The SEC Adopts New Timing Requirements for Beneficial Ownership Reporting
On October 10, 2023, the SEC announced the adoption of amendments to the Schedule 13D and Schedule 13G beneficial ownership reporting rules, including reducing the timeframe to file Schedules 13D and 13G and any amendments thereto, and also issued guidance relating to how cash-settled derivatives should be treated for Schedule 13D purposes and determining whether a group has been formed under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Under Section 13(d) of the Exchange Act, any person or entity that directly or indirectly beneficially owns more than 5% of a covered class[1] is required to file a Schedule 13D or Schedule 13G, as applicable, which discloses the acquisition of these beneficially owned securities, and certain other information related thereto.
Revised Timing Requirements for Initial Filings
Under the rules as amended, filers must now file an initial Schedule 13D with the SEC within five business days[2] following (i) the acquisition by any investor with control intent of beneficial ownership of more than 5% of a covered class or (ii) an event that causes a filer to become ineligible to report on Schedule 13G in lieu of Schedule 13D (previously filers had 10 days to file from the date of such events described in clauses (i) and (ii) above).
The timeframe for filing an initial Schedule 13G for Qualified Institutional Investors[3] and Exempt Investors[4] was reduced from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which such person first beneficially owns more than 5% of a covered class. For Qualified Institutional Investors, however, the initial filing is due within five business days (reduced from 10 days) after the month-end in which it first acquired more than 10% beneficial ownership of a covered class. For Passive Investors[5] filing an initial Schedule 13G in lieu of Schedule 13D, the timeframe was reduced from 10 days to five business days after first acquiring more than 5% beneficial ownership of a covered class.
Revised Timing Requirements for Amendments
Schedule 13D amendments are now required to be filed within two business days after a material change requiring such amendment, whereas previously such amendments needed to be filed “promptly”.
Amendments to any Schedule 13G filing must be made within 45 days after the end of the calendar quarter in which any reportable change occurs. In addition, Qualified Institutional Investors must file an amendment within five business days (previously 10 days) after month-end in which such Qualified Institutional Investor’s beneficial ownership first exceeds 10% of a covered class or any 5% increase or decrease in beneficial ownership of a covered class. Passive Investors must file an amendment within two business days (previously “promptly”) after such Passive Investor’s beneficial ownership first exceeds 10% of a covered class or any 5% increase or decrease in beneficial ownership of a covered class. The SEC further provided that the triggering event for filing amendments under Schedule 13G is a “material” change in the information previously provided vs. “any” change in the information previously provided.[6]
Filing Cut-Off and XML Requirement
The amendments extend the daily filing “cut-off” deadline from 5:30pm ET to 10:00pm ET, and also require that all Schedules 13D and 13G be filed using structured, machine-readable Extensible Markup Language (XML) data.
Guidance on Cash Settled Derivative Securities
The amendments also modify Item 6 of Schedule 13D to clarify that filers must disclose interests in all derivative securities (including cash settled derivative securities). However in lieu of adopting other proposed amendments, the SEC instead opted to provide guidance on how cash settled derivatives should be analyzed under the existing rules to determine whether beneficial ownership of these securities exists.
Guidance on Definition of Group
The SEC also provided guidance on the legal standard for determining whether a group has been formed under Section 13(d)(3) or Section 13(g)(3) of the Exchange Act. The guidance clarifies that a “group” determination depends on an “analysis of all the relevant facts and circumstances and not solely on the presence or absence of an express agreement, as two or more persons may take concerted action or agree informally,” and whether such persons took any acts in furtherance of the acquisition, holding or disposal of the issuer’s securities.[7]
Enforcement Actions
In September 2023, the SEC announced charges against certain officers, directors, and shareholders of public companies for failing to timely file certain requisite reports, including Schedules 13D and 13G. Most of these charged persons settled with the SEC without admitting fault and were required to pay civil monetary fines.[8] This announcement and the SEC’s ongoing investigation of beneficial ownership reporting violations emphasizes the importance of investors' understanding the rules governing beneficial ownership reports, as amended, and timely compliance with the new deadlines and filing information required to be set forth therein.
Effectiveness of the Amendments
The amendments will go into effect February 5, 2024 and compliance with the amendments will be required upon their effectiveness with the exception of compliance with the revised 13G filing deadlines, which must be complied with by September 30, 2024, and the structured data requirements for Schedules 13D and 13G which must be complied with by December 18, 2024.
Interested parties who would like to learn more about the rules governing beneficial ownership reporting, Schedules 13D and 13G filings or that have any questions related thereto are encouraged to contact our Securities and Corporate practice groups at Moses Singer, who regularly advise clients with respect to regulatory compliance and related corporate matters.
See the final rule and guidance release which can be found here: ww.sec.gov/files/rulequalified institutional investors/final/2023/33-11253.pdf
New Filing Timeframes
[1] a “covered class” is a class of equity securities described in Section 13(d)(1) of the Exchange Act and Rule 13d-1(i) and generally means, with limited exception, a voting class of equity securities registered under Section 12 of the Exchange Act.
[2] The SEC also defined “business day” in the new amendments as any day, other than Saturday, Sunday, or a Federal holiday, from 12:00 a.m. to 11:59 p.m. eastern time.
[3] A “Qualified Institutional Investor” is a registered broker or dealer, a bank, an insurance company, a registered investment company, any person treated as an investment adviser, an employee benefit plan, a parent holding company that directly or indirectly through its subsidiaries or affiliates does not hold more than 1% of the securities in the subject class, a savings association, a church plan, a comparable foreign institution or a group composed of the foregoing persons that has acquired registered securities in the ordinary course of business and not with the purpose nor with the effect of influencing or exerting control over the issuer 11 (17 CFR § 240.13d-1).
[4] An “Exempt Investor” is any person who is a beneficial owner of more than 5% of a covered class but is not required to file a Schedule 13d or Schedule 13g as a result of the circumstances of their acquisition, such as persons who acquired securities prior to the issuer's registration of the subject class of securities under the Exchange Act. (17 CFR § 240.13d-1(b)).
[5] A “Passive Investor” is any person that beneficially owns more than 5% of a covered class, but did not acquire the securities with any purpose or with the effect of influencing or exerting control over the issuer, and who owns less than 20% of such covered class (17 CFR § 240.13d-1(c)).
[6] The SEC views the change from “any” to “material” as consistent with prior positions it has taken.
[7] See page 131-139 of www.sec.gov/files/rules/final/2023/33-11253.pdf