SEC Proposes Modernization of Beneficial Ownership Reporting: Amendments to Schedules 13D and 13G
By Anna T. Pinedo, Mayer Brown
On February 10, 2022, the Securities and Exchange Commission (SEC) proposed amendments to Schedules 13D and 13G relating to beneficial ownership reports. Section 13D requires disclosure by investors of the accumulation of significant positions in, or of certain increases in such positions in, the equity securities of public companies. Section 13G requires disclosures by certain passive or institutional investors that obtain a significant percentage of stock in a public company. The proposed amendments are intended to modernize Sections 13D and 13G by, among other things, making information available to the public in a more timely manner, deeming holders of certain cash-settled derivative securities beneficial owners of the reference equity securities, and clarifying the disclosure requirements in respect of derivative securities.
Since the Dodd-Frank Act provided the SEC with the authority to adopt rules to shorten the ten-day filing period for Schedule 13D and Schedule 13G filings, there has been discussion regarding whether the current time periods for reporting needed to be shortened. The Brokaw Act, originally introduced in the Senate in 2016, would have amended Sections 13(d) and (g) in certain respects and also would have directed the SEC to shorten the reporting period. While the proposed legislation ignited a lot of debate, it led to no action. SEC Chair Gary Gensler took up this issue, asserting that the delays in filing Schedules 13D and 13G resulted in information asymmetries.
The proposed amendments would require that Schedules 13D and 13G be filed using a structured, machine-readable data language. This would require that all disclosures be filed with XML-based language for ease of investor access. The SEC also is proposing changes to multiple filing deadlines for Schedules 13D and 13G, including, for example amending Rule 13d-1(a) regarding beneficial ownership, such that an investor that exceeds 5% of a covered class of equity would need to file within five days instead of ten days. Similar amendments would be made shortening the reporting periods in respect of 13G filing requirements. Proposed Rule 13d-3(e)(1) would provide that a holder of certain cash-settled derivative securities will be deemed a beneficial owner of the reference securities in a covered class if such person holds the derivative security with the purpose or effect of changing or influencing the control of the issuer of such class of equity securities, or in connection with or as a participant in any transaction having such purpose or effect. The SEC is also proposing a series of amendments to Rule 13d-5 to clarify and affirm its application to two or more persons who “act as” as a group under Exchange Act Sections 13(d)(3) and (g)(3).