On October 10, 2023, the U.S. Securities and Exchange Commission (SEC) approved final rules amending the beneficial ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (Exchange Act). These rule amendments and the related updated guidance provided by the SEC are the most significant reforms to the beneficial ownership reporting requirements since the adoption of the Williams Act in 1968.

What Are the New Filing Deadlines?

The final rules significantly modernize and accelerate the deadlines for Schedule 13D and Schedule 13G filings.

In revising the rules to accelerate the reporting deadlines, the SEC also revised the language of certain deadlines, changing from “within X days after the acquisition” to “within X days after the date of such acquisition” (emphasis added). The SEC intended this change to clarify that, for purposes of determining the filing deadline for a Schedule 13D for an initial acquisition of more than five percent beneficial ownership of a covered class or upon losing eligibility to file a Schedule 13G, the first day in the count toward reaching the deadline is the day after the date on which beneficial ownership of more than the threshold is acquired (rather than the date of such acquisition).

The final rules extend the deadline for Schedule 13D and Schedule 13G filings from 5:30 p.m. Eastern Time to 10 p.m. Eastern Time (the same as with Section 16 filings).

The final rules require that all Schedule 13D and Schedule 13G disclosures, except exhibits to such filings, be filed on EDGAR using a machine-readable XML-based language specific to such filings, similar to Forms 3, 4, and 5.

What Are the Other Material Amendments and Guidance?

The final rules revise Item 6 of Schedule 13D to require a reporting person to disclose derivative contracts, arrangements, understandings, and relationships with respect to an issuer’s securities, including cash-settled security-based swaps and other derivatives settled exclusively in cash. The final rules further clarify that the derivative security need not have originated with the issuer or otherwise be part of the issuer’s capital structure for a disclosure obligation to arise. The SEC did not adopt proposed expansions to the definition of beneficial ownership that would have treated some holders of cash-settled derivatives as beneficial owners of the referenced securities. Instead, the SEC provided guidance addressing cash-settled derivatives (other than security-based swaps), which is based on prior guidance issued by the SEC regarding beneficial ownership of securities underlying security-based swaps. The guidance provides that the holder of a cash-settled derivative security, regardless of whether acquired from the issuer or a third-party, may become a beneficial owner in the following circumstances:

• where the cash-settled derivative provides its holder, directly or indirectly, with exclusive or shared voting or investment power over the reference-covered class of equity securities through a contractual term of the derivative security or otherwise;
• where the cash-settled derivative is acquired with the purpose or effect of divesting or preventing the vesting of beneficial ownership as part of a plan or scheme to evade the applicable reporting requirements; or
• where the holder of a cash-settled derivative i) has a right to acquire beneficial ownership of the equity security within 60 days or ii) acquires the right to acquire beneficial ownership of the equity security with the purpose or effect of changing or influencing control of the issuer, or in connection with or as a participant in any transaction having such purpose or effect, regardless of when the right is exercisable.

With respect to group formation and treatment under Section 13(d)(3) and (g)(3) of the Exchange Act, the SEC provided guidance that the existing beneficial ownership rules do not require an express agreement for persons to “act as a group,” and that, depending on the particular facts and circumstances, two or more persons taking concerted actions for the purpose of acquiring, holding (which includes voting) or disposing of securities of an issuer may be sufficient to constitute the formation of a group. The SEC noted that to determine whether a group has been formed, at a minimum there must be indicia, such as an information arrangement or coordination in furtherance, of a common purpose to acquire, hold, or dispose of the securities of an issuer. The SEC also offered extensive guidance on when a group is not formed in connection with common situations involving shareholder engagement efforts by investors. This guidance seeks to apply current legal standards and preserves the case law that has developed that analyze “group” status.

The final rules provide that if any member of a “group” becomes the beneficial owner of additional equity securities in a class at any time after the formation of the group (including acquisitions on the same day that the group was formed), then the group will be deemed to have acquired beneficial ownership of those securities and will be required to report them. However, a “group” will not be considered to have acquired beneficial ownership of additional equity securities if a member of the group becomes a beneficial owner of the securities through a sale or transfer from another member of the same group, including intra-group transfers on the same day but after the time the group was formed.

What Happens Now?

The final rules become effective 90 days after publication in the Federal Register, and the Schedule 13D filing deadlines and all other amendments become effective then. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024. Compliance with the structured data requirement for Schedule 13D and Schedule 13G will be required on December 18, 2024, although filers may voluntarily comply with the requirement on December 18, 2023.