- Revised deadlines for initial Schedule 13D and Schedule 13G filings:
- Schedule 13D: within five business days (rather than 10 calendar days) after crossing the 5% beneficial ownership threshold or losing eligibility to file on Schedule 13G
- Schedule 13G:
- For “Passive Investors,” five business days after crossing the 5% threshold;
- For “Qualified Institutional Investors” and “Exempt Investors,” within 45 days after the end of the calendar quarter in which they cross the 5% threshold; or
- Additionally for Qualified Institutional Investors, five business days after the end of the month in which they cross the 10% threshold
- Revised deadlines for filing Schedule 13D and Schedule 13G amendments:
- Schedule 13D amendments: within two business days (rather than “promptly”) after a material change
- Schedule 13G amendments:
- For Passive Investors, within two business days of crossing the 10% threshold (or any later deviation by more than 5 percentage points);
- For Qualified Institutional Investors, within five business days after the end of the month in which the 10% threshold is crossed (or any later deviation by more than 5 percentage points); or
- For all Schedule 13G filers, within 45 days after the end of the calendar quarter in which a material change occurs
- SEC did not adopt a proposed rule to deem certain holders of cash-settled derivative securities as beneficial owners of the reference covered class, but provided guidance that holders of cash-settled derivative securities may be treated as beneficial owners in certain circumstances consistent with SEC guidance for security-based swaps
- Item 6 of Schedule 13D is amended to remove any implication that a person is not required to disclose interests in all derivative securities that use a covered class as a reference security, including cash-settled derivative securities
- SEC did not adopt most of the proposed rule amendments regarding “group” formation, but provided guidance re-affirming its views (including that the formation of a group does not depend on the presence of an express agreement) and applying the current legal standard to common types of shareholder-engagement activities
- Technical items: revised filing cut-off time of 10:00 pm Eastern time (rather than 5:30 pm ET); Schedule 13D and 13G filings must be made using XML-based language (except exhibits)
- Compliance Deadlines:
- 90 days after publication in the Federal Register: the amendments will be effective and compliance will be required, including compliance with the revised Schedule 13D filing deadline, except as noted below
- September 30, 2024: compliance with the revised Schedule 13G filing deadlines
- December 18, 2024. compliance with the structured data requirement for Schedules 13D and 13G
On October 10, 2023, the Securities and Exchange Commission (“SEC”) adopted rule amendments relating to beneficial ownership reporting (the “Final Amendments”).1 In addition to the Final Amendments, the Adopting Release includes guidance regarding the treatment of holders of cash-settled derivative securities as beneficial owners and regarding the application of existing legal standards for formation of a group as it relates to beneficial ownership reporting obligations. The Final Amendments are similar to the rules proposed by the SEC in February 2022 (the “Proposed Amendments”),2 though there are several important changes, as described below. The long-anticipated changes, in particular the amendment shortening the 13D filing window, fulfill the SEC’s stated goal of modernizing the beneficial ownership reporting obligations and reducing the opportunity for investors to clandestinely accumulate large, potentially hostile positions in public companies.
This Dechert OnPoint summarizes the main new disclosure obligations and deadlines under the Final Amendments, changes made to the Proposed Amendments, and other guidance included in the Adopting Release.
Background
Under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), an investor who acquires beneficial ownership of more than five percent of a covered class of equity securities (the “5%-threshold”) must publicly report such beneficial ownership and other required information by filing either a Schedule 13D or a Schedule 13G with the SEC. A Schedule 13D is generally required, while the shorter-form Schedule 13G is available to certain passive investors. The aim of these reporting requirements is to give notice to the target company, other shareholders, and the public markets of significant new stakes in reporting companies and the acquiror’s intentions.
Sections 13(d)(3) and 13(g)(3) of the Exchange Act each also provide that when two or more persons “act as” a group for the purpose of acquiring, holding, or disposing of an issuer’s securities, that group is itself deemed a “person” with a potential 13D filing obligation.3 In the SEC’s view, these provisions protect against the evasion of disclosure requirements by persons who collectively seek to change or influence control of the company, yet who each acquire beneficial ownership just below the reporting threshold. Based on the statutory treatment of two or more persons as a single person when they “act as” a group, the beneficial ownership collectively held by the group members is imputed to the group. Nevertheless, current SEC rules do not provide a definition of a “group.”
Currently, the deadline for filing a Schedule 13D is 10 calendar days after crossing the 5%-threshold, with amendments triggered by a material change in the facts set forth in the initial Schedule 13D due “promptly” after the triggering event. The current deadline for passive investors4 who are considered qualified institutional investors (“QIIs”)5 or exempt investors6 to file a Schedule 13G is 45 calendar days from the end of the calendar year in which the investor crosses the 5%-threshold as well as, in the case of QIIs, 10 days after the end of the month in which it crosses the 10%-threshold. For other passive investors, the current deadline to file an initial Schedule 13G is 10 days after crossing the 5%-threshold. The events that trigger a requirement to file an amendment to a Schedule 13G and the applicable deadlines differ among the various investors, as described in the discussion of the Final Amendments below.
The 10-day filing window for Schedule 13D has long been a subject of criticism in some circles, as it allows investors to cross the 5%-threshold and continue accumulating stock for 10 days before any reporting obligation or other restrictions kick in. The SEC has noted that the 10-day period is longer than both the deadlines public companies must meet to make various mandated disclosures (e.g., four business days to report material events triggering a Form 8-K filing obligation, “prompt disclosure” under Regulation FD to publicize unintentional selective disclosure) and the two-day deadline for insiders to report changes of beneficial ownership on Form 4. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended Section 13(d)(1) of the Exchange Act to grant the SEC the authority to shorten the deadline for filing the initial Schedule 13D, yet the 10-day deadline has not been updated since it was enacted in 1968.
To address these concerns, on February 10, 2022, the SEC announced the Proposed Amendments, proposing rule amendments to update the beneficial ownership reporting requirements and address the timeliness of Schedule 13D and 13G filings. The SEC reopened the comment period for the Proposed Amendments on April 28, 2023, and adopted the Final Amendments on October 10, 2023.
Final Amendments
Schedule 13D filing deadline. The Final Amendments shorten the deadline under Rule 13d-1 for filing an initial Schedule 13D from 10 days to five business days after crossing the 5%-threshold or losing eligibility to file on Schedule 13G. For filing an amendment to a Schedule 13D on the basis of a material change in the facts set forth in the initial Schedule 13D, the Final Amendments do away with the current requirement that the amendment be filed “promptly,” now setting a firmly defined deadline of two business days after the triggering event. This is a longer deadline than the one-business-day requirement initially proposed in the Proposed Amendments.
The final changes to the filing obligations for Schedule 13D are summarized in the table below.
Schedule 13G filing deadline. For Schedule 13G filers who are QIIs or exempt investors, the Final Amendments accelerate the initial filing deadline from 45 days after calendar year-end to 45 days after the end of the calendar quarter in which the investor’s beneficial ownership first crosses the 5%-threshold. This new deadline represents a more lenient change than the SEC’s initial recommendation in the Proposed Amendments to impose a filing deadline of five business days after the month in which the investor crosses the 5%-threshold. In addition, the Final Amendments require a QII to file its initial Schedule 13G within five business days after the end of the first month in which it crosses the 10%-threshold, compared to the current 10-days-after-month-end deadline. For other Schedule 13G filers considered passive investors, the Final Amendments shorten the initial filing deadline from 10 days after crossing the 5%-threshold to five business days.
The Final Amendments also accelerate the amendment obligations for QIIs and passive investors upon crossing the 10%-threshold or upon any deviation by more than five percentage points in beneficial ownership of a covered class, requiring that QIIs file an amendment within five business days and passive investors file within two business days. For all Schedule 13G filers, the Final Amendments add a materiality component previously absent from the amendment trigger and require that an amendment for material changes be filed within 45 days after the quarter in which the material change occurred—a change from the proposal of five business days after month-end in the Proposed Amendments.
The final changes to the filing obligations for Schedule 13G are summarized in the table below.
Business days and filing deadline. The Final Amendments add a definition of “business day” to mean any day, other than Saturday, Sunday, or a federal holiday, from 12:00 a.m. to 11:59 p.m. Eastern time (a change from the proposed 6:00 am to 10:00 p.m. in the Proposed Amendments). For purposes of determining a filing deadline, the first day of the five-business-day count towards reaching the deadline is the day after the date on which the relevant beneficial ownership threshold is crossed (rather than the date of such ownership acquisition).
Filing cut-off time. To reduce administrative challenges that the accelerated deadlines may cause, the Final Amendments extend the filing cut-off times for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. Eastern time.
XML requirement. All information disclosed on Schedules 13D and 13G, including quantitative disclosures, textual narratives, and identification checkboxes, will be required to be filed using an XML-based language.
Derivative securities. As in the Proposed Amendments, Item 6 of Schedule 13D is revised to clarify that a person is required to disclose interests in “all derivative securities,” including cash-settled derivative securities, that use the issuer’s equity security as a reference security.
However, the SEC did not adopt the proposed Rule 13d-3(e), which would have deemed holders of certain cash-settled derivative securities as beneficial owners of the reference covered class. Instead, the SEC issued guidance discussing circumstances in which a holder of a cash-settled derivative security may already be subject to regulation as a beneficial owner under Rule 13d-3. Specifically, a holder of a cash-settled derivative security may be deemed a beneficial owner of the reference equity security if the derivative security (i) is acquired to provide its holder with exclusive or shared voting or investment power over the reference covered class, (ii) is acquired with the purpose or effect of divesting its holder of beneficial ownership of the reference covered class or preventing the vesting of that beneficial ownership as part of a plan or scheme to evade the reporting requirements of Section 13(d) or 13(g), or (iii) is acquired with the purpose (or effect) of changing or influencing the control of the issuer. This is similar to previous guidance from the SEC with respect to securities-based swaps.7
Group formation and related exemptions. The SEC decided not to adopt most of the proposed substantive amendments to Rule 13d-5, which would have specified that two or more persons who “act as” a group for purposes of acquiring, holding, or disposing of securities are treated as a “group” even in the absence of an express agreement among the group members. This proposal, though supported by some commenters, was met with significant pushback from others, who raised concerns of an overbroad definition of “group” and a potential chilling effect on shareholder activism, among other arguments. Instead, the SEC issued guidance to attempt to provide clarity on the circumstances under which a person may be deemed to have formed a group with another person or persons within the meaning of Sections 13(d)(3) and 13(g)(3). The guidance clarifies and affirms the SEC’s position that two or more persons who “act as” a group for purposes of acquiring, holding, or disposing securities may be treated as a group, depending on a review of the facts and circumstances, even in the absence of an express agreement among the group members. The Adopting Release also confirms that acquisitions of securities by group members after the formation of the group—with the exception of intra-group transfers—are imputed to the group, potentially creating an amendment-filing obligation for the whole group.
In lieu of adopting a new definition of “group” in Rule 13d-5, the SEC instead gave new guidance for several potential group-formation and shareholder-engagement scenarios. This guidance is described in the table below.
Effectiveness and Compliance Dates
The Final Amendments are effective 90 days after date of publication in the Federal Register. However, compliance with the revised Schedule 13G filing deadlines will not be required before September 30, 2024, notwithstanding the fact that the Final Amendments are effective on an earlier date. In addition, compliance with the structured data requirement for Schedules 13D and 13G will not be required until December 18, 2024.
1 See Modernization of Beneficial Ownership Reporting, Release Nos. 33-11253; 34-98704 (October 10, 2023) (the “Adopting Release”).
2 See Proposed Modernization of Beneficial Ownership Reporting, Release Nos. 33-11030; 34-94211 (February 10, 2022). The Proposed Amendments are summarized in Dechert OnPoint, SEC Proposes Amendments to Beneficial-Ownership Reporting Requirements, Including Shortening 13D and 13G Filing Windows (February 15, 2022).
3 Moreover, if the aggregate beneficial ownership of the group exceeds 10% of a covered class of equity securities (the “10%-threshold”), the individual members of the group may become subject to Section 16 of the Exchange Act as “Section 16 Insiders.” Section 16 Insiders must file Section 16 beneficial ownership reports (Forms 3, 4 and 5) and are subject to strict liability for any “short-swing profits” made from the purchase and sale of securities within a six-month period.
4 Passive investors are beneficial owners of more than 5% but less than 20% of a covered class who can certify under Item 10 of Schedule 13G that the subject securities were not acquired and are not held for the purpose or effect of changing or influencing the control of the issuer of such securities and were not acquired in connection with or as a participant in any transaction having such purpose or effect.
5 Such QIIs include: a broker or dealer registered under Section 15(b) of the Exchange Act; a bank as defined in Section 3(a)(6) of the Exchange Act; an insurance company as defined in Section 3(a)(19) of the Exchange Act; an investment company registered under Section 8 of the Investment Company Act of 1940 (the “1940 Act”); an investment adviser registered under Section 203 of the Investment Advisers Act of 1940; a parent holding company or control person (if certain conditions are met); an employee benefit plan or pension fund that is subject to the provisions of the Employee Retirement Income Security Act of 1974; a savings association as defined in Section 3(b) of the Federal Deposit Insurance Act; a church plan that is excluded from the definition of an investment company under Section 3(c)(14) of the 1940 Act; non-U.S. institutions that are the functional equivalent of any of the institutions listed in Rules 13d-1(b)(1)(ii)(A) through (I), so long as the non-U.S. institution is subject to a regulatory scheme that is substantially comparable to the regulatory scheme applicable to the equivalent U.S. institution; and related holding companies and groups.
6 Exempt investors are persons holding beneficial ownership of more than 5% of a covered class at the end of the calendar year, but who have not made an acquisition of beneficial ownership subject to Section 13(d). For example, persons who acquire all their securities prior to the issuer registering the subject securities under the Exchange Act are not subject to Section 13(d) and persons who acquire no more than 2% of a covered class within a 12-month period are exempted from Section 13(d) by Section 13(d)(6)(B), but in both cases are subject to Section 13(g).
7 See Beneficial Ownership Reporting Requirements and Security-Based Swaps, Release No. 34-64628 (June 8, 2011).
