In 2011, ABC submitted this comment letter to the Securities and Exchange Commission (SEC) in support of a petition for rulemaking by the law firm Wachtel, Lipton, Rosen & Katz. Wachtel’s petition called for shortening the ten-day filing window under SEC rules between the time a shareholder or group of shareholders amasses a five percent position in a publicly-traded company and when it must report that fact to the Commission.
The ten-day period, as noted in our letter, is an anachronism that has been exploited by hedge funds and other large activist investors to trade on material, inside information. ABC argued for immediate disclosure of a five percent position.
The SEC never took action on this matter and the Wachtel petition languished.
Now, interestingly enough, a group of liberal Democratic Senators, including Bernie Sanders, has introduced legislation that would, among other things, shorten the ten day period to two. The bill is called the Brokaw Act (S. 2720). It is named for a town in Wisconsin that saw its paper mill closed due to hedge fund maneuvering, according to the bill’s chief sponsor, Senator Tammy Baldwin of Wisconsin. Other sponsors of the Baldwin Act are Jeff Merkley (D, OR) and Elizabeth Warren (D, MA).
Hedge funds are important players in the capital markets and corporate takeovers can lead to great economic efficiencies. But the ten-day window between the time a five percent position in a publicly traded company is acquired and the disclosure of that fact cannot be justified in a period of rapid information dispersal. The window should be narrowed, if not closed, ideally by the Commission or, if not, via the Brokaw Act.