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Large investment pools next year will have to report substantial positions in a stock much quicker.

Shares of Phillips 66 got a pop recently, but it had nothing to do with oil prices. The catalyst was hedge fund activist Paul Singer, whose firm, Elliott Investment Management, disclosed a $1 billion stake in Phillips. Elliott wants Phillips to cut costs at its refinery operation; if it works, Elliott says, the stock could rise by 75%.

Shares of Phillips 66 got a pop recently, but it had nothing to do with oil prices. The catalyst was hedge fund activist Paul Singer, whose firm, Elliott Investment Management, disclosed a $1 billion stake in Phillips. Elliott wants Phillips to cut costs at its refinery operation; if it works, Elliott says, the stock could rise by 75%.

It’s a familiar playbook on Wall Street: secretly build a stake in a stock, then capitalize when other investors find out and bid up the shares. As hedge funds see it, the pop is just the start, and everyone wins if activist pressure prevails on its target and the stock winds up higher.

Regulators, however, aren’t so enamored of the secrecy part and could make activism harder to pull off. Rules going into effect early next year will require funds, endowments, and other large investment pools to report substantial positions in a stock much quicker. More consequentially, funds may have to disclose other stakes in a company held through certain types of derivatives—revealing far more information about their true economic interest.

The rules are part of a broader push by the Securities and Exchange Commission to lift secrecy surrounding hedge funds. Other recently finalized rules force hedge funds to report data on short sales, or bets against a company’s stock. The short-sale data are anonymous to the public, but hedge funds are suing the SEC, alleging that the rules require them to divulge too much information. The SEC says it plans to “vigorously defend challenged rules in court.”

Hedge funds are trying to water down the changes related to disclosures of large positions and swaps, which they say will make activist campaigns costlier and could thwart them by tilting the playing field in favor of corporate boards. The rules “will likely have a chilling effect on shareholder rights and shareholder activism,” said the Council for Investor Rights and Corporate Accountability, a trade group representing hedge funds, including Dan Loeb’s Third Point and Elliott, in a statement to Barron’s.

The rules would chip away at activist secrecy. Starting in February, hedge funds will have to report a 5% stake in a company within five business days, down from 10 calendar days currently. The SEC also wants hedge funds to reveal economic interests in a company held through a derivative called a swap. Hedge funds previously weren’t required to publicly disclose those positions; under rules that could be finalized early next year, they would have to disclose swaps worth at least $300 million within a business day in many circumstances.

The SEC says there’s no good reason to keep ordinary investors in the dark for so long or to obfuscate funds’ true stakes in a company. An economic analysis conducted by the SEC found that most activist funds built their positions within five days, implying little impact by speeding up disclosures. Supporters of the rules point to Europe, where quicker disclosure and lower thresholds for reporting have been in effect with scant impact on activism.

Hedge funds are fighting for secrecy because it “creates greater opportunities for insiders and others to exploit the rest of the markets,” said Tyler Gellasch, head of Healthy Markets, a trade group that includes pension funds and other asset managers.

As the SEC sees it, disclosing swap positions could also help prevent financial contagion. The swaps rule came as part of the response to the 2021 collapse of Archegos Capital Management. Archegos used derivatives to make huge bets on stocks like ViacomCBS (now Paramount Global ) and Baidu . Since Archegos spread its swap positions among multiple banks, the total wasn’t known, and some banks took huge losses when Archegos had to liquidate holdings. Credit Suisse, for one, lost $5.5 billion in the debacle.

Hedge funds say that more transparency will stymie activism. Funds can take weeks to build a stake, especially in small or illiquid stocks that are more sensitive to large purchases. Since stocks usually rise once a prominent activist is known to be involved, there may be less gains for a fund in a costly and lengthy activist campaign.

Company boards may also have more time to erect roadblocks such as “poison pills” that can trigger share dilution measures, thwarting a fund from gaining control. Bryan Corbett, CEO of the Managed Funds Association, says the rules undermine activists and “discourage investor engagement that strengthens corporate governance.”

Activists are pressuring the SEC to soften its stance. Elliott has written six letters to the agency criticizing the swaps rule. Executives from Elliott and Nelson Peltz’s Trian Partners have also separately met with the SEC on the rule, according to public disclosures. Elliott escalated its campaign in November, suing the SEC for not responding to public records requests for documents related to the rules’ development. The SEC hasn’t responded to the complaint.

Hedge funds aren’t the only critics. Fund company T. Rowe Price and Harvard University’s endowment manager say the rules are burdensome and object to aspects of the swap-disclosure rule.

Corporate defense attorneys are among the biggest winners. The law firm Wachtell, Lipton, Rosen & Katz, for instance, has pushed for quicker disclosures for years. The changes would give lawyers and companies more time to build defenses against activists. Attorneys who wrote the proposals didn’t respond to requests for comment.

Behind the fight lies the question of whether activism delivers strong results for hedge funds or investors more broadly. In aggregate, the numbers don’t look great for activist hedge funds: They’re up an average 9.3% this year through November, compared with a 19% gain in the S&P 500 index, according to data firm HFR. Over the past three years, the funds have gained about 12%, compared with a 32% return for the S&P 500.

Whether activism pays off for investors may depend largely on timing. A Goldman Sachs study this year found that the median stock targeted by an activist outperformed its peers by three percentage points in the week after a campaign launch, but turned negative after six months. The researchers did find that an equal-weighted portfolio of all activist targets since 2006 would have beaten the Russell 3000 by three percentage points annually on average.

Performance aside, activism is having a resurgence. Campaigns hit a lull during the pandemic but have rebounded to 2019 levels, according to Diligent Market Intelligence. Prominent campaigns this year included Carl Icahn tackling gene-sequencing firm Illumina, Trian Partners taking on Walt Disney , and Elliott targeting Crown Castle.

Activists don’t always prevail, of course. Disney fended off Dan Loeb’s effort last year to force a sale of ESPN, though Disney has recently considered selling part of the business. Elliott has tried and largely failed to lift PayPal Holdings

stock. Activists pushing for changes at Salesforce backed off after the company posted better-than-expected results in the second quarter.

With Phillips, Elliott wants the company to add board members with refining-operations experience to help accelerate cost-cutting. If that takes hold and the company can hit its 2025 earnings goals, Elliott estimates the changes could push the stock up roughly 75% from its level before Elliott announced the campaign. Elliott’s other ideas for lifting the stock include asset sales like its European convenience stores and a chemical business.

For now, Elliott and Phillips appear to be on good terms. Elliott says it supports Phillips’ leadership. The company says that it “plans to continue a constructive dialogue” with the hedge fund. Still, Elliott has a long history of aggressive tactics when its demands are spurned, including court and proxy battles that can take years. Now that its Phillips campaign is in the open, investors should have a ringside seat if a fight breaks out.