Views on the News: SEC's New Filing Rules: Saba's Predatory Tactics Under Fire

THE FACTS

The SEC's recent amendments to beneficial ownership reporting rules are set to shake up the activist investor landscape. Effective 90 days after publication in the Federal Register, these changes shorten filing deadlines for Schedule 13D and 13G, enforce structured, machine-readable data submissions, and clarify rules on derivatives and group formations. Specifically, initial Schedule 13D filings must now be submitted within five business days instead of 10, and amendments within two business days instead of the previous requirement of "promptly." The amendments to Schedule 13D become effective 90 days after publication in the Federal Register, while the amendments to Schedule 13G are effective September 30, 2024.

OUR TAKE

Saba Capital has long manipulated the closed-end fund (CEF) industry with relentless 13D filings and amendments, forcing liquidity events for profit. The new SEC rules, however, threaten to dismantle Saba's stealth strategies.

With the new accelerated deadlines for initial Schedule 13D filings and amendments, Saba's ability to secretly amass large positions will be compromised as the market will be alerted to their moves sooner.

Mandatory machine-readable data filings increase transparency and scrutiny, elevating compliance costs for activists like Saba. This reduces their operational flexibility and ability to exploit complex financial maneuvers. Activists will need to invest in new technology and systems to meet these requirements, raising operational costs.

The SEC’s new guidance on cash-settled derivatives and group formations closes loopholes, preventing Saba from masking their true ownership stakes and collaborative efforts. For instance, if Saba holds cash-settled derivatives that reference more than five percent of a company's stock, they must now disclose this as part of their beneficial ownership. Similarly, informal alliances to influence a company's control must be disclosed as a group.

Fund managers need to prepare for the impact of these new rules by ensuring they can quickly respond to the accelerated disclosure requirements. This includes monitoring changes in beneficial ownership and enhancing their compliance infrastructure to handle the new structured data submissions. Proactive monitoring of shareholder activity will be crucial to anticipate and counter activist campaigns effectively.

The SEC's new rules are a game-changer, directly targeting the underhanded tactics of activists like Saba Capital. For fund families in the crosshairs, understanding these changes and preparing for accelerated disclosures is imperative. Regulators have given managers a new tool for combating stealthy CEF activism, and managers should not miss this opportunity.

Views on the News deciphers the intricacies of fund proxies, governance and activism, empowering registered fund managers with the insights needed to steer confidently.