On February 10, 2022, the Securities and Exchange Commission issued rule amendments proposals regarding beneficial ownership under Exchange Act Section 13(d) and 13(g). According to the SEC, these proposed amendments are meant to modernize the Schedule 13D and Schedule 13G rules by making information available to the public in a more timely manner, deeming holders of specific cash-settled derivative securities to be beneficial owners of the reference equity securities, and clarifying the disclosure requirements in respect of derivatives securities.
If you’re new to securities law, these are important amendments to keep in mind. The SEC proposed amendments to Schedule 13D and Schedule 13G filers center on the following subject matters.
Initial Filing Deadlines
Generally, the proposed SEC changes attempt to shorten multiple filing deadlines for Schedule 13(d) and 13(g). Specifically for initial filings, the SEC proposal would shorten the deadline for filing an initial Schedule 13(d) from 10 days to 5 days after crossing the 5% threshold or otherwise losing eligibility to file on Schedule 13(g).
Whereas for Schedule 13(g) filing, which applies to institutional investors, the SEC proposes changing the deadline to just five business days after the end of the month that the investor’s beneficial ownership exceeds 5% of the covered class of equity securities.
Amendment Filing Deadlines
Another filing deadline that the SEC proposed to shorten applies to amendments that need to be filed when a material change occurs.
For Schedule 13(d), the SEC proposes that an investor be required to file an amended Form 13(d) within one business day from the occurrence of a material change in an investor’s golding or status from the reported Schedule 13(d).
For Schedule 13(g), the SEC proposes that amendments be filed within five business days right after the end of the month when the material change has occurred. This is a drastic change from the current 45 days after year-end in which a material change has occurred.
Whereas for Qualified Institutional Investors (QIIs), the proposed deadline by the SEC would be five days after the beneficial ownership exceeds 10% or there was a 5% change in beneficial ownership.
However, the SEC proposes that amendments must be filed one business day after a 5% change in beneficial ownership for passive investors.
Amendment Triggering Events
Under the SEC proposal, Rule 13(d)-2(b) would only require filers to amend a Schedule 13G if a material change in the information previously reported occurs.
When a Group Formation or Action is Recognized
The SEC’s proposed amendments attempt to clarify under which circumstances two or more persons can form or act as a group under Sections 13(d) and 13(g) of the Exchange Act.
A formal agreement between two or more persons is needed to recognize that a group has been formed under Sections 13(d) and 13(g). Under the proposed changes, an agreement between two or more persons to form a group is no longer required, provided that participants act as a group. Under the SEC proposal, a group can be formed by the participants if they acquire, hold, or dispose of securities of an issuer.
Another proposed amendment by the SEC is that a group would be considered to have been formed if:
- A person discloses information about an upcoming Scheduled 13D filing to any other person; and
- That person has an intent of causing another person to acquire securities based on the disclosed information, provided that such information is not yet public.
Under the SEC proposal, the amendment would deem certain holders of cash-settled derivative securities a beneficial owner of the reference equity securities, other than a security-based swap, if the derivative is held with the intent, purpose, or influence of any modification or control of the issuer of the reference securities; or act as a participant in any transaction that under Section 13(d) would cause such derivatives position to be counted toward the reporting thresholds.
Moreover, the proposed amendments would revise Schedule 13(d) by specifying that a person must disclose interests in all derivative securities that use the issuer’s equity security as reference security. These mandatory disclosed securities would include cash-settled derivative securities.
Using XML-Based Language For Disclosed Information
Under the SEC proposal, it would be required that all information disclosed on both Schedule 13D and Schedule 13G are to be filed using a structured and machine-readable data language.
Cut-Off Time for Filings
The SEC proposes to extend filing cut-off times for Schedule 13 filings from the current 5:30 pm ET to 10:00 pm ET on a business day.