On October 10, 2023, as part of an effort to modernize beneficial ownership reporting requirements to align with today’s dynamic markets, the Securities and Exchange Commission (the “SEC”) announced the adoption of amendments to the rules governing reporting under Section 13(d) and 13(g) of the Securities Exchange Act of 1934 (the “Exchange Act”). These amendments aim to enhance transparency regarding beneficial ownership and ensure more timely disclosure to both shareholders and the broader market.
The final rule, including the accelerated Schedule 13D filing deadlines, will become effective 90 days after publication in the Federal Register. However, compliance with the revised Schedule 13G filing deadline will not be required until September 30, 2024, and compliance with the machine-readable structured data requirement for Schedules 13D and 13G will not be required until December 18, 2024 (with voluntary compliance permitted beginning on December 18, 2023).
The key objectives of these rule changes are:
- Shortening the initial Schedule 13D filing deadline from 10 days to five business days and requiring the filing of Schedule 13D amendments within two business days.
- Accelerating the filing deadlines for Schedule 13G beneficial ownership reports, with the specific deadlines varying based on the type of filer.
- Clarifying Schedule 13D disclosure requirements regarding derivative securities, including how the use of certain cash-settled derivative securities can create reportable beneficial ownership under Section 13.
- Clarifying the criteria for determining when two or more individuals can collectively constitute a “group” for the assessment of the beneficial ownership threshold.
- Requiring that Schedule 13D and 13G filings be submitted in a structured, machine-readable data language.
- Extending the Section 13 filing deadline from 5:30 pm Eastern Time to 10:00 pm Eastern Time.
Shorter Deadlines for Schedule 13D Filings
The initial Schedule 13D filing deadline has been reduced from 10 calendar days to a stricter requirement of five business days. Schedule 13D filers are now required to report their beneficial ownership within five business days after surpassing the 5% beneficial ownership threshold of a class of voting equity securities registered under the Exchange Act, as amended, or when filers lose their eligibility to file on Schedule 13G.
The filing deadline to amend a Schedule 13D has been defined as within two business days following the triggering event, as specified under Rule 13d-2(a). This new deadline replaces the previous “promptly” standard for filing Schedule 13D amendments.
Accelerated Deadlines for Schedule 13G Filings
The initial Schedule 13G filing deadline for investors owning less than 20% and not holding the equity securities with the purpose or effect of changing or influencing control of the issuer under Rule 13d-1(c) (“Passive Investors”) has also been reduced from 10 calendar days to five business days. These filings must now be filed within five business days after the acquisition by the filer of more than 5% of a class of voting equity securities registered under the Exchange Act.
The Initial Schedule 13G filing deadlines for Qualified Institutional Investors (“QIIs”), including registered broker-dealers, registered investment advisers, registered investment companies, and insurance companies, and investors holding more than 5% but not making an acquisition of equity securities subject to Section 13(d) reporting, such as founders and pre-IPO investors (“Exempt Investors”), have been amended from year-end deadlines to quarter-end deadlines. Specifically, QIIs and Exempt Investors are now required to submit an initial Schedule 13G no later than 45 calendar days after the end of the calendar quarter in which they reach beneficial ownership of more than 5% instead of within 45 calendar days after the end of the calendar year. Additionally, if QIIs beneficially own more than 10% of a class of voting equity securities registered under the Exchange Act as of the last day of any month, they must file an initial Schedule 13G within five business days after the end of that month.
All Schedule 13G filers are now required to file amendments to disclose material changes (excluding changes in percentage solely due to changes in shares outstanding) no later than 45 calendar days after the end of each calendar quarter in which the change occurred instead of 45 calendar days after the end of each calendar year.
Additionally, Passive Investors must file an amendment to their Schedule 13G filings within two business days of acquiring more than 10% of beneficial ownership or when there is a 5% increase or decrease in beneficial ownership. QIIs must file an amendment amendment to their Schedule 13G within five business days after the end of the month in which they cross the 10% beneficial ownership threshold or experience a 5% increase or decrease in beneficial ownership.
Filing Cutoff Time
To accommodate the newly accelerated filing deadlines for Schedules 13D and 13G, the filing cutoff time for Schedules 13D and 13G and amendments thereto has been extended from 5:30 pm Eastern Time to 10:00 pm Eastern Time, offering filers additional time to prepare and submit their documents.
Schedule 13D Disclosure Requirements with respect to Cash-Settled Derivative Securities
The SEC has provided guidance for assessing whether a holder of a cash-settled derivative qualifies, based on the established principles of beneficial ownership outlined in Rule 13d-3, as the beneficial owner of the reference equity security. This determination is contingent on factors such as whether the cash-settled derivative confers voting or investment power over the reference security, whether the acquisition of the derivative is part of a strategy to evade Section 13(d) or 13(g) reporting requirements, or whether the derivative provides the right to acquire beneficial ownership of the equity security within 60 days or with the intention of changing or influencing control of the issuer.
Additionally, individuals who are already required to report beneficial ownership on Schedule 13D must now disclose any interests they hold in derivative securities. Specifically, Item 6 of Schedule 13D, which calls for the disclosure of any contracts, arrangements, understandings, or relationships related to the issuer’s securities, has been amended to clarify that filers must include information about their interests in all derivative securities, including cash-settled derivatives that use the issuer’s equity security as a reference security. This clarification addresses the prior ambiguity and inconsistency of Item 6 of Schedule 13D on this point.
“Group” Beneficial Ownership
The SEC has provided guidance for ascertaining whether two or more individuals have formed a “group” for the purposes of calculating beneficial ownership percentages. The formation of a “group” is not exclusively contingent on the presence of an explicit agreement; instead, concerted actions and informal agreements can also result in the formation of a “group.” The determination is based on existing concepts, such as informal arrangements or coordination with the common purpose of acquiring, holding, or disposing of an issuer’s securities.
It’s important to note that shareholder engagement activities involving discussions and the exchange of views, without additional elements, do not lead to the formation of a “group.” The SEC has specified that discussions among shareholders that lack a commitment to a specific course of action, two or more shareholders engaging with management without an aim to persuade changes in board membership, or two or more shareholders collectively submitting a non-binding shareholder proposal do not constitute the formation of a “group.” Conversely, the formation of a “group” may be deemed to occur when shareholders are involved in a “tipper-tippee” relationship regarding one shareholder’s own impending Schedule 13D filing with the intention to cause another shareholder to purchase shares.
Structured Data Requirement
Schedule 13D and 13G filings are now required to use structured, machine-readable data language, replacing the existing HTML or ASCII requirement in the EDGAR Filer Manual. Exhibits attached to Schedules 13D and 13G are still permitted to remain unstructured.
For assistance determining your filing obligations, please contact the authors of this Viewpoints advisory or your regular counsel at Mintz.