On February 10, 2022, the US Securities and Exchange Commission (the SEC) proposed rule amendments regarding Schedule 13D and Schedule 13G filings with the intention of providing more timely information to financial markets.
New filing deadlines for Schedule 13D and Schedule 13G
The proposed amendments would:
- Accelerate the filing deadline for the initial Schedule 13D from 10 days to five days after an investor acquires beneficial ownership of more than 5 percent of a covered class of voting stock;
- Require that amendments to Schedule 13D be filed within one business day after the date on which a material change occurs;
- Accelerate Schedule 13G filing deadlines from 45 days after year end to five business days after the end of the month in which the investor reaches the five percent beneficial ownership threshold (for qualified institutional investors and exempt investors) and from 10 days to five days (for passive investors);
- Require for all Schedule 13G filers that amendments be filed five business days after the month in which a material change occurred rather than 45 days after the year in which any change occurred; and
- Extend the filing cut-off time for Schedules 13D and Schedules 13G for acceptance on EDGAR from 5:30 pm to 10:00 pm Eastern time.
Cash-settled derivatives
The proposed amendments would add a new paragraph (e) to Rule 13d-3. Proposed paragraph (e) would deem persons who hold cash-settled derivatives with the purpose or effect of changing or influencing the control of the public company to be beneficial owners. Beneficial owners, for purposes of the proposed new paragraph, would also include those who hold such derivatives in connection with or as a participant in any transaction having such purpose or effect (e.g. transactions designed to pressure the counterparty or the company to make voting or disposition decisions regarding substantial blocks of securities). Security-based swaps, however, are excluded. The proposed amendment takes into consideration the economic power of holders of cash-settled derivatives, who can produce desired outcomes and potentially impact the stock price of a reference security. The rationale behind the amendment is to alert issuers and the market to any large positions in cash-settled derivative securities and, by implication, the possibility of rapid accumulations of, and high concentrations in, the related reference securities.
New definition for a "group"
- The proposal expands the definition of a "group" for reporting purposes from a formal agreement to also include, depending on the particular facts and circumstances, two or more persons who "act as" as a group with concerted actions (need not be formalized in an agreement or expressed) for the purpose of acquiring, holding or disposing of securities of an issuer.
- Additionally, a group may be formed where, in advance of filing a Schedule 13D, a filing person (for example, a holder of a large block of equity securities) shares with another person non-public information that such Schedule 13D filing will be made with the purpose of causing such person to acquire equity securities of the same class and the other person acquires the such equity securities based on this information.
- The proposal exempts certain actions taken by two or more persons from forming a group, if the two or more persons' (1) communications or actions do not have the purpose or effect of changing or influencing the control of an issuer and are not made in connection with or as a participant in any transaction having such purpose or effect, and (2) such persons, when taking such concerted actions, are not directly or indirectly obligated to take such actions (e.g. pursuant to the terms of a cooperation agreement or joint voting agreement). For example, no group is formed solely by virtue of an agreement governing the terms of a derivative security, provided that the agreement is a bona fide purchase and sale agreement entered into in the ordinary course of business not entered into with the purpose or effect of changing or influencing control of the issuer, or in connection with or as a participant in any transaction having such purpose or effect.
Structured data
Lastly, the amendments would require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
The comment period on the proposed amendments will be open until 30 days after the publication in the Federal Register or April 11, 2022, whichever is later. We encourage our clients and other affected investors to provide their feedback to the SEC as soon as possible.
