SEC Modernizes Beneficial Ownership Reporting Rules: Key Changes and Implications for Market Participants
October 25, 2023
The Securities and Exchange Commission (SEC) has recently finalized rules aimed at modernizing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. These rules, departing significantly from the initially proposed ones, impact Schedule 13D and Schedule 13G filings, which notify market participants of significant acquisitions or potential control changes in reporting companies, according to Thompson Coburn LLP.
One notable change involves revised filing deadlines, with the initial Schedule 13D due in five business days after acquiring more than five percent of a Covered Class, down from the previous ten days. Qualified Institutional Investors (QIIs) and Exempt Investors will now file the initial Schedule 13G 45 days after the end of the calendar quarter when beneficial ownership exceeds five percent. Amendments to Schedule 13D are now due within two business days of a material change, and Schedule 13G amendments have a 45-day deadline after a reportable change.
The SEC also provided guidance on group formation, emphasizing that the determination of a group depends on a comprehensive analysis of relevant facts and circumstances. The Final Rules recognize various situations where a Section 13(d) group would not be formed, such as communications between shareholders on improving a company’s long-term performance or jointly submitting non-binding shareholder proposals.
Effective dates for the Final Rules vary, with compliance on revised Schedule 13G filing deadlines starting on September 30, 2024. The structured data requirement for Schedules 13D and 13G will be required starting December 18, 2024.
Market participants are expected to benefit from increased information symmetry between issuers and investors. However, the shortened filing deadlines may increase the burdens of beneficial ownership reporting, requiring investors to adopt best practices to ensure compliance. The changes align with technological advancements and developments in financial markets, addressing issues such as reduced settling times of equity transactions.
These new rules reflect a significant overhaul of beneficial ownership reporting, introducing changes in filing deadlines and providing guidance on group formation, with implications for market participants in terms of compliance and information flow.
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