SEC Shortens Filing Deadlines for Schedules 13D/G; Adopts Certain Other Amendments and Issues Guidance in Lieu of Other Proposals

On October 10, 2023, the U.S. Securities and Exchange Commission (SEC) adopted certain of its proposed changes to the rules governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (Exchange Act), and issued guidance in lieu of adopting certain other proposed rules.¹ These amount to the most significant changes in beneficial ownership filing requirements in approximately the last 50 years.

Specifically, the adopted rule amendments make the following changes:

• Shorten the deadlines for initial and amended Schedule 13D and 13G filings, as summarized in the table below.
  • Some notable departures from the proposed versions:
    • requiring 13D amendments to be filed within two business days, as is market standard (instead of one business day as proposed)
    • requiring the current “annual” 13G amendments to be filed within 45 days of any quarter end (instead of within five business days of each month end as proposed)
• Extend the filing deadline from 5:30 p.m. ET to 10 p.m. ET (the same deadline as for Section 16 filings).
• Clarify that cash-settled derivative securities, including total return swaps, are required to be disclosed in Item 6 of Schedule 13D.
• Impute acquisitions by group members to the group at any time after the group has been formed (excluding intragroup transfers of securities).
• Require that Schedule 13D and 13G filings be made using a structured, machine-readable data language.

Separately, the SEC provided guidance in the Adopting Release on the applicability of existing beneficial ownership rules to the use of cash-settled derivatives and group formations in lieu of adopting the rules originally proposed. Specifically, the Adopting Release

• extends the existing SEC guidance concerning how security-based swaps may confer beneficial ownership of the underlying reference securities² to other cash-settled derivative securities — that is, if the instrument confers voting or investment power over the reference securities or the right to acquire such power (within 60 days if passive, at any time if not), or if the instrument is used with the purpose or effect of divesting or preventing the vesting of beneficial ownership as part of a scheme to evade reporting requirements
• clarifies that the relevant statutes (Sections 13(d)(3) and 13(g)(3) of the Exchange Act) do not require an express agreement for persons to be a “group” for Section 13(d) and 13(g) purposes and that, depending on the particular facts and circumstances, two or more persons taking concerted actions for the purpose of acquiring, holding (which includes voting) or disposing of securities of an issuer may be sufficient to constitute the formation of a group
  • Notably, the Adopting Release did not amend Rule 13d-5 to remove reference to two or more persons who “agree” to act together but instead clarified that the rule language is not a substitute for the legal standard expressly stated in the statutes.
  • Similarly, while the SEC did not adopt the proposed rules imposing group liability on tipper/tippees (i.e., when tipper gives advance notice of 13D to tippee who then buys shares), the same message was instead conveyed through the guidance set forth in the Adopting Release.

Takeaways

The final version of the beneficial ownership rules reflects a number of concessions that the SEC made in response to comments and provides a much more workable set of rules and guidance than the proposed version. While the revised deadlines will increase compliance costs and, particularly for Schedule 13G filers, will result in a significant increase in the number of filings required to be made, they are far more workable than those originally proposed by the SEC.

In addition, the SEC’s decision to reference its outstanding guidance on cash-settled swaps when applying the beneficial ownership rules to other cash-settled derivatives establishes consistency in the treatment of cash-settled instruments, by using an existing and well-known standard, and eliminates the dichotomy between cash-settled swaps and other cash-settled derivatives that would have resulted from the proposed rule.

Finally, the SEC’s decision to issue guidance in lieu of new rules regarding “group” status should mitigate concerns raised by the proposal that simply communicating with an activist shareholder could have “group” implications, and in fact the Adopting Release expressly states that such communications, alone, do not create a group among the participant shareholders. The decision to issue guidance in lieu of a new rule further allows the decades of case law analyzing “group” status based on its facts and circumstances to remain good law. 

Effective Dates

The amendments will become effective 90 days after publication in the Federal Register. 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 beginning on December 18, 2024.

Summary of Changes in the Schedule 13D and Schedule 13G Filing Requirements

Schedule 13D

Schedule 13G for Qualified Institutional Investors (QIIs)

Schedule 13G for Passive Investors 

Schedule 13G for Exempt Investors

¹ Modernization of Beneficial Ownership Reporting, Securities Exchange Act Release Nos. 33-11253; 34-98704 (Oct. 10, 2023), https://www.sec.gov/files/rules/final/2023/33-11253.pdf (Adopting Release). In addition, the proposed rules can be found here: Modernization of Beneficial Ownership Reporting, Securities Exchange Act Release Nos. 33-11030; 34-94211 (proposed Feb. 10, 2022), https://www.sec.gov/rules/proposed/2022/33-11030.pdf. 

² Beneficial Ownership Reporting Requirements and Security-Based Swaps, Release No. 34-64628 (June 8, 2011) [76 FR 34579 (June 14, 2011)], https://www.sec.gov/files/rules/final/2011/34-64628.pdf.