On February 10, 2022, the Securities and Exchange Commission (SEC) announced new proposals to amend the rules governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (the Exchange Act). If adopted, the proposals would have a far-reaching impact for insiders, 5% holders, and institutional investors, most notably by shortening deadlines for publicly filing beneficial ownership reports. Currently, the Exchange Act, along with Regulation 13D-G, requires investors who beneficially own more than 5% of a class of a registrant's equity securities to report their ownership by publicly filing a report on Schedule 13D or Schedule 13G within 10 days of becoming a 5% holder or 45 days after the end of the calendar year in which the filer became obligated to make a filing, respectively.
The proposed amendments would make changes to the structure of beneficial ownership reporting, including timing of filings, as described below::
| Proposal | Description |
| New Schedule 13D and 13G Filing Deadlines |
For Schedule 13D, the initial filing deadline would be shortened from ten (10) days to five (5) days and any amendments would be required to be made within one (1) business day. For Schedule 13G, certain filers (i.e., qualified institutional investors and exempt investors) would be subject to a five (5)-business-day initial filing deadline after the end of the month in which beneficial ownership exceeds five percent (5%) instead of forty-five (45) calendar days after the end of the calendar year in which the investor became a five percent (5%) holder. Other Schedule 13G filers (including passive investors) would have their filing deadline shortened from ten (10) days to five (5) days. All Schedule 13G filers would be required to file any amendments within five (5) business days after the month in which a material change occurred, instead of the current forty-five (45)-day period. Schedule 13G filers would also be subject to an acceleration of amendment obligations for filers who exceed ten percent (10%) beneficial ownership or a five percent (5%) increase or decrease in beneficial ownership in a covered class of equity securities. In recognition of these accelerated filing deadlines, the SEC notes that the cut-off times for Schedule 13D and Schedule 13G filings would be extended from 5:30 p.m. Eastern time to 10:00 p.m. Eastern time. |
| Derivative Securities |
The proposed amendments would require that holders of certain cash-settled derivative securities be deemed beneficial owners of the reference equity securities. A new Rule 13d-3(e) would provide that holders of cash-settled derivate securities (other than security-based swaps) would be deemed the beneficial owners of the reference equity securities if the derivatives are held with the purpose or effect of changing or influencing the control of the issuer of the reference securities or in connection with a transaction with that purpose or effect. Item 6 of Schedule 13D would be revised to clarify that a person is required to disclose interests in all derivative securities (including cash-settled derivative securities) that use the issuer's equity securities as a reference security. |
| Group Formation and Related Exemptions |
The proposed amendments would clarify when two or more persons have formed a group under Schedule 13G, including tipper-tippee relationships. The proposals would also permit investors to communicate and consult with each other, jointly engage with issuers, and execute certain transactions without being subject to regulation as a group. These amendments are meant to cover situations where investors communicate with each other or the issuer without the purpose or effect of changing or influencing control of the issuer and investors and financial institutions who enter into agreements governing the terms of derivative securities. |
| XML-Based Formatting |
Under the new proposals, Schedule 13D and Schedule 13G would be required to be filed using a structured, machine-readable data language. Exhibits to Schedules 13D and 13G would be permitted to remain unstructured. |
SEC Chair Gary Gensler commented that "[t]hese amendments would update [the SEC's] reporting requirements for modern markets, reduce information asymmetries, and address the timeliness of Schedule 13D and 13G filings," and noted that certain investors who currently can withhold "market moving information from other shareholders for 10 days" would now be required to disclose important information to shareholders faster.
Capital Markets Watch will continue to monitor developments in the beneficial ownership reporting process and will provide our readers with updates as they become available, following the conclusion of the public comment period.
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