On October 18, 2023, the Securities and Exchange Commission (SEC) adopted amendments to the rules governing beneficial ownership reporting to "require market participants to provide more timely information on their positions to meet the needs of investors in today's financial markets."
As discussed in more detail below, the amendments update the following:
- Accelerate the filing deadlines for initial and amended Schedule 13D and 13G beneficial ownership reports.
- Clarify Schedule 13D disclosure requirements with respect to derivative securities.
- Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
Additionally, the SEC provided guidance regarding the application of beneficial ownership reporting rules to the use of certain cash-settled derivative securities and the application of the existing legal standard with respect to the formation of a "group" for purposes of the beneficial ownership reporting rules.
The amendments become effective on February 5, 2024, and the compliance dates are as follows:
- September 30, 2024, for the amended Schedule 13G filing deadlines.
- December 18, 2024, for the structured data filing requirements.
- For all other rule amendments, including the amended Schedule 13D deadlines, upon effectiveness.
Amended Schedule 13D and Schedule 13G Filing Deadlines
Schedule 13D
| Issue | Current Requirement | Amended Requirement |
| Initial Filing Deadline | Within 10 calendar days after acquiring beneficial ownership of more than 5% or losing eligibility to file on Schedule 13G. | Within five business days after acquiring beneficial ownership of more than 5% or losing eligibility to file on Schedule 13G. |
| Amendment Triggering Event | Material change in the facts set forth in the previous Schedule 13D. | No change. |
| Amendment Filing Deadline | "Promptly" after the triggering event. | Within two business days after the triggering event. |
Schedule 13G
| Issue | Current Requirement | Amended Requirement |
| Initial Filing Deadline | Qualified Institutional Investors (QIIs) & Exempt Investors: 45 calendar days after calendar year-end in which beneficial ownership exceeds 5% (unless, in case of QII, beneficial ownership exceeds 10% prior to calendar year-end, in which case due within 10 calendar days after month-end in which such threshold is crossed). | QIIs & Exempt Investors: Within 45 days after calendar
quarter-end in which beneficial ownership exceeds 5%. QIIs: Within five business days after month-end in which beneficial ownership exceeds 10%. |
| Passive Investors | Passive Investors: Within 10 calendar days after acquiring beneficial ownership of more than 5% or losing eligibility to file as a QII. | Passive Investors: Within five business days after acquiring beneficial ownership of more than 5%. |
| Amendment Triggering Event | All Schedule 13G Filers: Any change in the information previously reported on Schedule 13G on an annual basis. | All Schedule 13G Filers: Any "material" change in the information previously reported on Schedule 13G. |
| QIIs | QIIs: Upon exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. | QIIs: No change. |
| Passive Investors | Passive Investors: Upon exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. | Passive Investors: No change. |
| Amendment Filing Deadline | All Schedule 13G Filers: 45 calendar days after calendar year-end in which any change occurred from the prior filing. | All Schedule 13G Filers: Within 45 days after calendar quarter-end in which a material change occurred. |
| QIIs | QIIs: 10 calendar days after month-end in which beneficial ownership exceeded 10%, or there was, as of the month-end, a 5% increase or decrease in beneficial ownership. | QIIs: Five business days after month-endin which (1) beneficial ownership exceeds 10% or (2) a 5% increase or decrease in beneficial ownership occurs. |
| Passive Investors | Passive Investors: "Promptly" after exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. | Passive Investors: Two business days after (1) exceeding 10% beneficial ownership or (2) a 5% increase or decrease in beneficial ownership occurs. |
Other Amendments/Guidance
Filing "Cut-Off" to be Deemed Filed on Same Business Day
The amendments extend the filing "cut-off" time for Schedules 13D and 13G to be deemed filed on the same business day under Rule 13(a)(4) of Regulation S-T from 5:30 p.m. to 10:00 p.m. Eastern time. The amended "cut-off" time aligns with the existing "cut-off" time for Section 16 and Form 144 filings.
SEC Guidance Regarding Cash-Settled Derivative Securities
The SEC did not adopt a proposed amendment to add a new paragraph (e) to Rule 13d-3 that would have deemed certain holders of non-security based swaps (SBS) cash-settled derivative securities as beneficial owners of the referenced covered class. Instead, the SEC provided guidance as to when the existing standards under Rule 13d-3 will apply to cash-settled derivatives.
Specifically, the SEC stated that "although non-SBS derivative securities settled exclusively in cash generally are designed to represent only an economic interest, discrete facts and circumstances could arise where the holder of these securities may have voting or investment power as described in Rule 13d-3(a) or otherwise could be deemed to be a beneficial owner as determined under Rule 13d-3(b) or 13d-3(d)."
The SEC provided three examples:
- First, to the extent a non-SBS cash-settled derivative security provides its holder, directly or indirectly, with exclusive or shared voting or investment power, within the meaning of that rule, over the covered class through a contractual term of the derivative security or otherwise, the holder of that derivative security may become a beneficial owner of the reference covered class.
- Second, to the extent a non-SBS cash-settled derivative security is acquired with the purpose or effect of divesting its holder of beneficial ownership of the 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), the holder of such cash-settled derivative security may be deemed a beneficial owner.
- Finally, a person is deemed a beneficial owner of an equity security if the person (1) has a right to acquire beneficial ownership of the equity security within 60 days or (2) acquires the right to acquire beneficial ownership of the equity security with the purpose or effect of changing or influencing the control of the issuer of the security for which the right is exercisable, or in connection with or as a participant in any transaction having such purpose or effect, regardless of when the right is exercisable. This applies notwithstanding the fact the derivative security is nominally "cash-settled."
SEC Guidance and Amendments Regarding the Formation of a "Group"
The SEC declined to adopt certain proposed amendments with respect to when a "group" is formed for beneficial ownership purposes and instead issued guidance on the operation of existing Rule 13d-5(b) and Sections 13(d)(3) and 13(g)(3) that clarifies and affirms that, among other matters, two or more persons who "act as" a group for purposes of acquiring, holding, or disposing securities may be treated as a group. The SEC provided further guidance on when a "group" is formed in a question-and-answer format (see pages 133 to 138 of the adopting release).
In addition to the guidance, the SEC also adopted certain other proposed amendments to Rule 13d-5, including:
- Adding new paragraph (b)(1)(ii) to specify that a group subject to reporting obligations under Section 13(d) shall be deemed to acquire any additional equity securities acquired by a member of the group after the group's formation.
- Adding new paragraph (b)(1)(iii) to carve out from paragraph (b)(1)(ii) any intra-group transfers of equity securities.
- Adding new paragraph (b)(2)(i) to specify that a group regulated under Section 13(g) shall be deemed to acquire any additional equity securities acquired by a member of the group after the group's formation.
- Adding new paragraph (b)(2)(ii) to carve out from paragraph (b)(2)(i) any intra-group transfers of equity securities.
- Making other technical changes to Rule 13d-5.
Amendment to Schedule 13D
The SEC adopted an amendment to Item 6 of Schedule 13D to expressly state that derivative contracts, arrangements, understandings, and relationships with respect to an issuer's securities, including cash-settled security-based swaps and other derivatives that are settled exclusively in cash, would need to be disclosed under Item 6 of Schedule 13D in order to comply with Section 13(d)(1) and Rule 13d-1(a). The SEC also eliminated the "including but not limited to" language in Item 6 that currently precedes the itemization of the instruments or arrangements covered to remove any implication that additional interests may need to be disclosed.
Structured Data Requirements
To make it easier for investors and markets to access, compile and analyze information disclosed on Schedules 13D and 13G, the SEC amended Regulation S-T to require that Schedules 13D and 13G be filed using a structured, machine-readable data (XML-based) language.
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