As previously noted in our client alert, certain of the SEC amendments to beneficial ownership reporting rules adopted in October 2023 will go into effect on September 30, 2024. As a quick reminder, for Passive Investors (i.e., those reporting on Schedule 13G pursuant to Rule 13d-1(c) who beneficially own less than 20%) and Qualified Institutional Investors (“QIIs") (i.e., those reporting on Schedule 13G pursuant to Rule 13d-1(b) such as registered investment advisers, investment companies, banks, etc.), there are a few upcoming changes to be aware of, particularly with respect to amendment obligations to disclose material changes.
Under the beneficial ownership rules currently applicable to Passive Investors and QIIs, reporting persons must file an annual amendment within 45 days of year-end if there is any change in the information previously disclosed in their filing (other than percentage ownership figures that might fluctuate as a result of changes in the total number of shares outstanding). Both categories of 13G reporting persons are subject to an accelerated amendment obligation when their reported beneficial ownership changes by more than 5%. In this situation, Passive Investors must file a 13G amendment “promptly," which is generally understood and treated in practice as requiring an amendment within two to three business days, and QIIs must file a 13G amendment within ten business days of the relevant month-end.
Under the amended beneficial ownership reporting rules that go into effect as of September 30, material changes to prior disclosures (i.e., 1% or greater changes in beneficial ownership) will trigger a 13G amendment obligation for both Passive Investors and QIIs on a quarterly basis, with filings due within 45 days of quarter-end (beginning September 30). As such, the first quarterly 13G amendment will be due no later than November 14, 2024. For greater than 5% changes in beneficial ownership, Passive Investors must file an amendment within two business days, and QIIs must file an amendment within five business days of the relevant month-end. In practice, the amended deadline of two business days for Passive Investors is no different than the current standard of “promptly," but the filing deadline is now memorialized directly in the rules leaving less room for error.
Thus, as the second phase of implementation of the SEC’s beneficial ownership amendments draws near (with the first phase applicable to 13D filers going into effect on February 5, 2024), Passive Investors and QIIs reporting on Schedule 13G should be mindful of the upcoming September 30 effectiveness date and the November 14, 2024 filing deadline for quarterly amendments, applicable to both Passive Investors and QIIs with 1% or greater changes in beneficial ownership or other material changes.
Members of the SRCG practice group stand ready to address any specific questions that clients and others may have on beneficial ownership reporting issues following the recent changes to reporting requirements. Thanks to corporate associates Chris Connelly and Cody Wong in our Orange County office for their assistance with this update.