Forms 13F and 13H: Answers to the Most Common Questions
Advisers need to be on top of all regulatory filing deadlines and information required for the assets they manage. Certain forms (13F, 13H) and schedules (13D, 13G), each have their own specific requirements, and advisers may at times be confused by what may appear to be a lack of clarity as to what the SEC is asking for.
Below we provide answers from ACA Compliance Group senior principal consultant Jessica Huelbig and senior regulatory filings coordinator Amanda Perigo to the most common questions and problems advisers have with Forms 13F and 13H. (ACA Insight will provide answers for Schedules 13D and 13G in next weekís issue). Review these questions carefully before completing your forms and/or schedules, then check your answers a second time against them to make sure you are providing the information requested.
Section 13(f) of the Securities Exchange Act requires institutional investment managers that exercise investment discretion over Section 13(f) securities with a combined value of at least $100 million to file Form 13F. The Form must be submitted no later than 45 days after the end of each calendar quarter.
Advisers that exercise investment discretion over $100 million or more in Section 13(f) securities at the end of any month during a fiscal year must file an initial Form 13F for the fourth quarter of that year, and then file additional Form 13Fs for the first, second, and third quarters of the next year, Huelbig said.
How do I determine if I met the $100 million threshold? Advisers should look at the aggregate long market value of all U.S. exchange-traded securities in their discretionary client accounts at the end of each month. "Short and long positions should not be netted. Only long positions should be considered in the calculation," said Perigo. If a manager buys options for clients, the optionsí values should be calculated when determining whether the adviserís assets exceed the $100 million threshold.
What types of securities should be reported on the Form 13F? The SEC issues an Official List Of Section 13(f) Securities each quarter. Section 13(f) securities are primarily U.S. exchange-traded stocks, shares of closed-end investment companies, shares of exchange-traded funds, certain convertible debt securities, equity options, and warrants. Only securities found on the SEC Official List should be reported on the Form 13F. "Securities reported should reflect what is on the SEC Official List," said Huelbig. "For example, if a security has a CUSIP change during the quarter or shortly after quarter end, it is our understanding that the CUSIP found on the SEC Official List at quarter end should be reported even if it is the old CUSIP." Only long securities should be reported on the Form. Short positions should not be included and should not be subtracted from long positions.
Should options be included on the Form 13F filing? Exchange-traded options are reportable on Form 13F if the options are found on the SECís Official List. The SEC Official List includes dummy CUSIPS for options to indicate that any exchange-traded put or call for that relevant security is reportable. Advisers should not report put or call options that they write. "In other words, short options are not reportable. Only long options are reportable," said Perigo. Options should be reported based on the underlying security. For
example, the value and CUSIP of the underlying security should be used and contracts should be converted to shares. "Put" or "Call" should be entered into the put/call column.
If two managers share investment discretion, should both report the 13(f) securities? If a manager shares investment discretion with any other managers, the managers involved may need to cross reference each other on their Form 13F filings. "In order to avoid double counting, only one manager should report the Section 13(f) securities," suggested Huelbig. "Typically, for sub-advisory relationships, advisers look to the sub-advisory agreement to determine who has been delegated investment discretion."
Rule 13h-1 under the Exchange Act requires investment advisers to file Form 13H and obtain a large trader identification number (LTID) from the SEC if their transaction activity in National Market System (NMS) securities meets or exceeds two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. The initial filing to the SEC must be made no later than 10 calendar days after the date on which the adviser met or exceeded the qualifying activity level.
If changes to the Form 13H information occur, a revised Form 13H must be filed no later than 10 days after the end of the quarter in which the change occurs. If no changes occur, a quarterly amendment filing is not required. However, advisers must still file Form 13H annually no later than 45 days after the calendar year ends. The 4th quarter amendment and annual filing can be combined in one filing provided it is submitted within 10 days after year end.
How do I determine if I met the threshold? In order to determine if you met the threshold in a day or month (two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month), advisers should aggregate all long and short NMS security transactions, not just transactions in one single security. If firms buy equity options for clients, the value and shares based on the underlying security should be used to determine whether a Form 13H filing is required.
When will I receive the LTID? Firms will receive the LTID immediately upon submission of Form 13H. Once the LTID is obtained, large traders must send the number to all registered broker-dealers effecting transactions on their behalf within 10 calendar days of receiving the LTID. "Firms should also adopt a process to provide their LTID to new brokers as part of the account opening process," Huelbig said.
What is an NMS Security? An NMS security is typically any security or class of securities listed on a national exchange or traded through NASDAQ. These include equities and options such as common stock, ETFs, American depository receipts, and warrants. Fixed income securities, exchange-listed debt securities, securities futures or open-end mutual funds are not generally considered NMS securities.
What type of brokers should be listed in Item 6? Item 6 requires large traders to identify all registered brokers who trade NMS securities where the large trader has an open account. Large traders can include brokers who are not registered and who trade non-NMS securities if they prefer. A large trader is also required to identify whether the broker provides prime, executing or clearing services.
What should be included in the organizational chart? Advisers should include the large trader entity, parent company (if applicable), any securities affiliates and any affiliates registered with the CFTC. A securities affiliate is any affiliate of the large trader that also exercises investment discretion over NMS securities. Generally, general partners to private funds are not considered securities affiliates since they donít actually exercise discretion. If a large trader does not have a parent company, securities affiliates or affiliates registered with the CFTC, then the organizational chart can simply contain one box with the name of the large trader. "If an adviser wants to be more transparent, it can certainly provide a more comprehensive organizational chart," Perigo said.