SEC adopts substantial changes to reporting requirements for significant shareholders

On October 10, 2023, the SEC adopted amendments to, and issued guidance on certain matters relating to, the rules governing Schedule 13D and Schedule 13G filings by beneficial owners of more than five percent of a covered class of equity securities of a public company. 

The Adopting Release (Release Nos. 33-11253; 34-98704 (October. 10, 2023)) is available here. 

The amendments:

Among other things, the amendments:

• shorten the filing deadlines for initial and amended Schedules 13D and 13G as set out in the SEC-provided chart below - the deadlines vary depending on whether the filer is filing a Schedule 13D or is filing a Schedule 13G as a qualified institutional investor (QII), an exempt investor or a passive investor;
• provide a specific two business-day deadline for when amendments to Schedule 13D and some Schedule 13Gs must be filed instead of the current “promptly” standard;
• clarify that a Schedule 13D filing must disclose a filer’s interests in all derivative securities (including cash-settled derivative securities) using the relevant security as a reference security;
• extend the cut-off time for filing the Schedules from 5:30 p.m. E.T. to 10:00 p.m. E.T.; and
• will require the information in the Schedules (other than their exhibits) to be in structured, machine-readable data language.

Effective date and compliance:

While the amendments related to Schedule 13D (except the structured data language requirement) and the extension of the filing cut-off time will be effective on the 90^th day after publication of the amendments in the Federal Register, compliance with the revised Schedule 13G filing deadlines will not be required until September 30, 2024 and compliance with the structured data language requirements will not be required until December 18, 2024.

Guidance on cash settled derivatives:

Instead of amending the rules to deem certain holders of cash-settled derivatives as beneficial owners of a reference covered class, the SEC issued guidance clarifying that a holder of a cash-settled derivative (other than a security-based swap) may be deemed a beneficial owner of a reference security if:

• the derivative provides the holder with exclusive or shared voting or investment power through a contractual term or otherwise;
• the derivative is acquired in order to divest the holder of beneficial ownership of the security or to prevent the vesting of that beneficial ownership as part of a plan or scheme to evade the reporting requirements; or 
• under the terms of the derivative or an understanding related to it, the holder has a right to acquire beneficial ownership of the security within 60 days or acquires the right to acquire beneficial ownership of the security with a control intent.

Guidance on the existence of a “group”:

The SEC also provided guidance on beneficial ownership by a group under Exchange Act Sections 13(d)(3) and 13(g)(3): 

• reiterating that a “group” may exist under certain circumstances without an express agreement if there are concerted actions by two or more persons for the purpose of acquiring, holding or disposing the relevant securities; and
• clarifying that the following shareholder engagements, when not involving control-related actions, without more, would not result in the formation of a “group”:
• communications among shareholders about an issuer or its securities (including a joint engagement strategy that is not control-related and a “vote no” campaign in uncontested director elections);
• joint shareholder engagements with an issuer’s management;
• joint recommendations to an issuer about the structure and composition of its board (a group could be formed if it involves a change in membership or board commitments);
• joint submission or presentation of a non-binding shareholder proposal;
• communications between a shareholder and an activist investor seeking support; and
• a shareholder’s communication of its intent to vote for an unaffiliated activist’s director nominees.

The SEC, however, stated that a filer’s private advance notice of its Schedule 13D filing to a market participant may result in the formation of a group if its purpose was to cause the market participant to buy the relevant securities and the market participant buys the securities.

For more information, please click here for a more detailed Ropes & Gray alert on the amendments.

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