Mad Money

Jim Cramer blasts SEC's 'outrageous' proposed rule change for institutional investor disclosures

Key Points
  • CNBC's Jim Cramer on Wednesday railed against a proposal to update a security law that provides oversight over Wall Street activity.
  • "If you believe Wall Street is important, if you believe business is important, if you believe the market is important, then the public deserves to know who owns what," Cramer said. 
VIDEO1:4601:46
Cramer: SEC's proposed change to institutional disclosures hurts small investors

CNBC's Jim Cramer on Wednesday railed against a proposal to update a security law that provides oversight over Wall Street activity.

"Hardly anyone's talking about this, but the Securities and Exchange Commission is getting ready to push through what I regard as an outrageous rule change that would make the market a lot less transparent," the "Mad Money" host protested. "If you believe Wall Street is important, if you believe business is important, if you believe the market is important, then the public deserves to know who owns what." 

Earlier this month, the SEC proposed adjusting Form 13F, a quarterly report intended for sizeable institutional investment managers to submit, to expand the reporting threshold for the first time since the rule was first imposed.

The rule change, if approved, would require quarterly disclosures from institutional investors that hold $3.5 billion in assets, up from the $100 million threshold currently in place.

The federal agency said it would give compliance costs relief to smaller managers, to which Cramer said "I'm not convinced." 

"I ran a hedge fund for thirteen years and these disclosure requirements never stopped us from compounding at 24% annually after all fees, making our partners a fortune," Cramer said. 

Cramer said the quarterly disclosure gives the public a look at where big funds are investing. He took issue with the idea that a hedge fund with $3 billion in assets under management would be able to "fly under the radar."

The SEC designed Form 13F to get insight into the investment moves and portfolios of larger managers. The agency sought the data in efforts to maintain fair and orderly markets, according to a press release.

Institutional investors — a catchall for mutual, hedge and pension funds, among other companies with outsized influence on stock prices — invest money for clients and tend to be much savvier than retail investors.

"Monitoring equity holdings of large institutional investment managers is an important part of our regulation and oversight of the securities markets," SEC Chairman Jay Clayton said in a statement. The proposal "will update, for the first time in over 40 years, the 13F reporting threshold to a level that furthers the statutory goal of enabling the SEC to monitor holdings of larger investment managers while reducing unnecessary burdens on smaller managers."

Cramer bashed the rule change as an "needless giveaway" to mid- and large-sized money managers, saying that it's an "almost textbook example of regulatory capture where government agencies end up doing the bidding of the industries they're supposed to supervise and regulate." 

Accounting for inflation, $100 million in assets would be worth $400 million in today's standards, the host said.

"Instead, they want to adjust for the 35-fold increase in the size of the stock market, which is where they get that absurd $3.5 billion number. That's some real intellectual acrobatics."

The SEC estimates under the new rule that it would still receive data on more than 90% of the dollar value of the holdings data, while removing 90% of smaller managers from the disclosure requirement. The rule change would save smaller institutions between $68.1 million and $136 million and protect them from front-running and copycat portfolios, the agency forecasts.

"It's nuts to think" hedge funds with $3 billion or even $1 billion in assets under management "need help, especially when that help comes at your expense," Cramer said.

Additionally, the reporting threshold will up for review every five years, should the amendment be approved.

The SEC has posted the proposal online for a 60-day public comment period. The host encouraged viewers to lobby against the proposal.

"Who the heck defends opaque behavior these days? ... The SEC used to fight for transparency. Now is not the time to rule against it," Cramer said. 

VIDEO6:5906:59
Cramer explains how SEC's 'outrageous' proposed rule change for institutions would hurt small investors

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