December 16, 2013

The AdvisorAssist CCO Series: Section 13 Filings

Source: Wikipedia

Along with maintaing a clear understanding of the Investment Advisers Act of 1940, chief compliance officers of RIA firms should also have a working knowledge of a handful of rules under the Securities Exchange Act of 1934. Section 13 filings (specifically, 13f, 13d, 13g and 13h) are among these. While the nature of these filings are applicable to larger RIA firms, we recommend that every RIA's compliance manual reference these rules so that you can demonstrate to regulators that you understand them and that you are aware of the types of events that may necessitate these filings.

Section 13(f), 13(h), 13(g) and 13(d) In a Nutshell

Advisors that have any form of significant control over certain publicly-traded securities must report details of these holdings so that regulators, issuers and exchanges can monitor any concentrated positions among market participants.

For Form 13F filing purposes, the SEC maintains a quarterly list of "13F Securities" that can be found here. Note that this list includes exchange-traded funds (ETF) as well.

A copy of SEC Form 13f can be found here.

It is also important that advisors understand the definition of "beneficial ownership." Beneficial ownership occurs when your firm has (or shares):

  • Power to either vote or direct the voting of proxies
  • Power to dispose of or direct the disposition of a security

Through the Regulator's Eyes

One of the primary charges of securities regulators is to maintain orderly and transparent markets. As fiduciaries and participants in regulated securities markets, RIA firms are expected to disclose and report any of their security positions to assist regulators, issuers and exchanges to maintain orderly markets and monitor trading activity that could influence security prices or control over issuers.

CCO Best Practices

  • For registered investment advisors that are required to (or could potentially trigger the need to) make Section 13 filings, incorporate these deadlines into your compliance calendar.
  • For small registered investment advisors, be sure that these rules are incorporated into your compliance manual so that you can demonstrate to regulators your awareness of the rules.
  • Where possible, develop rules, reports or workflows in your portfolio management so that you can monitor (either pre- or post-trade) positions that must be filed.
  • At least once a year, perform a test using your trade blotter to ensure that all filing requirements have been fulfilled. Document this testing so regulators can see that you have proper controls in place.

The AdvisorAssist CCO Series is a collection of blog posts that cover each of the elements of your RIA's compliance program.  Each post will provide an overview of one compliance topic, including our insights on how regulators view each topic as well as some practical steps to help Chief Compliance Officers address this topic. As always, we would welcome your comments and thoughts.

Brian Lauzon


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