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Business Law Today

October 2023

October 2023 in Brief: Securities Law

Alan J Wilson and Rani Doyle

October 2023 in Brief: Securities Law

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SEC Modernizes Beneficial Ownership Reporting

By: Katie Klaben and Kevin J. Campion, Sidley

On October 10, 2023, the U.S. Securities and Exchange Commission (SEC) adopted certain of its proposed changes to the rules governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (Exchange Act), and issued guidance in lieu of adopting certain other proposed rules. These amount to the most significant changes in beneficial ownership filing requirements in approximately the last fifty years.

Specifically, the adopted rule amendments make the following changes:

  • Shorten the deadlines for initial and amended Schedule 13D and 13G filings, as summarized in the table below.
    • Some notable departures from the proposed versions:
      • requiring 13D amendments to be filed within two business days, as is market standard (instead of one business day as proposed)
      • requiring the current “annual” 13G amendments to be filed within forty-five days of any quarter end (instead of within five business days of each month end as proposed)
  • Extend the filing deadline from 5:30 p.m. ET to 10 p.m. ET (the same deadline as for Section 16 filings).
  • Clarify that cash-settled derivative securities, including total return swaps, are required to be disclosed in Item 6 of Schedule 13D.
  • Impute acquisitions by group members to the group at any time after the group has been formed (excluding intragroup transfers of securities).
  • Require that Schedule 13D and 13G filings be made using a structured, machine-readable data language.

Separately, the SEC provided guidance in the Adopting Release on the applicability of existing beneficial ownership rules to the use of cash-settled derivatives and group formations in lieu of adopting the rules originally proposed. A more detailed summary of these and other provisions can be found in our full blog, dated October 11.

The amendments will be effective ninety days after publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required beginning on December 18, 2024.

Summary of Changes in the Schedule 13D and Schedule 13G Filing Requirements

Schedule 13D

  Current New
Initial Filing Deadline Within 10 days of surpassing 5% Within 5 business days of surpassing 5%
Amendment Triggering Event "Material” change No change proposed
Amendment Filing Deadline "Promptly” Within two business days


Schedule 13G for Qualified Institutional Investors (QIIs)

  Current Proposed
Initial Filing Deadline 45 days after year-end if >5% 45 days after quarter-end if >5%
Time-Based Amendments Annual amendments: due 45 days after year-end if any change (other than change in % solely due to change in shares outstanding) Quarterly amendments: due 45 days after quarter-end if material change (other than change in % solely due to change in shares outstanding)
Ownership-Based Amendments 10 days after month-end if >10%

Thereafter, 10 days after month-end if +/- 5% change in ownership
Five business days after month-end if >10%

Thereafter, five business days after month-end if +/- 5% change in ownership


Schedule 13G for Passive Investors 

  Current Proposed
Initial Filing Deadline Within 10 days of surpassing 5% Within 5 business days of surpassing 5%
Time-Based Amendments Annual amendments: due 45 days after year-end if any change (other than change in % solely due to change in shares outstanding) Quarterly amendments: due 45 days after quarter-end if material change (other than change in % solely due to change in shares outstanding)
Ownership-Based Amendments “Promptly” upon surpassing 10%

Thereafter, “promptly” upon +/- 5% change in ownership
Within two business days of surpassing 10%

Thereafter, within two business days of +/- 5% change in ownership


Schedule 13G for Exempt Investors

  Current Proposed
Initial Filing Deadline 45 days after year-end if >5% 45 days after quarter-end if >5%
Time-Based Amendments Annual amendments: due 45 days after year-end if any change (other than change in % solely due to change in shares outstanding) Quarterly amendments: due 45 days after quarter-end if material change (other than change in % solely due to change in shares outstanding)


The SEC’s adopting release is linked here.

Recent Pronouncements Highlight PCAOB Concerns

By Thomas W. White, Retired Partner, WilmerHale

Lately the Public Company Accounting Oversight Board has issued a number of staff communications expressing concerns about auditing issues and otherwise commenting on current trends and issues. These include:

  • 2022 Inspection Findings: In July the PCAOB issued a Staff Update and Preview of 2022 Inspection Observations. The staff’s principal observation was that the percentage of audits inspected by the PCAOB in which they found audit deficiencies is expected to rise to 40% in 2022, compared to 34% in 2021 and 29% in 2021. PCAOB Chair Erica Williams commented, “These findings are absolutely unacceptable, and audit firms must make changes to turn things around and live up to their responsibility to investors.”
  • Engagement Quality Reviews (EQR): In October, the PCAOB staff released a report on Inspection Observations Related to Engagement Quality Reviews (E QR) (sometimes referred to as “concurring partner” or “second partner” review). According to the Spotlight, the staff found a “troubling” trend of “high and increasing rates of audit deficiencies related to EQRs.” Among other statistics, the staff identified EQR criticisms in 42% of the audit firms it inspected in 2022, up from 37% in 2020. Similarly to her Inspection Preview comment, Chair Williams stated that EQR “are an important investor safeguard during the audit process. Unfortunately, audit firms are increasingly falling short when performing this function.”
  • Audit Committees: In September, the staff issued a report on 2022 Conversations with Audit Committee Chairs. The report addressed various topics, including staff turnover in the corporate accounting function and at audit firms; increased performance of audit work in remote and hybrid environments; the importance of early, ongoing, and proactive communications between auditor and audit committees; reporting of “critical audit matters” by auditors; and increasing questions to auditors about non-GAAP measures contained in public disclosures. For its part, in the above reports, the staff emphasized the potential role of audit committees in addressing the identified deficiencies and provided examples of questions committees might ask.

These reports, along with an active standard-setting agenda and stepped-up enforcement activity, are indicative of the PCAOB’s increasingly assertive use of its regulatory authority.

California Bill Will Require Diversity-Related Disclosures

By Niloofar Henzaki, Fox Rothschild LLP

On October 8, 2023, California Governor Gavin Newsom signed into law Senate Bill 54 (“Bill”), the country’s first legislation that aims to increase diversity in venture capital. The Bill requires that effective as of March 1, 2025, “covered entities,” including venture capital funds with a nexus to California, must report to the California Civil Rights Department (CRD) on the diversity of the “founding team members” in which they invest.

The Bill was passed to increase transparency in the venture capital industry and tackle the ongoing issue of underrepresentation of certain ethnicities, races, genders, and disability statuses in the venture capital industry. The Bill applies to venture capital companies (who either engage in the business of investing in or providing financing to startup or emerging growth companies, or manage investments for other companies) that satisfy at least one of the following criteria: (i) that are headquartered in California; (ii) that have significant presence or operational offices in California; (iii) make venture capital investments in businesses that are located in, or have significant operations in, California; or (iv) solicit or receive investments from a person who is a resident of California.

Starting on January 1, 2024, each “covered entity” is required to send a standard survey to each portfolio company to request demographic information in respect of the gender identity, race, ethnic identity, disability and veteran status, and sexual orientation of the portfolio company’s “founding team members.” Founding team member is defined as either the officers of the company in management positions or any person who (i) owned initial shares of the business, (ii) contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued; and (iii) was not a passive investor in the business.

Founding team members may decline to participate in the survey. Covered entities must report survey results in a manner such that outside parties cannot associate the survey response data with individual founding team members, and the covered entity must preserve data for at least four years after the report is delivered.

The first report will be due on March 1, 2025, and covered entities will need to collect the required information for investments made during calendar year 2024 to meet the March deadline. Additional guidance and clarification from the CRD and Governor Newsom’s office is expected, and there is some uncertainty about if and when the law will ultimately be implemented.

SEC Adopts Rule 13f-2 Short Selling Rule Requiring Disclosure Enhancements

By Beau Raymond-Iaquinto, J.D. Candidate 2024, St. Thomas Law

On October 13, 2023, the SEC adopted Rule 13f-2, which requires “institutional investment managers” to report information about certain short sales of “equity securities” via Form SHO to the SEC on a monthly basis.

The SEC established a threshold requirement for this filing, which is calculated on a security-by-security basis. It includes: For equity securities of SEC-reporting company issuers, (1) a monthly average gross short position with a USD value of $10 million or more at the close of regular trading hours during the calendar month; or (2) a monthly average gross short position equal to 2.5% or more of the shares outstanding. For non-reporting company issuers, a gross short position USD value of $500,000 or more at the close of any settlement date during the calendar month. Even if the Section 13(f) securities do not exceed the reporting thresholds, institutional investment managers will need to file Form SHO with the SEC.

The equity securities under Rule 13f-2 are broadly defined and address securities issued by both private and public companies, along with privately held companies and equity securities issued by companies that are only traded outside the United States. This definition exceeds the scope of “Section 13(f) securities” when calculating whether the reporting thresholds are met. Importantly, the threshold seems to apply to securities of non-reporting companies that are listed on exchanges outside the United States.

Rule 13f-2 becomes effective sixty days following the date of publication of the adopting release in the Federal Register, and the compliance date for Rule 13f-2 and Form SHO will be twelve months after the effective date of the adopting release. The compliance date for the amendment to the National Market System Plan Governing the Consolidated Audit Trail (CAT NMS Plan) is eighteen months after this effective date. Depending on when the final rules are published, investors will need to start complying with this Rule and Form SHO in late 2024 or early 2025.

SEC Adopts Rule 10c-1a to Enhance Transparency and Efficiency in the Securities Lending Market

By Tylandra Callands, J.D. Candidate 2024, Mitchell Hamline School of Law

Why This Matters: The SEC adopted the new Rule 10c-1a to address concerns that the securities lending market lacks transparency due to the absence of reporting requirements for material terms of transactions. This opacity creates inefficiencies and makes it challenging for borrowers and lenders to determine if their loan terms align with market conditions. Rule 10c-1a addresses this issue by providing market participants timely access to pricing and other crucial information related to securities lending transactions. Additionally, it equips regulators with essential data for market oversight.

How the Rules Apply: Rule 10c-1a applies to “covered persons” in “covered securities loans.” Covered persons include those agreeing to covered securities loans on behalf of the lender (except clearing agencies providing central counterparty or central securities depository functions), lenders without intermediaries, and brokers or dealers borrowing fully paid or excess margin securities. A covered securities loan involves lending a “reportable security” from one party to another, with certain exclusions.

What’s Required: Under Rule 10c-1a, covered persons must report specific information to a registered national securities association (RNSA). This information includes the issuer’s legal name, ticker symbol of the securities, loan date and time, platform or venue (if used), loaned securities amount, loan terms (rates, fees, charges, rebates), collateral details, termination date, and borrower type. Certain loan terms will remain confidential. Each loan will receive a unique identifier for tracking.

Publication and Timing: Rule 10c-1a mandates that covered persons report information to an RNSA on the same day the loan is executed or modified. RNSAs must make certain information publicly available by the morning of the next business day. However, the amount of individual loans will be published with a delay. Aggregate transaction data and loan rate distribution for each security will also be made public.

What’s Next: Rule 10c-1a is set to become effective sixty days after publication in the Federal Register. Compliance timelines include RNSAs proposing implementing rules within four months of the effective date, covered persons starting to report required information twenty-four months after the effective date, and RNSAs making specified information publicly available within ninety calendar days of the reporting start date. The SEC’s Fact Sheet for the rule is linked here.