On October 10, 2023, the U.S. Securities and Exchange Commission adopted a final rule updating its beneficial ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934.

The final rule shortens the timeline for Schedule 13D initial filings from 10 calendar days to 5 business days. SEC Chair Gensler cited “information asymmetry” as the reason to shorten this time frame in cases where there is intent to control, but Peirce’s dissent points out the negative impact of this reduced timeline on “someone who has worked hard to identify a mismanaged company and develop a strategy for improving it from getting adequately compensated for that work and the associated risk.”  Amendments to Schedule 13D will now have to be filed within two business days.

The final rule also shortens the deadline for 13G initial filings and amendments depending on the type of filer. Qualified Institutional Investors (“QIIs”) and exempt investors will now have to meet the following new deadlines: initial 13G filings within 45 days after the end of the quarter when they exceeded the 5% threshold and any time-based amendments must be filed within 45 days after the quarter-end in which a material change occurred (excluding changes solely due to number of shares outstanding). QII’s must also file within five business days after the end of the month in which beneficial ownership exceeds 10% or if a QII has a 5% increase or decrease in beneficial ownership.

Passive investors must make a 13G filing within five business days after exceeding the 5% beneficial interest threshold and within two days after exceeding the 10% beneficial interest threshold or increasing or decreasing their beneficial ownership by five percent.

The final rule increases the filing cut-off time from 5:30 PM to 10:00 PM for all files, and it also requires that Schedule 13D and 13G filings be made using structured, machine-readable data language.

The final adopted amendments will become effective 90 days after publication in the Federal Register. Compliance with Schedule 13G filing deadlines begins on Sept. 30, 2024, but compliance with the structured data requirements for Schedules 13D and 13G will be required on Dec. 18, 2024.  Compliance with all other amendments will begin upon the effective date.

The final rule extends existing guidance on how securities-based swaps may confer beneficial interest to other cash-settled derivatives, i.e., if it confers voting or investment power over the reference securities or the right to acquire that power (within 60 days if passive, or at any time if not passive)—or if the instrument is used with the intent to avoid reporting requirements.

The final rule also clarifies that concerted action by two or more persons are required for them to be considered part of a group. While an express agreement is not required, the rule requires a “facts and circumstances” approach to be taken to determine if a group was formed. After the formation of a group, all investments of group members are added together to determine whether the reporting threshold has been reached.

Please see below for a more detailed summary. AIMA is hosting a webinar on Thursday, November 2 at 11am EST to discuss the implications and potential challenges in complying with this new rule.

For more details, please see the text of the Final Rule and the accompanying Fact Sheet.

Please contact Daniel Austin or Joe Engelhard with any questions regarding this proposal.

• 

  Daniel Austin

  Head of U.S. Markets Policy and Regulation

• 

  Joe Engelhard

  Head of US Private Credit and Asset Management Policy & Regulation