Activist investors including Carl Icahn say a U.S. proposal that would require them to disclose 5% stakes in companies days sooner than current rules could make it unprofitable for them to build the large positions they need for successful campaigns, Reuters reported. The Securities and Exchange Commission (SEC) proposed the new rule last month in a push to reduce the information advantages that the $18 trillion private funds industry has over retail investors. The rule would halve to five days the time investors have to disclose when they have bought at least 5% of a public company. That news often causes the stock to jump as activists like Icahn, Starboard Value and Elliott Management announce they will leverage the stake to push for changes, like selling businesses or adding board members. Because activists spend millions of dollars on research and legal fees, they say they often need 7% to 9% of a target's stock to make campaigns viable. With the shorter reporting window, accumulating that many shares could be too costly to be profitable. The long-term impact of the SEC proposal, activists said, would be to reduce the number of such campaigns, weakening an important force for holding companies accountable to shareholders and making the best use of their capital, which benefits all investors.
