SEC Finalizes Beneficial Ownership Rule Amendments

The SEC has adopted amendments to the beneficial ownership rules under Sections 13(d) and 13(g) of the Securities and Exchange Act. When the amendments take effect, they will accelerate filing deadlines, incrementally clarify reporting obligations and establish certain technical and other changes as outlined further below.

The amendments and related compliance obligations will be effective on February 5, 2024; however, required compliance with the accelerated filing deadlines for Schedule 13G is delayed until September 30, 2024. Due to the compliance delay for Schedule 13G filings, any initial or amended Schedule 13G filing obligations triggered as of December 31, 2023 will follow the old reporting deadlines.

What You Should Know About the Beneficial Ownership Rule Amendments

Accelerated Filing Deadlines

In light of the SEC's recent enforcement initiative focused on failures to timely file Schedules 13D and 13G, understanding the new filing deadlines for initial and amended beneficial ownership reports is key for beneficial owners and companies alike.  

For Schedule 13D filers, the amended rules accelerate the initial filing deadline from 10 days to 5 business days and require that amendments be filed within 2 business days of a “material change.” Unlike the accelerated filing deadlines for Schedule 13G, described below, the accelerated filing deadlines for Schedule 13D will take effect 90 days after the publication of the final rules in the Federal Register. As a result, activists and other stockholders seeking to change or influence the control of a company, including those seeking to engage in certain unsolicited merger and acquisition transactions, will be required to inform the market of their plans and arrangements more rapidly. While it is not clear that these changes will significantly alter an activist’s or hostile acquirer’s playbook, they will make it harder for them to acquire stock after the threshold level is reached. This is because the market price will now adjust more quickly to the changing circumstances compared to the past when the rules allowed for a later deadline.

Schedule 13G filers will need to make initial filings within the periods listed below:

• 5 business days after acquiring more than 5% of a covered class of securities, if the filer is a Passive Investor;
• 45 days after the end of a calendar quarter, if the filer is a Qualified Institutional Investor (QII) or an Exempt Investor, and their beneficial ownership exceeds 5% as of that quarter-end; or
• 5 business days after the end of a calendar month, if the filer is a QII, and their beneficial ownership exceeds 10% as of that month-end.

Schedule 13G filers will need to file amendments within 45 days after any calendar quarter in which a “material change” occurred.

Additionally, to ease filers’ administrative challenges resulting from these shortened deadlines, the amendments extend the filing “cut-off” times for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. ET.

Learn More: Table of Amended Reporting Deadlines

New XML Requirements and Other Changes

Among other things, the amendments updated the rules to specify that a group with reporting obligations under Sections 13(d) or 13(g) will be deemed to acquire any additional equity securities acquired by a member of the group after the group’s formation, while carving out intra-group transfers of equity securities.

The amendments also revised Item 6 of Schedule 13D to clarify that a person is required to disclose interests in all derivative securities (including cash-settled derivative securities) that use the company’s equity security as an underlying security.

The amendments will require all disclosures, including quantitative disclosures, textual narratives and identification checkboxes, on Schedules 13D and 13G to be filed using a machine readable, structured XML format. Only exhibits filed with a Schedule 13D or 13G can remain unstructured. XML compliance will be required beginning December 18, 2024, however early voluntary compliance will be permitted beginning December 18, 2023.

New Guidance for Determining Whether Cash-Settled Derivative Securities are Reportable

Historically, the standards for determining beneficial ownership focused on the voting and investment power of a security. Therefore, ownership of derivatives that entitled the holder to nothing more than the economic benefits attributable to the underlying securities was insufficient to create beneficial ownership under Section 13(d) of the Securities Exchange Act. 

Under the new guidance provided in the adopting release, while mere economic exposure continues to be insufficient to create beneficial ownership under Section 13(d) of the Securities Exchange Act, if any of the following bullets is true, then the holder of a non-security-based swap (SBS) cash-settled derivative will be deemed a beneficial owner of the underlying security and may have beneficial ownership reporting obligations:

• the holder has, directly or indirectly, voting or investment power over the underlying security through a contractual term of the derivative security or otherwise.
• the non-SBS cash-settled derivative security was acquired with the purpose or effect of divesting its holder of beneficial ownership of the underlying security or preventing the vesting of that beneficial ownership as a plan to evade the reporting requirements of Section 13(d) or 13(g).
• the holder has a right to acquire the beneficial ownership of the equity security within 60 days.
• the holder acquired the right to acquire beneficial ownership of the equity security with the purpose or effect of changing or influencing the control of the company of the security for which the right is exercisable, or in connection with or as a participant in any transaction having such purpose or effect, regardless of when the right is exercisable.

This new guidance is similar to guidance the SEC provided in 2011 regarding the applicability of the beneficial ownership rules to SBSs.

New Guidance on How Two or More Persons Can Be Considered a Group

Rule 13d-5(b)(1) states that when two or more people agree to act together to acquire, hold, vote and dispose of a company’s equity securities, those people are deemed to acquire beneficial ownership of such equity securities as one person, which is interpreted as forming a “group.” In its proposed rules, the SEC suggested, among other things, amending Rule 13d-5(b)(1) to remove any reference to an “agreement” to clarify that a “group” could be formed without  an express agreement. The adopting release moved away from amending the rule. Instead, the SEC provided new guidance on the application of the current legal standards, emphasizing that a “group” can be formed even if there is no express agreement between parties if they “act as” a group. Whether two or more persons “act as” a group will depend on a fact-and-circumstance test that determines if those persons acted together for the purpose of “acquiring,” “holding” or “disposing of” securities of a company. The new guidance also provides examples of activities, including common shareholder engagement actions among multiple shareholders, that would not solely constitute “acting as” a group.

Importantly, the new guidance provides that a “group” can exist when a beneficial owner of a substantial block of securities shares information about an upcoming Schedule 13D filing, to the extent this information is not yet public and communicated with the intent of causing others to make similar purchases, and a person subsequently purchases the same securities based on this information. In this situation, both parties will become a “group” which may trigger Schedule 13D filing obligations. This change has the potential to meaningfully impact “wolf pack activism” tactics.

Learn More

SEC news release
SEC fact sheet
SEC final rule

Table of Amended Reporting Deadlines

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If you have any questions regarding these rule amendments, please contact one of the authors or your regular Orrick contact.