies already disclose carbon emissions under federal environmental regulations.

The SEC chairman said there could be added requirements “for companies that have made forward-looking climate commitments,” such as targets for reduced carbon emissions. He didn’t specify what those requirements could entail.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

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