To ensure investors receive material information in a timely manner, the Securities and Exchange Commission (the “SEC”) adopted amendments shortening the deadlines for reporting beneficial ownership on Schedules 13D and 13G. Investors who beneficially own more than 5% of an equity security are required to file a Schedule 13D if the investor has control intent, or a Schedule 13G if they do not have control intent (a “Passive Investor”), are not subject to Section 13(d) (an “Exempt Investor”), or obtain the securities in the ordinary course of business and are considered qualified to report on Schedule 13G under Rule 13d-1(b) (a “Qualified Institutional Investor”).
The amendments shorten the deadlines for initial and amended Schedule 13D and Schedule 13G filings. For Schedule 13D filers, the initial filing deadline will be reduced from 10 calendar days to 5 business days after acquiring greater than 5% beneficial ownership. Amendments to Schedule 13D will be required to be filed within 2 business days after the triggering event, compared to the previous rule requiring amendments to be filed promptly after such an event.
Similarly, the initial filing deadline for Passive Investors to file a Schedule 13G will be shortened from 10 calendar days to 5 business days after acquiring greater than 5% beneficial ownership. For Qualified Institutional Investors and Exempt Investors, the initial filing deadline for a Schedule 13G will be shortened from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which the investor acquires beneficial ownership of more than 5% of the securities. Further, a Qualified Institutional Investor who initially acquires beneficial ownership of more than 10% will be required to file a Schedule 13G within 5 business days after the month-end in which such ownership is acquired, rather than the current requirement of 10 calendar days after month-end.
Under the new rules, amendments to Schedule 13G filings will be required to be filed 45 days after the calendar quarter in which a material change occurred, compared to the previous rule requiring amendments to be filed 45 days after the calendar year in which any material change occurred. If, after an initial filing on Schedule 13G, a Passive Investor or Qualified Institutional Investor acquires beneficial ownership greater than 10% or there is a 5% increase or decrease in beneficial ownership, then a Schedule 13G amendment must be filed within two business days of such event if a Passive Investor, and within five business days if a Qualified Institutional Investor.
The SEC did not adopt the proposed amendment to codify the definition of a “group” for the purposes of these reporting rules, but it did issue guidance as to when a “group” is formed. Such guidance clarifies and affirms that two or more persons who “act” as a “group” for the purposes of acquiring, holding or disposing of securities may be treated as a “group.” The SEC, however, did adopt amendments to codify that additional equity acquired after the formation of a “group” will be deemed to be acquired by the “group.”
In addition, the new rules address cash-settled derivative securities which generally are not required to be reported on Schedule 13D except in certain circumstances. While the proposed amendments with respect to such derivative securities were not adopted, the SEC did highlight that a holder of a cash-settled derivative security may be deemed to be the beneficial owner under current rules if the cash-settled derivative security provides the holder, directly or indirectly, with exclusive or shared investing power over the reference security. Further, the SEC amended Item 6 of Schedule 13D, which requires a description of any contracts, arrangements, understandings, or relationships with respect to any securities of the issuer, to require disclosure of the investor’s interest in derivative securities that relate to the issuer’s equity securities, including cash-settled security-based swaps and other derivatives which are settled in cash, even when the investor is not deemed to beneficially own the underlying securities.
Disclosures on Schedules 13D and 13G will be required to be filed using structured, machine-readable data language. All disclosures on Schedules 13D and 13G will be required to be filed using XML-based language, which may impact the timing of filings. To ease investors’ ability to comply with the new shortened deadlines, the SEC amended Regulation S-T to extend the EDGAR filing “cut-off” times for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. Eastern Time.
The amendments will be effective 90 days after publication in the Federal Register. However, compliance with the new deadlines for Schedule 13G filings is required commencing September 30, 2024. In addition, compliance with the new structural data requirements for Schedule 13D and Schedule 13G filings is required commencing December 18, 2024, although filers may comply voluntarily beginning December 18, 2023.
For additional information about these amendments, see the SEC’s Fact Sheet and the amended rules. If you have any questions about implementing these new requirements, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at (585) 232-6500 or (716) 853-1616.