Signals or Signs of Change The presumed reason behind the existing 13D regulations is that investors who take large positions in stocks can affect their trading patterns and prices. This is especially true for stocks that don't trade a large daily volume. For example, when FastChannel (DGIT) purchased of 11% of Point.360 (PTSX) in a privately negotiated transaction on Dec. 22, 2006, PTSX's stock rose by 37% the following day. In other words, for wary investors, a 13D regulation can present an opportunity for stock price appreciation.
The 13D may also be a precursor to a takeover attempt on the part of an outside investor, or part of a process to gain seats on the board or de facto control of the company by owning a large, controlling block. (For related reading, see The Basics Of Mergers And Acquisitions and Trade Takeover Stocks With Merger Arbitrage.)
The filing of 13Ds is the most important signal to investors that a change of control at a company may be underway or that an investor is trying to get management to make changes to increase shareholder value through methods such as cost-cutting or the sale of part or all of the company.
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