On October 10, 2023, the U.S. Securities and Exchange Commission (the “SEC”) issued its final rules modernizing beneficial ownership reporting under Sections 13(d) and (g) of the Securities Exchange Act of 1934 (the “Exchange Act”) and provided guidance regarding when investors will be considered to have formed a group under Section 13(d)(3). Sections 13(d) and 13(g) require persons or groups who own or acquire beneficial ownership of more than 5% of certain classes of “equity securities” registered under the Exchange Act to report such beneficial ownership by publicly filing either a Schedule 13D or a Schedule 13G ownership report with the SEC.
Beneficial Ownership Reporting
The new rules modernizing beneficial ownership reporting principally accelerate the deadlines for initial filings on Schedule 13D and 13G and amendments to those filings. Notably, the new rules effect the following changes.
- Shorter deadline for initial Schedule 13D filing. Schedule 13D filers are required to file an initial Schedule 13D within five business days after acquiring more than 5% of a class of voting equity securities registered under the Exchange Act. This is shortened from ten calendar days required under the current rule. Similarly, existing Schedule 13G filers that become required to file a Schedule 13D must also file an initial Schedule 13D within five business days of the triggering event.
- Shorter deadline for initial Schedule 13G filing by “passive investors.” Investors beneficially owning less than 20% and more than 5% of a subject class of securities and not holding with the purpose or effect of changing or influencing control of the issuer (so-called “passive investors”), may elect to file a Schedule 13G in lieu of a Schedule 13D. The new rules shorten the deadline for the initial filing to five business days after the triggering event from ten calendar days.
- Quarter-end deadline for initial Schedule 13G filing by Qualified Institutional Investors and Legacy Investors. The filing deadline for certain qualified institutional investors, including registered broker-dealers and registered investment advisers (so-called “QIIs”), and investors that own more than 5% of a subject class of securities but have not made an acquisition subject to Section 13(d), including pre-IPO investors (so-called “Legacy Investors”), becomes 45 calendar days after the end of the calendar quarter in which they beneficially own more than 5% of a subject class, as compared to 45 days after calendar year end under the current rules.
- Considerations for QIIs holding over 10%. QIIs that hold over 10% of a subject class are required to file their initial Schedule 13G within five business days after the end of the month when their beneficial ownership exceeds that threshold. Under the current rules, this filing deadline is ten calendar days.
- A fixed deadline for amending Schedule 13D filings. The current rules require that amendments to Schedule 13D be filed “promptly” after the triggering event (i.e., a material change to the information contained in the existing Schedule 13D). The new rules require these filings be made by a fixed deadline of two business days after the triggering event. The effect of this change may be more clarifying than practical as most Schedule 13D filers already file within this time frame under the current standard.
- Shorter deadlines for amending Schedule 13G filings. The new rules require all amendments to Schedule 13G to be filed within 45 days after the end of the calendar quarter in which the change occurred rather than 45 days after the end of the calendar year.
- QIIs and Passive Investors exceeding 10% ownership or having a 5% change. The new rules require a QII to amend its Schedule 13Gs within five business days after the end of the month in which its beneficial ownership exceeds 10% of a subject class or changes by 5% or more. The current rules require such amendments to be filed within ten calendar days of the end of the month in which the change occurred. The new rules require a Passive Investors to amend its 13G filings within two business days of the date on which its beneficial ownership exceeds 10% of a subject class or changes by 5% or more, while the current rules require the amendment to be filed is “promptly” after the date of the change.
- Clarify reporting obligations relating to cash-settled derivative securities. The SEC clarified that holders of cash-settled derivative securities that use the issuer’s securities as a reference security are required to disclose their interests in those derivative securities under Item 6 of Schedule 13D.
Other Filing Considerations
- The EDGAR filing deadlines for Schedules 13D and 13G will be extended from 5:30 p.m. to 10:00 p.m. Eastern time, such that filings made by 10:00 p.m. on the date of a deadline will be considered made in a timely manner.
- Disclosures reported on Schedules 13D and 13G (excluding exhibits) must be filed using a new 13D/G-specific XML structured, machine-readable data language (not to be confused with XBRL). Reporting persons will be able to, at their option, submit filings directly to EDGAR in 13D/G-specific XML or use a web-based reporting application developed by the SEC that will generate the Schedule in 13D/G-specific XML in connection with the submission of the filing to EDGAR.
Section 13 applies to “groups” formed where two or more investors agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer. The SEC’s release amended Rule 13d-5 to update a group’s disclosure under Section 13 and provided guidance clarifying when a Section 13 group is formed.
- The amendments to Rule 13d-5, among other things, clarifies that any acquisition made by a member of a group is imputed to the group itself, but carves out any transfer between members of the group.
- The SEC’s guidance clarifies that group formation does not depend solely on the presence of an express agreement. Depending on the particular facts and circumstances, concerted actions alone may be enough to establish the formation of a group.
Notwithstanding the foregoing, the SEC said it would rely on existing legal standards to determine how a “group” is formed using relevant provisions in the Exchange Act as a guide.
- The new rules, including the revised Schedule 13D filing deadlines, will generally take effect 90 days after their publication in the Federal Register (no earlier than January 2024). However, compliance with the revised Schedule 13G filing deadlines under Rules 13d-1 and 13d-2 will not be required before September 30, 2024.
- The requirement to file disclosures reported on Schedules 13D and 13G (excluding exhibits) using the new 13D/G-specific XML commences on December 18, 2024. Filers may begin to voluntarily comply beginning on December 18, 2023.
If you have any questions regarding the information above, please contact your Capital Markets Group Attorney at Seward & Kissel LLP or your primary Seward & Kissel attorney.