Compliance FAQ: Required SEC Section 13 and 16 Filings

In this month’s article, Lexington Compliance says RIA firms need to be aware of required SEC Section 13 and 16 filings.

 

The primary regulatory filing document for a registered investment adviser (RIA) firm is the Form ADV. The Form ADV Part 1 and Part 2 is filed via the online Investment Adviser Registration Depository (IARD) system. However, some RIA firms may also be required to submit additional filings such as the Section 13(d), 13(f), 13(g), 13(h), or Section 16 Forms 3, 4, or 5. These additional filings are submitted online to the Securities and Exchange Commission (SEC) via the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Typically, these additional filing requirements apply to SEC-registered firms, but they can also apply to state-registered RIAs.

While most RIA firms are familiar with the Form ADV filing requirements, as RIA compliance consultants we often observe that firms are less familiar with additional SEC requirements that may require additional filings. Some of these potential additional filing requirements include:

  • Section 13(d) – Requires a Schedule 13D to be filed by the beneficial owner of more than 5 percent of a publicly traded equity security (Section 12). It is important to understand the broad definition of “beneficial owner” and the timing of the report, which has to be filed within 10 days of the purchase.
  • Section 13(f) – Requires advisors to file a Form 13F if the firm exercises investment discretion with respect to $100 million or more in certain identified 13F securities. Form 13F usually has to be filed within 45 days of the end of the quarter.
  • Section 13(g) – Requires a filing similar to a Schedule 13D, but with less information. This filing may be allowed if the investor is strictly a passive investor and does not intend to exert control.
  • Section 13(h) – Requires an advisor that is defined as a “large trader” to file its first Form 13H within 10 days of meeting the threshold. Large traders are also required to amend Form 13H annually within 45 days of the end of the year and make quarterly update filings. A large trader is a person or entity whose trades exceed either (i) two million shares or $20 million in a day or (ii) 20 million shares or $200 million during any calendar month.
  • Section 16 – Requires directors, officers and shareholders of more than ten (10) percent of a publicly traded company to file various reports based on activity, specifically: Forms 3, 4 and 5.

In general, the Form 13F is the most common EDGAR filing required for an RIA firm. It's important to note that many advisory firms meet the definition of an "institutional investment manager" for the purposes of the Form 13F filing since they exercise investment discretion. The SEC defines an "institutional investment manager" as follows:

An institutional investment manager that uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment discretion over $100 million or more in Section 13(f) securities must report its holdings on Form 13F with the Securities and Exchange Commission (SEC).

In addition, many advisory firms may not recognize that the list of Section 13F securities is quite extensive and includes many exchange-traded funds (ETFs) that are commonly utilized. The SEC defines Section 13F securities as follows:

Section 13(f) securities generally include equity securities that trade on an exchange (including Nasdaq National Market System), certain equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities. The shares of open-end investment companies (i.e., mutual funds) are not Section 13(f) securities.

We strongly suggest that the Chief Compliance Officer of all RIA firms, regardless of total regulatory assets under management,* regularly review if the firm is required to make a Section 13 or Section 16 filing.

Free Basic Compliance Hotline** provided by Lexington Compliance for Scottrade® RIAs

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