Schedule 13D and Form 13F Filings: What’s the Big Difference for Investors?

The raison d’être for our federal securities laws is disclosure.

Congress and the SEC have long held the view that a fair and efficient market can only occur when there is full and timely disclosure of material facts a reasonable investor would expect to have available before making a decision to buy or sell a security.

Originally focused on issuers of securities and those investors seeking control ownership through securities purchases, that view evolved to where today’s huge hedge funds and other major investors who seek only to profit in trading the securities are now frequent filers of the reports described here.

As the first in a series, this post provides a brief overview of one aspect of required securities filings for financial firms and other major investors that can benefit the average investors while also benefitting the issuing corporate entity and the general market.

Form 13F

Institutional investment managers that exercise investment discretion for $100 million or more in Section 13(f) securities holdings, which include exchange-traded securities holdings, shares of closed–end investment companies and certain convertible debt securities holdings, must disclose their holdings to the SEC on a quarterly basis.

The definition of “institutional investment manager” includes an entity that either invests in, or buys and sells, securities for its own account. Accordingly, banks, insurance companies, and broker/dealers fall under the purview of the requirement as do corporations and pension funds that manage their own investment portfolios.

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.”

The required method for disclosing the securities is Form 13F. It must be filed within 45 days of the end of each calendar quarter. For firms whose fourth quarter ended on December 31, 2013, the most recent deadline was February 14, 2014.

Among other items, Form 13F filings must include:

• The issuer name of all Section 13(f) securities holdings (which should be listed in alphabetical order);
• A description of the class of security listed (e.g., common stock, put/call option, class A shares, convertible debenture);
• The number of shares owned; and
• The fair market value of the securities listed, as of the end of the calendar quarter.

Schedule 13D

Schedule 13D is frequently referred to as a “beneficial ownership report.” It must be filed whenever a registered investment advisor acquires beneficial ownership of more than five percent of a class of equity securities that are registered under Section 12 of the Securities Exchange Act. Beneficial owners include any person who directly or indirectly shares voting power or investment power (the power to dispose of the security).

Schedule 13D must be filed with the SEC, and provided to the issuer if the securities and to the exchanges where the securities trade, within ten days if the filer becoming a five percent beneficial owner. In addition, any material changes in the facts reported in the Schedule trigger the requirement for filing of a prompt amendment.

If you have any questions about your firm’s SEC filing requirements or need assistance with compliance, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.