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E-MailEric Orsic, Thomas Conaghan, and Heidi J. Steele are Partners at McDermott Will & Emery LLP. This post is based on their MWE memorandum. Related research from the Program on Corporate Governance includes The Law and Economics of Equity Swap Disclosure (discussed on the Forum here) by Lucian Bebchuk; The Law and Economics of Blockholder Disclosure (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson Jr.; and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.
On October 10, 2023, the US Securities and Exchange Commission (SEC) adopted amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, which among other things, accelerate the filing deadlines for Schedules 13D and 13G. In announcing these changes, SEC Chairman Gary Gensler stated that the old reporting requirements did not reflect the current pace of information in the modern capital markets, and the changes to the Schedule 13D and 13G reporting rules would “reduce information asymmetries.” The amendments and revised Schedule 13D deadline will become effective 90 days after publication of the amendments in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning September 30, 2024, and compliance with the structured data requirements for Schedule 13D and 13G will be required beginning December 18, 2024.
In Depth
Sections 13(d) and 13(g) require persons or groups who own or acquire beneficial ownership of more than 5% of certain classes of “equity securities” registered under the Exchange Act to file ownership reports with the SEC. Currently, a Schedule 13D is required to be filed within 10 calendar days of the acquisition of more than 5% of a class of securities. A Schedule 13G is generally required to be filed annually, within 45 days of the end of the calendar year in which the investor’s beneficial ownership exceeds 5% of a class of securities or, for certain passive investors, within 10 calendar days of the acquisition of more than 5% of a class of securities.
ACCELERATED FILING DEADLINES
Schedule 13D:
- The amendments shorten the initial filing deadline from 10 calendar days to five business days and require that amendments to Schedule 13D be filed within two business days. The current rules only require that amendments be filed “promptly.”
Schedule 13G:
- For certain qualified institutional investors filing under Rule 13d-1(b) (such as registered broker-dealers, registered investment advisers or registered investment companies) and exempt investors (investors filing under Rule 13d-1(d) because they own more than 5% but have not made an acquisition subject to Section 13(d), such as founders and other pre-initial public offering investors), the amendments shorten the initial filing deadline from 45 calendar days after the calendar year-end to 45 calendar days after the end of the calendar quarter in which the investor beneficially owns more than 5% of the covered class.
- For passive investors (investors who own less than 20% and do not hold with the purpose or effect of changing or influencing control of the issuer) filing under Rule 13d-1(c), the amendments shorten the initial filing deadline from 10 calendar days to five business days.
- The amendments require that an amendment be filed 45 calendar days after the calendar quarter in which a material change occurred rather than 45 calendar days after the calendar year in which any change occurred.
- Upon exceeding 10% beneficial ownership of a covered class, the amendments require that (1) qualified institutional investors file an amendment within five business days after the end of the month in which they cross the 10% threshold and (2) passive investors file an amendment within two business days of acquiring more than 10%.
The amendments also extend the Electronic Data Gathering, Analysis and Retrieval (EDGAR) submission deadline for Schedule 13D and 13G filings to the SEC, adjusting it from 5:30 pm to 10:00 pm (ET).
DERIVATIVE SECURITIES
Generally, the amendments deem holders of certain cash-settled derivative securities as beneficial owners of the reference equity securities and clarify the disclosure requirements of Schedule 13D with respect to derivative securities.
Beneficial Ownership: Rather than adopt proposed Rule 13d-3(e), which would have deemed holders of certain cash-settled derivative securities as beneficial owners of the reference covered class, the SEC referred to the Security-Based Swaps Release to determine the circumstances under which a holder of a security-based swap may become a beneficial owner. Pursuant to the release, a holder may be required to report beneficial ownership where a security-based stock (1) confers voting and/or investment power, (2) is used as part of a plan or scheme to evade reporting requirements, or (3) grants a right to acquire beneficial ownership of the equity security within 60 days or with the purpose or effect of changing or influencing control of the issuer.
Disclosure of Interest: To eliminate any ambiguity regarding the scope of the disclosure obligations of Schedule 13D’s Item 6 as to derivative securities, the amendments revise Item 6 to clarify that a person is required to disclose interests in all derivative securities that use the issuer’s equity security as a reference security, including cash-settled derivatives.
GROUP FORMATION AND EXEMPTIONS
Under Rule 13d-5(b)(1) of the Exchange Act, whenever two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of an issuer’s equity securities, the group is deemed to have acquired beneficial ownership of all of the issuer’s equity securities that are beneficially owned by any member of the group as of the date they agreed to form the group.
Group Formation: The SEC provided guidance as to the existing legal standard established in Sections 13(d)(3) and 13(g)(3). The SEC clarified that a group can be formed when two or more persons take concerted actions for the purpose of acquiring, holding or disposing of an issuer’s securities, even in the absence of an express agreement.
STRUCTED DATA REQUIREMENTS
The amendments require that Schedule 13D and 13G reports be filed using a structured, machine-readable data language. Schedules 13D and 13G are required to be filed in part using an XML-based language specific to Schedules 13D and 13G, including all disclosures, textual narratives and identification checkboxes (except for exhibits to the Schedules).
