As we reported yesterday, the SEC, without an open meeting, adopted rule amendments governing beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g), updating Reg 13D-G to “require market participants to provide more timely information on their positions to meet the needs of investors in today’s financial markets”. 

The amendments accelerate the filing deadlines for Schedules 13D and 13G. SEC Chair Gary Gensler said: “I am pleased to support this adoption because it updates Schedules 13D and 13G reporting requirements for modern markets, ensures investors receive material information in a timely way, and reduces information asymmetries.”

More timely information

Under Exchange Act Sections 13(d) and 13(g), and Reg 13D-G, an investor who beneficially owns more than 5% of a covered class of equity securities must file with the SEC either a Schedule 13D or a Schedule 13G, depending on the nature of ownership and circumstances of acquisition.

Generally, an investor with control intent must file a Schedule 13D, while exempt investors and investors without control intent, such as qualified institutional investors and passive investors, file Schedule 13G. 

Among other things, the amendments do the following:

• shorten the deadline for initial Schedule 13D filings from 10 days to five business days and require that Schedule 13D amendments be filed within two business days;
• generally accelerate the filing deadlines for Schedule 13G beneficial ownership reports (the filing deadlines differ based on the type of filer);
• clarify the Schedule 13D disclosure requirements with respect to derivative securities; and require that Schedule 13D and 13G filings be made using a structured, machine-readable data language;
• to ease filers’ administrative burdens associated with these shortened deadlines, the amendments extend the filing “cut-off” times in Regulation S-T for Schedules 13D and 13G from 5:30 pm to 10 pm ET;
• revise Schedule 13D 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 security as a reference security; and
• require that these filings use a structured, machine-readable data language so as to make it easier for investors and markets to access, compile, and analyze information disclosed on Schedules 13D and 13G.

Further, the adopting release provides guidance regarding the current legal standard governing when two or more persons may be considered a group for the purposes of determining whether the beneficial ownership threshold has been met.

Plus it outlines how, under the current beneficial ownership reporting rules, an investor’s use of certain cash-settled derivative securities may result in the person being treated as a beneficial owner of the class of the reference equity securities.

Recent beneficial ownership reporting case

In late September, the SEC announced charges against six officers, directors, and major shareholders of public companies for failing to timely report information about their holdings and transactions in company stock. Five publicly-traded companies were also charged for contributing to the filing failures by insiders or failing to report their insiders’ filing delinquencies.

“People will not go to the trouble of identifying ways in which companies can improve unless they are rewarded for that work. And if investors pare back their monitoring of companies, other investors and the broader economy could suffer.”

Hester Peirce, Commissioner, SEC

Without admitting or denying the findings, the six individuals and five public companies agreed to cease and desist from violating the respective charged provisions and to pay certain civil penalties.

The SEC noted in its cease-and-desist orders against the businesses that its enforcement staff used data analytics to identify the charged insiders as repeatedly filing these reports late.

Lone dissent from commissioner

The adoption was not unanimous, as Commissioner Hester Peirce dissented, questioning the justification for shorter filing deadlines and noting that “disparities in information are central to the functioning of our markets”.

She continued: “Of particular concern are rules that prevent someone who has worked hard to identify a mismanaged company and develop a strategy for improving it from getting adequately compensated for that work and the associated risk … The basic principle remains that people will not go to the trouble of identifying ways in which companies can improve unless they are rewarded for that work. And if investors pare back their monitoring of companies, other investors and the broader economy could suffer.”

She also noted that the adopting release continues to raise questions around the analytical framework for cash-settled derivatives as well as the definition of “group” filers.

The amendments will become effective 90 days after publication in the Federal Register. Compliance deadlines are as follows:

• Structured data requirements beginning December 18, 2024;
• Revised Schedule 13G filing deadlines beginning September 30, 2024; and
• Revised Schedule 13D filing deadlines (and other amendments) are effective upon effectiveness of the amendments.