On October 10, 2023, the Securities Exchange Commission (SEC) adopted amendments to the rule that governs beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. These amendments will take effect 90 days after they are published in the Federal Register.
The amendments, in large part, are focused on requiring market participants to provide more timely information of beneficial ownership of covered classes of equity securities.
As described in more detail below, the following are key amendments to the SEC’s existing rules on beneficial ownership reporting:
- Initial Schedule 13D filing must be made within 5 business days after triggering event.
- Schedule 13D amendments must be filed within 2 business days after the date of a material change.
- Initial Schedule 13G filing must be filed in accordance with the following time frames:
- Qualified Institutional Investors (QIIs): (i) within 45 days after calendar quarter-end in which they cross the 5% beneficial ownership threshold or (ii) within 5 business days after month-end of crossing the 10% threshold;
- Exempt Investors: within 45 days after calendar quarter-end in which they cross the 5% threshold;
- Passive Investors: within 5 business days of crossing the 5% threshold.
- Amendments to Schedule 13G must be filed in accordance with the following time frames:
- QIIs: within 5 business days after month-end of crossing the 10% percent threshold or a 5% increase or decrease in beneficial ownership;
- Passive Investors: within 2 business days after crossing the 10% percent threshold or a 5% increase or decrease in beneficial ownership;
- All Filers: within 45 days after calendar quarter-end in which a material change in information occurred.
- Filing time within the deadline day is extended to 10 p.m. Eastern Time.
- Clarified language for certain derivative securities and group ownership.
- 13D/G-specific XML language must be used for filing Schedule 13D and 13G reports.
Initial Schedule 13D
The original Schedule 13D initial filing deadline required filings to be made within 10 days after acquiring beneficial ownership of more than 5% of a covered class of securities or losing eligibility to file on Schedule 13G. The amendment shortens that initial Schedule 13D filing deadline to five business days after the date on which the Schedule 13D filing obligation arises.
Initial Schedule 13G
An initial Schedule 13G was originally required to be filed within 45 days of calendar-year end if, by the end of the calendar year, the investor exceeded the 5% ownership threshold. The amendment changes the initial Schedule 13G filing deadline to 45 days after calendar quarter-end for QIIs (those investors subject to rule 13d-1(b)) and Exempt Investors (those investors subject to 13d-1(d)), if their ownership percentage meets the filing obligation at the end of that quarter. Additionally, QIIs whose beneficial ownership exceeds 10% must now file their initial Schedule 13G within five business days of the last day of the first month in which the 10% threshold was exceeded. Lastly, Passive Investors (those investors subject to 13d-1(c)) whose beneficial ownership exceeds the 5% threshold must file within five business days of crossing that threshold. The SEC indicated that these shorter deadlines are more suitable to the market for financial and technological reasons.
Amendments to Initial Filings
The original Schedule 13G and 13D amendment filing deadlines were updated to clarify reporting timelines and, in some cases, to require more timely filings. Following the rule change, a Schedule 13D amendment must be filed within two business days after the date of a material change in facts previously reported in the 13D filing(s). A Schedule 13G amendment must be filed within 45 days after calendar quarter-end in which a material change has occurred, other than certain material changes in beneficial ownership of QIIs and Passive Investors which have accelerated timelines as described further below. QIIs must amend their initial Schedule 13G filings within five business days after month-end of crossing the 10% threshold or experiencing a 5% increase or decrease in beneficial ownership. Passive Investors must amend their initial Schedule 13G filing within two business days after exceeding the 10% threshold or experiencing a 5% increase or decrease in beneficial ownership, which is a more definitive deadline than the original deadline, which only required the amendment to be filed “promptly.” The SEC did not amend the general “material” standard, so existing rules and interpretations of that standard will continue to apply.
Filing Cut-Off Time
There was an original “cut-off” time for filing Schedules 13D and 13G set at 5:30 p.m. Eastern Time to be considered “same business day” of the filing deadline date. There were exceptions to this hard rule that effectively extended the filing time to 10 p.m. Eastern Time for certain filings. There was also a temporary hardship exemption that some filers could utilize if there were unanticipated technical difficulties that caused an untimely submission. To simplify the filing “cut-off” time for these reports, the SEC extended the filing time to 10 p.m. Eastern Time and has removed the temporary hardship exemption. Filers will still, however, be able to request a filing date adjustment.
Other Amendments Worth Noting
The SEC largely declined to adopt its proposed rule changes for Rule 13d-5, but instead the SEC issued guidance with respect to the existing rule. In its guidance, the SEC clarified that the determination of whether two or more persons were acting as a group does not solely depend on an express agreement among the parties but may also be evidenced by concerted actions. Additionally, the SEC adopted new language for groups to now “account for the possibility that group members may make acquisitions in furtherance of the group’s common purpose on the same day the group has been formed.” The new rule accommodates acquisitions that are made by a group any time after the group has been formed rather than after the date of group formation.
The SEC also amended Item 6 of Schedule 13D to expressly require “derivative contracts, arrangements, understandings, and relationships with respect to an issuer’s securities, including cash-settled SBS and other derivatives which are settled exclusively in cash” to be disclosed under Item 6 of Schedule 13D. The SEC also eliminated the “including but not limited to” language before the itemization listed above to make clear that any additional items or interests are not required to be disclosed pursuant to Item 6.
Finally, the SEC adopted a structured data requirement for Schedules 13D and 13G to replace the HTML or ASCII requirement with the 13D/G-specific XML for disclosures that are reported on those Schedules. Anyone reporting will be able to submit the filings directly to EDGAR in 13D/G specific XML or use the web-based reporting application that will generate the report in that 13D/G specific XML. This change is intended to make it easier for market participants to compile and analyze the information contained in the reports.
Compliance with the revised deadlines for Schedule 13G filings will begin on September 30, 2024, while compliance with the structured data requirement for Schedules 13D and 13G will begin on December 18, 2024, and compliance with all other amendments will be required upon their effectiveness (90 days after publication in the Federal Register). The SEC welcomes early compliance with the structured data requirement, but notwithstanding the fact that these amendments will go into effect 90 days after publication in the Federal Register, compliance with the original Schedule 13G deadlines is required through September 29, 2024.