Investment Advisers | Regulatory Filings | Section 13 Filings

Advisers: Do You Have a Form 13F Filing Obligation?

Under the Securities Exchange Act of 1934[1], as amended (the “Exchange Act”), advisers who exercise investment discretion over accounts that hold exchange-traded securities may be subject to reporting requirements as set forth in Section 13 of the Securities Exchange Act[2] (“Section 13”).  Section 13(f) requires institutional investment managers[3] with investment discretion over $100 million or more in “Section 13(f) securities” to file quarterly reports with the SEC on Form 13F within 45 days of each quarter-end.

Although these regulatory filings may seem routine to some, advisers should know that the SEC is watching.  In a recent risk alert the SEC reported a prevalence of missed Form 13H filings (also known as large-trader filings and a sister to Form 13F.)  Additionally, now that the SEC is dropping its proposed amendments to Section 13(f), it seems they are carefully examining firms for their Section 13(f) compliance.  The purpose of this article is to help advisers evaluate whether they have a Form 13F filing obligation and how to monitor for an initial filing trigger or subsequent filing requirement.

What is a Section 13(f) security?

Section 13(f) securities include equity securities that trade on a national exchange, including NASDAQ, certain equity options and warrants, shares of closed-end investment companies, exchange-traded funds (ETFs), and certain convertible debt securities.  Foreign securities not traded on a national exchange and open-end investment companies are not Section 13(f) securities.  The SEC publishes a download-able quarterly list of 13(f) securities on their website.  Managers can reference this list to identify any 13(f) securities and determine if the Firm meets the filing thresholds.  Additionally, depending on the portfolio accounting system used by an adviser, that system’s security master may include this classification to help advisers efficiently report on any 13(f) securities held.

Who must file Form 13F?

Institutional investment managers with discretion over $100 million or more in 13(f) Securities must file Form 13F.  The $100 million threshold applies in aggregate across all accounts over which the investment manager has discretion.  This definition includes registered investment advisers and exempt reporting advisers that manage accounts on behalf of others, including advisers to separately managed accounts, private funds, mutual funds, and pension plans.  An institutional investment manager also includes firms that invest in securities for their own account, such as banks, insurance companies and broker-dealers.

What is “investment discretion” under Rule 13f-1?

“Investment discretion” over an account, as used in Rule 13(f)-1, means that an investment manager (i) has the power to determine which securities are bought or sold for the account, or (ii) makes decisions about which securities are bought or sold for the account, even though some other person has the responsibility for the investment decisions.  An institutional investment manager is also considered to have “investment discretion” for accounts over which any person under its control exercises investment discretion.

To make things just a little more complicated, the form also distinguishes among three types of discretion: sole, share-defined, or shared other.  For example, sole discretion is when an investment manager has control of the position.  Shared-defined is when the firm making the filing controls or is controlled by another legal entity, or when discretion is shared between managers.  Shared-other is any position where discretion is shared in some other manner.  When there is shared discretion, the other manager responsible for the position must be listed on the Form 13F, unless that manager does not meet the $100 million filing threshold.  In that case, the filing investment manager can aggregate the Section 13(f) security holdings on its form without identifying the other manager.

In its FAQs, the SEC provides this example of shared-defined investment discretion: “A bank holding company is required to file Form 13F, despite the fact that the bank’s trust department or investment adviser subsidiary manages the 13(f) securities.”

When is the Form 13F required?

The requirement to file Form 13F is triggered if the investment manager exceeded $100 million or more on the last trading day of any month during that calendar year.  As such, investment managers should have reporting to identify if they are meeting or exceeding these thresholds.  Once the requirement to file is triggered, the investment manager must submit its initial Form 13F filing for the quarter ending December 31 within 45 days of calendar year-end.  And once established, the filing obligation continues for a minimum of three (3) consecutive calendar quarters (i.e., March 31, June 30, and September 30).  If required, the first Form 13F filing of 2021 is due on February 16th for the quarter ending December 31, 2020.

It is important to note that even if the investment manager doesn’t meet the $100 million threshold as of December 31, the obligation to submit Form 13F remains if that threshold was met as of the last trading day in any month during the calendar year.  Advisers that do not exceed the threshold during a calendar year may discontinue Form 13F filings.  There is not a termination or withdrawal filing.

When are Form 13F Notice or 13F Combination Reports Required?

There are some situations where an investment manager has a Form 13F filing obligation, but relies on another firm to make the filing.  For example, in a sub-advisory relationship, the parties can decide which entity will be responsible for the Form 13F filing regarding the sub-advised assets.  If the adviser takes on that responsibility, then the sub-adviser would file a “13F Notice” or a “13F Combination Report” depending on the situation, and include the adviser on the “List of Other Managers Reporting for this Manager.”

How is the Form 13F filed?

Form 13F must be submitted electronically in “XML” format via the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.  For an initial filing through EDGAR, the investment manager will need to complete a Form ID to obtain a central index key (CIK code) and EDGAR access codes.  This process can take a few days as the Form ID has to be notarized and then submitted electronically through the EDGAR system.

EDGAR provides instructions on creating an XML Information Table for the Form 13F for advisers that elect to complete this process internally.  However, firms should ensure they fully understand the process before submitting EDGAR filings.  An alternative would be to utilize a third-party vendor that provides EDGAR filing services.

Once the submission is complete, firms are required to retain a signed hard or electronic copy of all EDGAR filings (and related documents) in their books and records available for SEC inspection during an examination for a period of 5 years from the date of filing.

What other information is required on Form 13F?

Form 13F also asks about the investment manager’s voting authority.  Managers are required to identify whether they have sole, shared, or no voting authority.  Just because a manager has investment discretion does not mean that it automatically has proxy voting authority.  As discussed in the SEC’s Frequently Asked Questions about Form 13F:

  • If you vote on non-routine matters (e.g., contested election of directors, merger, sale of substantial assets, change in articles of incorporation effecting shareholders, change in fundamental investment policy), you have either sole or shared voting authority, depending on the voting rights of your accountholders.
  • If you only vote on routine matters (e.g., selection of accountant, uncontested election of directors, approval of annual report), report “none” in Column 8.

 

[1] http://www.sec.gov/about/laws/sea34.pdf

[2] http://www.law.cornell.edu/uscode/text/15/78m

[3] Section 13(f)(5)(A) of the Exchange Act defines the term “institutional investment manager” to include any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person. Discretionary brokerage accounts could trigger a filing obligation for broker dealers.

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Partner with Hardin Compliance

Have a compliance question or want an independent review of your compliance program?  Hardin Compliance can help!  Hardin provides regulatory filing services, which include assisting firms with the Form ID, Section 13(f), and Section 13(h) filings.  An assigned Hardin team member will proactively work with you to track required deadlines and ensure timely submission of these regulatory filings.

Call us today at 1.724.935.6770, or shoot us an email at contact@hardincompliance.com, so we can set up a time for one of our consultants to discuss your needs and how we can help.  Hardin is always in your corner.

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