Amendments to Beneficial Ownership Reporting: Enhancing Disclosure and Timeliness
The SEC has recently announced groundbreaking rule amendments designed to revamp beneficial ownership reporting. These amendments, operating under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, mark a pivotal shift in the disclosure requirements for market participants. The primary objective is to cater to the dynamic needs of today’s financial landscape by providing more immediate and pertinent information on their positions.
The Significance of Timely Reporting in Modern Markets
Chair Gary Gensler, leading the SEC, emphasized the urgency for an update, stating, “Today’s adoption updates rules that first went into effect more than 50 years ago. Frankly, these deadlines from half a century ago feel antiquated.” Gensler underscores the necessity for a faster flow of information within our swiftly evolving markets. The adoption of these amendments aims to address this urgency, ensuring that investors receive material information promptly while reducing information asymmetries.
Understanding Sections 13(d) and 13(g) and the Updated Requirements
The Exchange Act Sections 13(d) and 13(g), alongside Regulation 13D-G, mandate that investors owning more than 5 percent of a covered class of equity securities must file either a Schedule 13D or a Schedule 13G, depending on their intent and control over the securities. Specifically, investors with a control intent file Schedule 13D, while Exempt Investors and those lacking control intent, such as Qualified Institutional Investors and Passive Investors, file Schedule 13G.
The recent amendments introduce several crucial changes:
- Shortening the initial Schedule 13D filing deadline from 10 days to five business days
- Mandating that Schedule 13D amendments be filed within two business days
- Accelerating the filing deadlines for Schedule 13G beneficial ownership reports (varying based on the filer type)
- Clarifying Schedule 13D disclosure requirements related to derivative securities
- Requiring the use of a structured, machine-readable data language for Schedule 13D and 13G filings
Further Clarity and Guidance on Ownership Determination
The adopting release offers additional guidance on the legal standards for defining a group of individuals, particularly in meeting beneficial ownership thresholds. Moreover, it illuminates how an investor’s utilization of specific cash-settled derivative securities might classify them as a beneficial owner of the reference equity securities.
Publication and Compliance Timeline
The adopting release is available on SEC.gov and is set to be published in the Federal Register. The amendments will become effective 90 days after their publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines is mandatory from Sept. 30, 2024. Additionally, compliance with the structured data requirement for Schedules 13D and 13G becomes mandatory on Dec. 18, 2024. Compliance with the other rule amendments will be required upon their effectiveness.
The SEC’s amendments signify a pivotal leap toward more efficient and timely disclosure, aligning the reporting requirements with the fast-paced dynamics of today’s financial markets. These changes promise a more transparent, informed, and streamlined landscape for investors and market participants.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.