A Private Ordering Solution to Blockholder Disclosure

Abstract

The recent debate over reforming the Securities Exchange Act section 13(d) ten-day filing window demonstrates the importance of balancing the costs and benefits of delayed blockholder disclosure in both consequentialist and deontological terms. While hedge fund activism may create shareholder value, short-termism is a very real problem for firms today. Rather than a rigid mandatory rule, the duration of the blockholder disclosure window should be set through a shareholder amendment to the corporate bylaws that empowers shareholders to set an optimal maximum length for each firm. To internalize the economic and moral costs to society of permitting trading on asymmetric information, the SEC should impose a filing fee on blockholders utilizing the delayed disclosure window and use the proceeds to compensate investors who sold shares while a blockholder engaged in a stealth accumulation.