The Securities and Exchange Commission has proposed significant changes to the rules relating to Schedules 13D and 13G, which would (among other things) accelerate the deadlines for reporting beneficial ownership in public companies listed on U.S. exchanges and registered under the Securities Exchange Act of 1934.
Background
Beneficial owners of more than 5% of a class of equity securities registered under the Exchange Act must generally file with the SEC a “long form” Schedule 13D reporting their ownership.
Holders may file a “short form” Schedule 13G if (i) they beneficially own less than 20% of the class of equity and generally hold for investment purposes only and not with any purpose, or with the effect, of changing or influencing the control of the issuer (“passive investor”) or (ii) they qualify as certain institutions, acquired such securities in the ordinary course of his business and generally not with the purpose nor with the effect of changing or influencing the control of the issuer.
Proposed Amendments to Rules
To address concerns that the current deadlines for Schedule 13D and Schedule 13G filings are creating information asymmetries in markets, the SEC has proposed the following changes, among others:
- Initial Filing of Schedule 13D. The current rules require the filing of an initial Schedule 13D ten days after the date on which a holder acquires more than 5% of the registered class of equity securities (unless the holder is eligible to file a Schedule 13G, as described above). The proposal would accelerate the filing deadline to five days after such acquisition
- Amendments to Schedule 13D. The current rules require that amendments to Schedule 13D be filed “promptly” (which has not been defined with precision) after the occurrence of a material change to information in a previously filed Schedule 13D. The proposal would accelerate the filing deadline to one business day of the occurrence of a material change.
- Initial Filing of Schedule 13G for Passive Investors. The current rules require that a Schedule 13G be filed by a passive investor by 10 days after such investor crosses the 5% beneficial ownership threshold. The proposal would accelerate the filing deadline to five days after such acquisition.
- Amendments to Schedule 13G for Passive Investors. The current rules require a passive investor to file an amendment to Schedule 13G within 45 days after the end of the year in which the information previously reported on Schedule 13G has changed. The proposal would (i) require such amendments only for “material” changes and (ii) accelerate the filing deadline to five business days after the end of the month in which a material change to the information previously reported on Schedule 13G has occurred.
- Amendments to Schedule 13G for Passive Investors (significant change in ownership). The current rules require a passive investor to file an amendment to Schedule 13G promptly (i) after its beneficial ownership exceeds 10% of the registered class of equity securities and (ii) thereafter, promptly after increasing or decreasing its beneficial ownership by more than 5% of such class of equity securities. The proposal would accelerate the filing deadline to one business day after such changes in beneficial ownership.
In addition, the proposed rules would:
- deem holders of certain cash-settled derivative securities as beneficial owners of the equity securities underlying the derivatives;
- clarify the circumstances under which two or more persons are deemed to have formed a “group” that is subject to beneficial ownership reporting obligations;
- provide new exemptions to permit certain persons to communicate and consult with one another and jointly engage issuers without being deemed to have formed a “group; and
- require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
The proposed rules are subject to a 60-day public comment process.
For more information please contact your Gross & Co. Law Firm attorney or Adv. Perry Wildes (perry@gkh-law.com) or Adv. Nathan Hyman (Nathan@gkh-law.com).
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