The top watchdog on Wall Street announced on Tuesday that it had shortened the period of time investors have to declare 5% ownership positions in businesses they plan to take control of, from 10 calendar days to five business days.
The modifications were approved by the five-member U.S. Securities and Exchange Commission by a vote of 4-1. According to officials, this was a revision to regulations that were adopted fifty years ago but had not kept up with the advancements in market technology.
SEC Chair Gary Gensler stated in a statement, “In our fast-paced markets, it shouldn’t take 10 days for the public to learn about an attempt to change or influence control of a public company.”
Activist investors were initially incensed by the SEC proposal, which was first made public in 2022. They contended that having to intervene sooner could render it unfeasible for them to accumulate the ownership holdings required for successful takeover efforts.
Additionally, Elon Musk, the CEO of Tesla, is being pressured by the SEC to testify in a hearing about his acquisition of X, the former Twitter platform. According to the agency, Musk may have disclosed these details too late.
When the rule is implemented, it also reduces the amount of time that certain institutional investors have to disclose their holdings to 45 days after the end of the quarter in which their ownership interest exceeds 5%. The deadline was 45 days after the end of the calendar year in the past.
SEC officials informed reporters ahead of time that the final regulation had been significantly loosened from the original plan. Initially, it had required investors vying for control of a firm to disclose that they had acquired 5% or more of the company’s shares within five calendar days, as opposed to business days.
Furthermore, rather than 45 days from the end of the quarter, the original proposal would have required certain institutional investors—that is, businesses that make large investments on behalf of others, like pension funds—to disclose stakes of 5% or more within five business days of the end of each month.
Instead of holding a public meeting to disclose the new rule changes, the SEC made the announcement after they had already been accepted.
The lone objector, Republican Commissioner Hester Peirce, claimed that the amendment essentially made it necessary for investors who spend a lot of time and money researching stock purchases to inform other investors who haven’t, which would lessen the incentive for markets to keep an eye on corporate behaviour.
“This ‘modernization’ effort might better be characterised as an insulation effort — insulating corporate managers from scrutiny,” Peirce stated in a statement.