On October 10, 2023, the U.S. Securities and Exchange Commission (SEC) announced that it adopted final rules amending beneficial ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (Exchange Act). The final rules also update Schedules 13D and 13G to require investors to provide more timely information on their holdings. Set forth below is a summary of the final rules; a more detailed client alert will follow.
The final rules will, among other things:
- Schedule 13D filings
- shorten the initial filing deadline from 10 days to five business days after acquiring beneficial ownership of more than five percent, and require that amendments be filed within two business days; and
- revise Item 6 to clarify that a person is required to disclose interests in all derivative securities (including cash-settled derivative securities) that use the company’s equity security as a reference security;
- Schedule 13G filings
- for qualified institutional investors and exempt investors, shorten the initial filing deadline from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which the investor beneficially owns more than five percent of the covered class;
- for passive investors, shorten the initial filing deadline from 10 days to five business days after acquiring beneficial ownership of more than five percent;
- for all Schedule 13G filers, generally require that an amendment be filed 45 days after the calendar quarter in which a material change occurred rather than 45 days after the calendar year in which any change occurred; and
- accelerate amendment obligations for qualified institutional investors and passive investors when their beneficial ownership exceeds 10 percent or increases/decreases by five percent;
- extend filing cut-off times for Schedules 13D and 13G from 5:30 p.m., Eastern Time, to 10:00 p.m., Eastern Time; and
- require Schedules 13D and 13G to be filed using a structured, machine-readable data language (other than for any exhibits to these filings).
In addition, the adopting release for the final rules provides guidance on 1) the applicability of Exchange Act Rule 13d-3 to cash-settled derivative securities, other than security-based swaps, and 2) the application of the existing legal standards established in Exchange Act Sections 13(d)(3) and 13(g)(3) to the formation of a group and to certain common types of shareholder engagement activities.
The amendments will become effective 90 days after publication in the Federal Register. The final rules provide for a transition period for compliance with Schedule 13G filing deadlines and the structured data requirement. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on December 18, 2024, although filers may voluntarily comply with the requirement on December 18, 2023.