On October 10, 2023, the Securities and Exchange Commission (SEC) adopted amendments to the rules governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (the Exchange Act).
The Amendments
• accelerate the filing deadlines for initial and amended Schedule 13D and 13G filings as described below;
• provide additional guidance regarding when two or more persons may be considered a “group” for determining whether the beneficial ownership threshold has been met;
• clarify the disclosure requirements of Schedule 13D with respect to derivative securities;
• extend the deadline by which Schedules 13D and 13G must be filed on a given business day to 10:00 PM ET; and
• require that Schedule 13D and 13G filings be made using a structured, machine-readable data language.
The revised Schedule 13D filing deadlines (and other amendments) will become effective 90 days after the adopting release is published in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024, while compliance with the structured data requirement for Schedules 13D and 13G will be required on December 18, 2024.
Background
Sections 13(d) and 13(g) of the Exchange Act require investors who beneficially own more than 5% of a company’s registered class of equity securities to publicly report their beneficial ownership on a Schedule 13D or, if eligible, a short form Schedule 13G. An investor with control intent must file Schedule 13D. “Passive investors”, “exempt investors” and “qualified institutional investors”¹; (each described below) may file a Schedule 13G.
A “passive investor” is a beneficial owner of more than 5% but less than 20% of the class of securities who can generally certify 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. Directors and officers of an issuer are generally ineligible for passive investor classification.
An “exempt investor” is a beneficial owner of more than 5% of the class of securities, who has not made an acquisition subject to Section 13(d). This consists of an investor who acquires all of its securities prior to the issuer registering the under the Exchange Act and who does not, after 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 2% of such class.
[1] “Qualified institutional investors” or “QII” refer to specified institutional investors subject to various listed U.S. regulatory schemes that acquire or hold securities in the ordinary course of business and generally not for the purpose or effect of changing or influencing the control of the issuer of such securities and the functional equivalent non-U.S. institutions so long as they are subject to a regulatory scheme substantially comparable to the regulatory scheme applicable to the equivalent U.S. institution. In our experience Israeli institutions do not typically file as QII’ due to the complexity of determining whether the Israeli regulatory scheme to which such institutions are subject a regulatory scheme is substantially comparable to the relevant U.S. regulatory scheme.
Amendments to Filing Deadlines²
|
Schedule 13D
|
Current
|
Revised
|
|
Initial 13D Due Date (including due to loss of 13G Eligibility)
|
Within 10 days of acquiring more than 5% beneficial ownership or event that causes ineligibility
|
Within 5 business days of acquiring more than 5% beneficial ownership or losing eligibility to file on Schedule 13G
|
|
Trigger and Due Date for amendments to 13D (including amendments due to issuances of shares by the issuer which dilute existing investors’ holdings)
|
“Promptly” after a “Material” change
|
Within 2 business days after a “Material” change
|
|
Schedule 13G filed by “Passive” Investors
|
Current
|
Revised
|
|
Initial 13G Due Date
|
Within 10 days of acquiring more than 5% beneficial ownership
|
Within 5 business days of acquiring more than 5% beneficial ownership
|
|
Periodic Due Date for amendments to 13G
|
Annual amendments – due 45 days after year-end if any change
|
Quarterly amendments- due 45 days after quarter-end if a material change
|
|
Due Date for amendments to 13G based on ownership change
|
“Promptly” upon acquiring more than 10% beneficial ownership
Thereafter, upon deviation by more than 5% of a covered class of equity securities
|
Within 2 business days of acquiring more than 10% beneficial ownership
Thereafter, upon deviation by more than 5% of a covered class of equity securities
|
|
Schedule 13G filed by “Exempt” Investors
|
Current
|
Revised
|
|
Initial 13G Due Date
|
45 days after year-end in which beneficial ownership exceeds 5%
|
45 days after quarter-end in which beneficial ownership exceeds 5%
|
|
Periodic Due Date for amendments to 13G
|
Annual amendments: due 45 days after year-end in which any change occurred
|
Quarterly amendments – due 45 days after quarter-end if material change occurred
|
[2] For QII’s (i) the initial 13G due date is changed from 45 days after year-end in which beneficial ownership exceeds 5% to 45 days after quarter-end in which beneficial ownership exceeds 5%, (ii) the due date for periodic amendments to 13G is changed from annual amendments due 45 days after year-end if any change to quarterly amendments due 45 days after quarter-end if a material changeand (iv) the due date for amendment to 13G due to ownership change is changed from 10 business days after month-end if beneficial ownership exceeds 10% or there is a 5% decrease in beneficial ownership to five business days after month-end if beneficial ownership exceeds 10% (and thereafter upon deviation by more than 5% of a covered class of equity securities).
To ease filers’ administrative burdens associated with these shortened deadlines, the amendments extend the filing “cut-off” times in Regulation S-T for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. Eastern time.
Determination of a Group
The SEC also provides guidance regarding when two or more persons may be considered a “group” for determining whether the beneficial ownership threshold has been met. The guidance clarifies the SEC’s view that the determination of whether two or more persons are acting as a group does not depend solely on the existence of an express agreement and that, depending on the particular facts and circumstances, concerted actions by two or more persons for the purpose of acquiring, holding, or disposing of securities of an issuer are sufficient to constitute the formation of a group. The SEC also provides examples of how certain common types of shareholder engagement activities should be treated for reporting impact on investors.
The amended rules will require investors to implement systems that enable them to monitor their beneficial ownership more closely. Schedule 13D filers will need systems in place to quickly detect material changes (such as acquisitions or dispositions of 1% or more of the outstanding shares) in order to have amendments prepared and filed in a timely manner. Because amendments to Schedule 13D are required irrespective of whether the Schedule 13D filer has taken any actions to change its beneficial ownership, investors will also need to monitor any issuance of shares by the issuer which can dilute the investors’ holdings.
Schedule 13G filers will need to monitor their positions on a quarterly basis to determine whether any quarterly amendments are required. QIIs and exempt investors must also be prepared to file initial Schedules 13G more quickly, instead of waiting until 45 days after the end of the applicable year.
The content in this communication is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis.
For further questions, please get in touch with:
