The SEC announced on October 10th that it has voted to approve final rules intended to enhance disclosure requirements and provide more timely information for shareholders and the market concerning beneficial ownership. The SEC also provided guidance related to the existing legal standard regulating when two or more individuals may be considered a group and when an investor’s use of certain cash-settled derivative securities may result in the individual being treated as a beneficial owner of the class of the reference equity securities.
Under Exchange Act Sections 13(d) and 13(g), along with Regulation 13D-G, an investor who beneficially owns more than 5 percent of a covered class of equity securities is required publicly to file a Schedule 13D or a Schedule 13G, when applicable. An investor with control intent would file Schedule 13D, while exempt investors and investors without a control intent (such as qualified institutional investors and passive investors) file Schedule 13G.
The amendments to the rules are designed to:
shorten the deadlines for initial and amended Schedule 13D and 13G filings
simplify the Schedule 13D disclosure requirements regarding derivative securities
require Schedule 13D and 13G filings to be made using a structured, machine-readable data language
expand the timeframe by which Schedules 13D and 13G must be filed within a given business day
The deadlines for filing the initial Schedule 13D and Schedule 13G have remained unchanged since 1968 and 1977, respectively. Technological advances and developments in the financial markets called for a review of these filing deadlines and other features of the beneficial ownership rules in order to satisfy the needs of investors and other market participants.
The adopting release also provides guidance on the application of the following:
existing legal standard established in Exchange Act Sections 13(d)(3) and 13(g)(3) with respect to the formation of a group
current legal standard found in Sections 13(d)(3) and 13(g)(3) to certain common types of shareholder engagement activities
Rule 13d-3 to cash-settled derivative securities (other than security-based swaps)
The final rule becomes 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 on December 18, 2024.
For further details on the adopted rules, see the SEC’s Modernization of Beneficial Ownership Reporting final rule.