On February 10, 2022, the U.S. Securities and Exchange Commission (“SEC”) announced proposed rule amendments to beneficial ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (the “Proposed Rules”).

The Proposed Rules, if adopted, will be of significant consequence to 5%+ owners (alone or in Section 13d “groups”) of public equity securities. 

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

The SEC’s stated intention for the Proposed Rules is to provide more timely public information to meet the needs of today's financial markets. In particular, the SEC emphasizes that accelerated reporting requirements – at the core of the Proposed Rules – would address perceived delays in reporting market moving information that, in the SEC’s view, contribute to asymmetries harmful to the general investing public. The SEC notes that recent changes in technology, particularly since Section 13(d) rulemaking in 1998, facilitate accelerated reporting. The SEC also believes that certain of the Proposed Rules would provide more clarity and certainty as to reporting requirements and triggers where ambiguity in the rules may currently exist. 

The Proposed Rules to Regulation 13D-G include the following:

• Acceleration of the filing deadline for initial Schedule 13D beneficial ownership reports to 5 calendar days after beneficial ownership exceeds 5% or where a change in intention of 13G filer occurs (the current requirement is 10 calendar days);

• Requirement that amendments to Schedule 13D for material changes be filed within 1 business day (the current requirement is “promptly”);

• Acceleration of the filing deadline for initial Schedule 13G beneficial ownership reports for passive investors (other than QIIs and exempt investors as noted below) to 5 calendar days after beneficial ownership exceeds 5% (the current requirement is 10 calendar days);

• Acceleration of the filing deadline for initial Schedule 13G beneficial ownership reports for qualified institutional investors (“QIIs")¹ or certain exempt investors² to 5 business days after the end of the month in which beneficial ownership exceeds 5% (the current requirement is 45 days after the end of the calendar year);

• Requirement that amendments to Schedule 13G for material changes (excluding beneficial ownership in excess of 10% or changes in excess of 5%) be filed within 5 business days after the end of the month in which the material change occurred (the current requirement is 45 days after the end of the calendar year);

• Requirement to report beneficial ownership in excess of 10% or changes in ownership of 5% or more (i) for passive investors (other than QIIs), 1 business day after the change (from a current “prompt” standard) or (ii) for QIIs, 5 calendar days after the change (current requirement is 10 days after month end);

• Extension of the SEC filing cutoff deadline to 10pm Eastern time (the current cutoff is 5:30pm Eastern Time);

• Expansion of Regulation 13D-G to certain cash settled derivatives (typically swaps) in circumstances where these positions are held for the purpose of influencing or controlling the issuer (in general cash settled derivatives are not expressly required to be reported, or trigger filing obligations, under current Regulation 13D-G);

• Clarify (in the words of the SEC) that an express or implied “agreement” to form a group is not required to trigger group reporting obligations (current Rule 13d-5(b)(1) has been read by many courts to require an express or implied agreement to act in concert);

• Per se rule that a filing group will be formed between parties if (i) one party, in advance of filing a Schedule 13D, discloses to another party that such filing will be made and (ii) the other party acquires the same securities (no such rule/presumption exists currently);

• Exemptions that permit parties to engage in certain activities and not be subject to regulation as a group, including (i) parties who are counterparties to derivative contracts in the ordinary course or (ii) parties who may jointly engage issuers and do not have the purpose or effect of changing or influencing control of the issuer (no such express exemptions exist currently); and

• Requirement to disclose on Schedule 13D interests in all derivative securities that use the issuer’s equity as a reference security (no such express requirement exists currently).

FOOTNOTES

¹  Broadly, registered broker dealers, banks, insurance companies, registered investment companies, registered investment advisers, ERISA plans, savings associations and church plans.

²  Generally, 5%+ holders who have not made an acquisition of beneficial ownership subject to Section 13(d), e.g.,  holders who acquired their positions prior to the issuer registering the subject securities under the Exchange Act.