SEC Proposed Rule: Modernization of Beneficial Ownership Reporting

Earlier this year, the U.S. Securities and Exchange Commission (SEC) proposed amendments to certain rules governing beneficial ownership reporting. The proposed amendments would modernize the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G. This would be the first major update to this reporting since November 2021.

What this Means: Faster, Reduced Timelines
The intention of this modernization is to help make information available to the public in a timely manner. If adopted, according to the SEC, the new rule amendments would shorten filing deadlines for initial and amended Schedules 13D and 13G significantly.

The current reporting structure allows for beneficial owners to file a Schedule 13D within 10 days after acquiring more than 5% of a class of registered voting equity securities and must “promptly” thereafter file an amendment to report any material changes.

Under the SEC’s proposed rules, the initial deadline for Schedule 13D filings will be cut to five days and require amendments to be filed within one business day of any material change in previously reported beneficial ownership.

The proposal also shortens the deadlines for initial and amended filings by beneficial owners who are eligible to file the more abbreviated Schedule 13G. The current deadlines for Schedule 13G depends on whether a person files as a qualified institutional investor (pursuant to Rule 13d-1(b)), passive investor (pursuant to Rule 13d-1(c)) or exempt investor (pursuant to Rule 13d-1(d)).

Proposed Schedule: At a Glance

• Schedule 13D. The Proposal requires Schedule 13D amendments to be filed one business day following a material change (in place of the current “prompt” requirement).
• Schedule 13G. The Proposal requires amendments to Schedule 13G filings within 5 business days after the month-end of a material change (in place of the current 45 days after year-end if there is any change in the reported information). The Proposal also shortens the amendment requirement for exceeding 10% beneficial ownership and thereafter, increasing or decreasing beneficial ownership by more than 5%, from the current 10 days after month-end to 5 days after crossing the relevant threshold for institutional investors and one business day for passive investors (in place of the current “prompt” requirement).
• Filing Day Deadline: The Proposal extends the deadline for filings from the current 5:30 p.m. eastern time to 10 p.m. eastern time.

Other proposed amendments would impact holders of certain cash-settled derivative securities who are “deemed” beneficial owners of the reference equity securities and would clarify the circumstances under which two or more individuals have formed a “group.” This impacts aggregation functions across entities within groups and more calculations to determine positions to be reported.

The proposed amendments also require that Schedules 13D and 13G be filed using a structured, machine-readable data language, like XML, HTML and Inline XBRL. This will allow for organizations and the SEC to access and analyze information more easily.

According to SEC Chairman Gary Gensler, these amendments could “reduce information asymmetries and promote transparency, thereby lowering risk and illiquidity.” 

The proposal is part of the SEC’s ongoing modernization effort, which we first reported on last year. The comprehensive initiative, with its proposed reduced timelines and requirement for machine-readable files, is prompting companies to modernize and automate their shareholding disclosure process to meet new requirements.

While the proposed schedule is being finalized and in review, DFIN will continue to watch the approaching deadlines and keep you apprised of the latest news and outcomes. Watch this space.