On Oct. 10, 2023, the Securities and Exchange Commission (SEC) adopted amendments to Regulation 13D-G, which governs the reporting of beneficial ownership in publicly traded companies, as well as certain facilitating amendments to Regulation S-T, which governs filings on the SEC’s EDGAR database system. In brief, the amendments:

• Shorten the deadlines by which certain investors must make required filings and amendments;
• Extend the daily hours during which investors are able to make such filings;
• Confirm that reporting persons must include derivative securities that use the issuer’s equity securities as a reference security; and
• Require that reporting persons make the required filings using an XML-based language (i.e., a structured, machine-readable language).

Practically speaking, Taft expects the amendments to:

• Require investors and their counsel to improve their controls and procedures for identifying and reporting transactions that trigger Schedule 13D/G filings and amendments;
• Provide issuers and the investing public with more timely, easier to process, information about the issuer’s investors and their intentions; and
• Possibly, limit the size of the positions in issuer securities that unsolicited acquirers and activists can acquire before disclosure of their activities affects the price of such securities.

Regulation 13D-G requires that a person must file a “beneficial ownership report” on Schedule 13D or Schedule 13G once they become the beneficial owner of more than five percent of a class of equity securities that is registered under the Securities Exchange Act of 1934. The default requirement is for an investor to file Schedule 13D, but passive and institutional investors that meet certain criteria may file the shorter Schedule 13G instead.

Under the old rules, if a person required to file Schedule 13D acquired beneficial ownership of more than five percent of a covered class of securities, that person would have to file Schedule 13D within 10 days of acquiring such ownership. Under the new rules, a person required to file Schedule 13D must file within five days of crossing the five percent threshold. Likewise, the prior rules required reporting persons to amend existing Schedules 13D “promptly” after a material change to the reported information, including the acquisition or disposition of one percent of the affected class of securities or a change in the filing person’s intentions toward the issuer. Many filers and their counsel interpreted “promptly” rather more liberally than the SEC likely intended, and, accordingly, the revised rule imposes a bright-line deadline, requiring amendments to be filed within two business days.

Deadlines for initial filings and amendments for Schedule 13G filers have been tightened in significant ways, by, among other things, requiring that many filings and amendments now be made following the end of each calendar quarter, rather than following the end of the calendar year. Most importantly, the new rules require Qualified Institutional Investors and Exempt Investors who reach the five percent ownership threshold to make their initial filings within 45 calendar days of the end of the quarter in which they reach the threshold, rather than following the end of the calendar year. Similarly, Passive Investors who cross the five percent beneficial ownership threshold now have five business days, rather than the previous 10 days, to file. All categories of 13G-eligible filers are now required to file amendments to their Schedules 13G following the quarter end, rather than the year end, and the reporting deadlines for all categories of 13G-eligible filers who cross the 10 percent beneficial ownership threshold have also been tightened.

To facilitate filing under the tighter deadlines, the SEC has extended the “cut-off” time within a day before which a filing is deemed to be made on that day. Under the old rules, the cut-off time for filing was 5:30 p.m. Eastern time. The new rules have extended this cut-off time until 10:00 p.m. Eastern time. Thus, though investors have a shorter deadline to file their Schedules 13D or 13G, they have more time within a given day to complete their filing.

Finally, the updated rules deem holders of certain cash-settled derivative securities to be beneficial owners of the covered class of securities to which the derivatives are related.

Practically speaking, these rule changes will require investors and their counsel to improve their controls and procedures for identifying and reporting transactions that trigger Schedule 13D/G filings and amendments, and filers who do not already make quarterly reports under other regimes — for example, large trader reports on Form 13H — will have to establish new quarter-end reporting processes. Issuers and the investing public will certainly benefit by getting information that is more timely and, to some degree, more robust about who holds the issuer’s shares and what they intend to do with them. It is also possible that the new rules will, at least at the margin, limit the ability of activists and unsolicited acquirers to amass large positions in an issuer’s stock before their intentions are known. While such a result would benefit ordinary investors, by making these actors pay a fair price for the shares they acquire, it is hard to imagine that the effect will be ultimately significant: these actors and their lawyers will inevitably find new ways to keep their acquisitions in the shadows as long as they can.