In an effort to modernize beneficial ownership reporting under Section 13(d) and 13(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Securities Exchange Commission (the “SEC”) recently adopted final rules (the “Final Rules”). The Final Rules significantly depart, in many respects, from the rules the SEC originally proposed in February 2022 (the “Proposed Rules”).
To provide market participants notice of significant acquisitions or potential changes in control of reporting companies, the SEC requires certain public filings. These Schedule 13D or Schedule 13G filings are required under Section 13(d) and 13(g) of the Exchange Act, and Regulation 13D-G for holders who beneficially own more than five percent of any class of securities registered under the Exchange Act. The reporting requirements apply to classes of four different types of equity securities as well as security-based swaps for which any of the four types of equity securities is the underlying security (each, a “Covered Class”).
Additionally, under the Final Rules, only a “material change” will trigger an amendment obligation to Schedule 13G filed under Rule 13d-2(b) (rather than “any change” under the current rules). Further, the Final Rules extend the time-of-day deadline for Schedule 13D and 13G filings, and amendments thereto, to 10:00 p.m. Eastern Time (rather than 5:00 p.m. Eastern Time).
2. Guidance on Group Formation
In a departure from the Proposed Rules, the SEC did not adopt certain Rule 13d-5 amendments that would have tracked the statutory text of Section 13(d)(3) and (g)(3) to specify that two or more persons who “act as” a group for purposes of acquiring, holding, or disposing of securities are treated as a “group.” Instead, the SEC elected to issue guidance in the adopting release on certain common types of investor engagement activities that scope of activities that could give rise to group formation.
The adopting release recognized that neither the statutory language nor the SEC rules define the term “group.” According to the adopting release, the determination of whether two or more persons are acting as a group “depends on an analysis of all the relevant facts and circumstances and not solely on the presence or absence of an express agreement, as two or more persons may take concerted action or agree informally” (emphasis added).
The adopting release presented the related guidance in question and answer format, listing the below situations where a Section 13(d) group would not be formed:
On the other hand, the guidance states that a group is likely formed if a beneficial owner of a substantial block of a Covered Class that is or will be required to file a Schedule 13D intentionally communicates to other market participants (including investors) that such a filing will be made (to the extent this information is not yet public) with the purpose of causing such persons to make purchases in the same Covered Class, and one or more of the other market participants make purchases in the same Covered Class as a direct result of that communication (emphasis added).
The Final Rules will become effective 90 days after their 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. Compliance with the other rule amendments, including the deadlines for initial and amended Schedules 13D, will be required upon their effectiveness.
All market participants should welcome these changes as they reflect increased information symmetry among issuers and investors market alike. The Final Rules also better comport with changes in technology and developments in the financial markets, including reduced settling times of equity transactions.
Additionally, the shortening of the Schedule 13D and Schedule 13G filing deadlines will likely increase the burdens of beneficial ownership reporting. The new reporting deadlines may be more challenging to meet in some instances, especially with respect to Schedule 13D filings. Investors that could be potential filers should adopt best practices that ensure proper systems are in place to ensure compliance with the new filing requirements.
However, the five-business-day Schedule 13D reporting deadline is a relatively moderate departure from the current ten-calendar-day reporting deadline and is thus unlikely to cause a major shift in the broader beneficial ownership reporting paradigm.
A complete copy of the SEC release regarding the Final Rules can be found here. The SEC press release announcing the Final Rules can be
found here. We will continue to monitor the adopted rules and other SEC actions as they develop. If you have any questions, feel free to contact
David Kaufman, Michele Kloeppel, or Nabil Al-Khaled.
 QIIs generally include registered brokers or dealers, banks, insurance companies, investment companies registered under Section 8 of the Investment Company Act of 1940, investment advisers registered under Section 203 of the Investment Advisers Act of 1940, a parent holding company or control person (if certain conditions are met), employee benefit plans and pension funds that are subject to the provisions of the Employee Retirement Income Security Act of 1974, savings associations, certain church plans, and certain non-U.S. institutions that are regulated by substantially comparable schemes as their U.S. counterparts, and related holdings and groups. See 17 CFR 240.13d-1(b)(1)(ii). In order to be eligible to report on Schedule 13G, QIIs must have acquired a Covered Class in the ordinary course of business and not with the purpose nor with the effect of changing or influencing the control of the issuer, nor in connection with or as a participant in any transaction having such purpose or effect. 17 CFR 240.13d- 1(b)(1)(i).
 The adopting release uses the term “Exempt Investor” to refer to “persons holding beneficial ownership of more than five percent of a Covered Class, but who have not made an acquisition of beneficial ownership subject to Section 13(d)” (e.g., persons who acquire their securities prior to the securities being registered under the Exchange Act, or persons who acquire no more than two percent of a Covered Class within a 12-month period).
 The adopting release defines the term “Passive Investors” as beneficial owners of more than five percent but less than 20 percent of a Covered Class who can certify under Item 10 of Schedule 13G that the subject securities were not acquired and are not held for the purpose or effect of changing or influencing the control of the issuer of such securities and were not acquired in connection with or as a participant in any transaction having such purpose or effect.
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