SEC Proposes Rule Amendments Modernizing Beneficial Ownership Reporting To Increase Timeliness and Information Quality

By  Serge V. Pavluk

On February 10, 2022, the U.S. Securities and Exchange Commission (the SEC) proposed amendments to Regulation 13D-G to update and modernize the beneficial ownership reporting rules for public markets in order to increase the timeliness and quality of information to market participants. The proposed rule release named “Modernization of Beneficial Ownership Reporting” included the following proposed changes to the current rules:

• Amending Rule 13d-1(a) to shorten Schedule 13D filing deadline from 10 to 5 days (measured in calendar days consistently with the current 10-day deadline, and if the last day of the initial Schedule 13D deadline falls on a Federal holiday, Saturday or Sunday, then the deadline shifts to the next business day thereafter).
• Amending Rules 13d-1(e), (f) and (g) to shorten the filing deadline for the initial Schedule 13D required to be filed by certain persons who forfeit their eligibility to report on Schedule 13G in lieu of Schedule 13D to 5 days after the event that causes the ineligibility.
• Amending the filing deadline under Rule 13d-2(a) to specify that an amendment to Schedule 13D deadline of 1 business day after a material change (from the prior requirement to file such amendment “promptly” after a material change).
• Amending Rules 13d-1(b) and (d) to shorten the deadline for the initial Schedule 13G filing for qualified institutional Investors and exempt investors (i.e., those holding beneficial ownership of more than 5% of a class at the end of the calendar year, but who have not made an acquisition of beneficial ownership subject to Section 13(d)) to within 5 business days after the last day of the month in which beneficial ownership first exceeds 5% of a class).
• Amending the deadline in Rule 13d-1(c), which permits nonexempt passive investors to file an initial Schedule 13G in lieu of Schedule 13D within 10 days after acquiring beneficial ownership of more than 5% of a covered class, to 5 days after the date of such an acquisition (such passive investors are beneficial owners of more than 5% but less than 20% of a class who can certify under Item 10 of Schedule 13G that the such securities were not acquired or held for the purpose or effect of changing or influencing the control of the issuer of such securities and were not acquired in connection with or as a participant in any transaction having such purpose or effect).
• Amending in Rule 13d-2(b) to change the filing deadline required for amendments to Schedule 13G to 5 business days after the end of the month in which a reportable change occurs. Further, the SEC proposed that, instead of an amendment obligation arising for Schedule 13G filers upon the occurrence of “any change” in the facts previously reported regardless of the materiality of such change, Rule 13d-2(b) to be revised to require that an amendment to a Schedule 13G be filed only if a “material change” occurs.
• Amending Rule 13d-2(c) to shorten the filing deadline for Schedule 13G amendments filed pursuant to that provision to 5 days after the date on which beneficial ownership first exceeds 10% of a class, and thereafter upon any deviation by more than 5% of the class, with these requirements applying if the thresholds were crossed at any time during a month.
• Amending Rule 13d-2(d) to revise the filing deadline for Schedule 13G amendments filed pursuant to that provision from a “promptly” standard to 1 business day after the date on which beneficial ownership exceeds 10% of a class, and thereafter upon any deviation by more than 5% of the class.
• To include in the definition of “deemed” beneficial ownership reference securities underlying cash-settled derivative securities that are held for the purpose or effect of changing or influencing the control of the issuer of the reference securities.
• To clarify the circumstances under which 2 or more persons have formed a “group” for purposes of Regulation 13D-G, to include, among other things, “tipper-tippee” relationships and permitting institutional investor organizations, like The Investor Forum in London, to facilitate shareholder engagement not undertaken with the purpose or effect of changing or influencing control.

This is the first major update to Schedule 13D and Schedule 13G filing rules and deadlines since 1968. The SEC explained that, “…given the advances in the information technologies used by market professionals today, less time is needed to compile the necessary data and prepare and transmit the Schedule 13D to the Commission than was required in 1968.”