Current and aspiring public company securities holders and issuers, take note: in October 2023, the Securities and Exchange Commission (SEC) adopted Final Rules that amend multiple beneficial ownership reporting requirements for holders of five percent or more of a public company’s class of equity securities. These Final Rules impose shorter deadlines for Schedule 13D and 13G filings and amendments, as well as a new requirement that Schedule 13D and 13G filings be submitted using a structured, machine-readable data language.

Statutory framework

Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (“the Exchange Act”), and Regulation 13D-G thereunder, impose initial and ongoing disclosure requirements on any person or group who directly or indirectly acquires or holds beneficial ownership of five percent or more of a public company’s class of equity securities. These beneficial owners must file with the SEC a Schedule 13D (or Schedule 13G if certain conditions are met), often referred to as beneficial ownership reports. These beneficial ownership reporting requirements notably serve to inform stockholders, financial markets and the public at large about significant acquisitions or potential changes in control of public companies.

Substantive regulatory changes affected by the new rules

Rule changes specifically related to Schedule 13D:

• Shorter filing deadline for initial Schedule 13D based on acquisition of beneficial ownership:

The Final Rules shorten the filing deadline for the initial Schedule 13D to five business days after the date on which a person or group acquires beneficial ownership of five percent or more of a public company’s class of equity securities.

• Shorter filing deadline for initial Schedule 13D based on becoming ineligible to report on Schedule 13G:

The Final Rules shorten the filing deadline for the initial Schedule 13D required to be filed by certain persons or group who become ineligible to report on Schedule 13G in lieu of Schedule 13D to five business days after the event that causes the ineligibility.

• Shorter filing deadline for amendments to Schedule 13D:

The Final Rules shorten the deadline for filing amendments to Schedule 13D to two business days after the date on which a “material change” of the information previously disclosed in a Schedule 13D occurs. Generally, acquisitions or dispositions of one percent of a public company’s class of equity securities constitute a “material change”. Acquisitions or dispositions of less than one percent of beneficial ownership of securities may still nonetheless be a “material change” depending upon the facts and circumstances.

• Revising Item 6 of Schedule 13D – disclosure requirements related to derivative securities:

The Final Rules revise Item 6 of Schedule 13D, which requires the disclosure of certain contracts, arrangements, understandings, and relationships, to remove any implication that a person is not required to disclose interests in all derivative securities that use a covered class as a reference security. The SEC stated in its Adopting Release that this amendment is intended to eliminate any ambiguity regarding the scope of the disclosure obligations of Item 6 of Schedule 13D as to derivative securities, including with respect to any derivative not originating with, or offered or sold by, the issuer, such as a cash-settled option or security-based swap positions.

Rule changes specifically related to Schedule 13G:

• Shorter filing deadline for initial Schedule 13G for Qualified Institutional Investors¹  (“QIIs”) and Exempt Investors:

The Final Rules shorten the filing deadline for the initial Schedule 13G for Qualified Institutional Investors (QIIs) and other Exempt Investors² to within 45 calendar days after the end of the calendar quarter in which beneficial ownership exceeds five percent of a covered class.

• Shorter filing deadline for initial Schedule 13G for Passive Investors³ :

The Final Rules shorten the deadline for Passive Investors to file an initial Schedule 13G in lieu of a Schedule 13D to within five business days after the date on which they acquire beneficial ownership of five percent or more of a covered class.

• Shorter filing deadline and new “material change” trigger for amendments to Schedule 13G based on Rule 13d-2(b):

The Final Rules (i) shorten the deadline for Schedule 13G amendments filed pursuant to Rule 13d-2(b) to 45 days after the end of the calendar quarter in which a reportable change occurs; and (ii) require that an amendment to a Schedule 13G be filed only if a “material change” occurs (replacing the previous rule text that required an amendment upon the occurrence of “any change” in the facts previously reported).

• Shorter filing deadline for amendments to Schedule 13G based on Rule 13d-2(c) for QIIs:

The Final Rules shorten the filing deadline for Schedule 13G amendments filed pursuant to Rule 13d-2(c) to five business days after the end of the month in which beneficial ownership first exceeds 10 percent of a covered class, and thereafter upon any deviation by more than five percent of the covered class, with these requirements applying if the thresholds were crossed at any time during a month.

• Shorter filing deadline for amendments to Schedule 13G based on Rule 13d-2(d) for Passive Investors:

The Final Rules shorten the deadline for Schedule 13G amendments filed pursuant to Rule 13d-2(d) that provision to two business days after the date on which beneficial ownership first exceeds 10 percent of a covered class, and thereafter upon any deviation by more than five percent of the covered class.

New definition of “business day” for purposes of Regulation 13D-G:

The Final Rules add a definition of “business day” for purposes of Regulation 13D-G to mean any day, other than Saturday, Sunday, or a federal holiday, from 12 a.m. to 11:59 p.m. Eastern Time. The term “business day” was not previously defined in Section 13(d) or 13(g) or any rule of Regulation 13D-G.

Direct transmission deadlines for Schedules 13D and 13G, and any amendments thereto:

The Final Rules amend Regulation S-T to permit Schedules 13D and 13G, and any amendments thereto, that are submitted by direct transmission commencing on or before 10 p.m. on a given business day to be deemed to have been filed on the same business day.

Structured, machine-readable data requirement for Schedules 13D and 13G:

The Final Rules amend the EDGAR Filer Manual to require that all disclosures on Schedules 13D and 13G, including quantitative disclosures, textual narratives, and identification checkboxes, be filed using an XML-based language. Under this structured data requirement, only the exhibits to Schedules 13D and 13G will remain unstructured. As is the case with other EDGAR XML filings, reporting persons will be able to, at their option, submit filings directly to EDGAR in 13D/G-specific XML or use a web-based reporting application developed by the SEC that will generate the Schedule in 13D/G-specific XML in connection with the submission of the filing to EDGAR. The SEC stated that this requirement is intended to make it easier for investors and other market participants to access, compile and analyze information that is disclosed on Schedules 13D and 13G.

Key dates

The Final Rules were adopted on October 10, 2023. The Final Rules were published in the Federal Register on November 7, 2023. The effective date of the Reg 13D-G and Reg S-T amendments adopted by the Final Rules is 90 days after publication in the Federal Register, February 5, 2024.

• 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 all other Reg 13D-G and Reg S-T Amendments adopted by the Final Rules will be required beginning on February 5, 2024.

Conclusion

In light of the shortened beneficial ownership reporting deadlines, investors should prepare to update their policies and procedures regarding:

1. Planned acquisitions of public company class of equity securities that may render the investor the beneficial owner of five percent or more of a public company’s class of equity securities
2. Planned activities that may render the investor part of a “group” acquiring or holding beneficial ownership of five percent or more public company’s class of equity securities
3. Any other triggering events based on the new Final Rules outlined in this alert

Charts comparing the rule changes are available for download by clicking here.

¹ Pursuant to the definition of “qualified institutional investors” in Rule 13d-1(b), QIIs include investment companies registered under the Investment Company Act of 1940, investment advisers registered under the Investment Advisers Act of 1940, insurance companies, certain qualified pension funds and employee benefit plans, which acquired the securities in the ordinary course of business with no purpose or effect of changing control of the issuer.

² Pursuant to the definition of “exempt investors” in Rule 13d-1(d), exempt investors consist of persons who acquire all their securities prior to the issuer registering under the Exchange Act and who do not, subsequent to such registration, acquire additional securities of the same class which, together with all other acquisitions by that person of securities of the same class during the preceding 12 months, exceed two percent of such class.

³ Pursuant to the definition of “passive investors” in Rule 13d-1(c), passive investors are shareholders who beneficially own more than five percent of a class of registered securities and who can certify that the securities (i) were not acquired or held for purpose of, and do not have the effect of, changing or influencing the control of the issuer of such securities and (ii) were not acquired in connection with or as a participant in any transaction having such purpose or effect. The SEC has taken the position that neither a director nor an officer of an issuer can be a passive investor.