On February 10, 2022, the Securities and Exchange Commission (the “Commission”) announced a proposed rule to modernize the rules governing beneficial ownership reporting, by:
- accelerating the filing deadlines under Schedules 13D and 13G;
- expanding the application of Regulation 13D-G to certain derivative securities;
- clarifying when two or more persons have formed a “group” subject to beneficial ownership reporting obligations; and
- requiring a structure, machine-readable data language for filing Schedules 13D and 13G.Please see below for more details on the proposed amendments.
Shorter Filing Deadlines
| Current Deadline | Proposed Deadline | |
| Schedule 13D | ||
| Initial filing for acquisitions of more than 5% interest (under Rule 13d-1(a)) |
10 calendar days after the date of the acquisition of more than 5% of a covered class of equity securities | 5 calendar days after the date of the acquisition of more than 5% of a covered class of equity securities |
| Initial filing for those who forfeit eligibility to report on Schedule 13G (under Rules 13d-1(e), (f) and (g)) |
10 calendar days after the event that causes the ineligibility | 5 calendar days after the event that causes the ineligibility |
| Amendments to Schedule 13D (under Rule 13d-2(a)) |
“Promptly” after the date on which a material change occurs | 1 business day after the date on which a material change occurs |
| Schedule 13G | ||
| Qualified Institutional Investors (under Rule 13d-1(b)) |
45 calendar days after the last day of the calendar year in which beneficial ownership exceeds 5% of a covered class of equity securities, or 10 calendar days after the last day of the month in which beneficial ownership exceeds 10% of a covered class of equity securities | 5 business days after the last day of the month in which beneficial ownership first exceeds 5% of a covered class of equity securities |
| Annual Amendments to Schedule 13G (under Rule 13d-2(b)) | 45 calendar days after the the end of each calendar year in which a reportable change occurs | None |
| Monthly Amendments to Schedule 13G (under Rule 13d-2(b)) | None | 5 business days after the end of the month in which a reportable change occurs |
| Additional Amendments to Schedule 13G (under Rule 13d-2(c)) | 10 calendar days after month-end in which beneficial ownership exceeded 10% of a covered class, and thereafter upon deviation by more than 5% of the covered class | “Promptly” after acquiring more than 10% beneficial ownership and “promptly” thereafter when beneficial ownership increases or decreases by more than 5% |
| Passive Investors (under Rule 13d-1(c))) |
10 calendar days after date of the acquisition of more than 5% of a covered class of equity securities | 5 days after date of the acquisition of more than 5% of a covered class of equity securities |
| Annual Amendments to Schedule 13G (under Rule 13d-2(c)) | 45 calendar days after the the end of each calendar year in which any change occured. | None |
| Monthly Amendments to Schedule 13G (under Rule 13d-2(c)) | None | 5 days after the date on which beneficial ownership exceeds 10% of a covered class, and thereafter upon deviation by more than 5% of the covered class |
| Additional Amendments to Schedule 13G (under Rule 13d-2(d)) | “Promptly” after the date on which beneficial ownership exceeds 10% of a covered class, and thereafter upon deviation by more than 5% of the covered class | 1 business day after the date on which beneficial ownership exceeds 10% of a covered class, and thereafter upon deviation by more than 5% of the covered class |
| Exempt Investors (under Rule 13d-1(d)) |
45 calendar days after the last day of the calendar year in which beneficial ownership exceeds 5% of a covered class of equity securities | 5 business days after the last day of the month in which beneficial ownership first exceeds 5% of a covered class of equity securities |
| Annual Amendments to Schedule 13G (under Rule 13d-2(d)) | 45 calendar days after the the end of each calendar year in which any change occured. | None |
| Monthly Amendments to Schedule 13G (under Rule 13d-2(d)) | None | 1 business day after the date on which beneficial ownership exceeds 10% of a covered class, and thereafter upon deviation by more than 5% of the covered class |
| Additional Amendments to Schedule 13G (under Rule 13d-2(d)) | None | None |
The proposed rules include a definition of “business day” as any day, other than Saturday, Sunday or Federal holiday, from 6 a.m. to 10 p.m. eastern time.
The proposed rules also extend the filing “cut off” time until 10:00 p.m. eastern time for all Schedule 13D and Schedule 13G filings.
Group Formation
The proposed rules align the text of Rule 13d-5 with language in Section 13(d)(3) and (g)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to clarify that an express or implied agreement among group members is not a condition necessary for the formation of a group – and, instead, that depends on the particular facts and circumstances, concerned the actions by two or more persons for the purpose of acquiring, holding or disposing of securities of an issuer. Additionally, the proposed rules provide new exemptions to permit two or more persons that form a group under the Exchange Act to communicate and consult with each other, jointly engage issuers and execute certain transactions without being subject to regulation as a group.
Derivative Securities
Under the proposed rules, holders of certain cash-settled derivative securities will be deemed beneficial owners of the reference equity securities, specifically if a cash-settled derivative security (other than security-based swaps) is held for the purpose or effect of changing or influencing control of the issuer of such class of equity securities, or in connection with any transaction having such purpose or effect (see proposed amendments to Rule 13D-3). The proposed rules clarify the disclosure requirements with respect to derivative securities in Schedule 13D.
Structured Data Requirements
The Commission is proposing to require all disclosures reported on Schedules 13D and 13G, other than exhibits, to be filed using a structured, machine-readable data language. The proposal is expected to benefit investors and markets by facilitating use and analysis.
The Commission’s goal is to ultimately improve transparency and provide more timely information for shareholders and the market in light of technological advances and developments in the financial market.
SEC Chair Gary Gensler supported the proposal, siting it would reduce information asymmetries and set reporting requirements in line with the modern market. Commissioner Hester Peirce dissented, noting that the proposal “fails to contend fully with the realities of today’s markets or the balance embodied in Section 13(d) of the Exchange Act.” For the full statements of the Commissioners, please see the following links:
- Chair Gensler
- Commissioner Peirce Dissent
In their statements regarding the proposed rules, the Commissioners expressed their desire for public feedback. Accordingly, the Commission is soliciting comments. The proposal will have a public comment period until April 11, 2022 (60 days following its publication on the SEC’s website) or 30 days following its publication in the Federal Register, whichever is later. Comments may be submitted: (1) using the SEC’s comment form at https://www.sec.gov/rules/submitcomments.htm; (2) via e-mail to [email protected] (with “File Number S7-06-22″ on the subject line); or (3) via mail to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-06-22.
We would like to thank Rodrigo Surcan in our New York office and Caitlyn Fiebrich in our Houston office for their work on this article.