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The SEC has adopted amendments to modernize the rules governing beneficial ownership reporting. Effective from early 2024, this brings significant amendments across filing deadlines, amendment obligations, disclosures and data.
Exchange Act Sections 13(d) and 13(g) have long required investors holding more than 5 percent of a covered class of equity securities to publicly file either a Schedule 13D or a Schedule 13G. However, these regulations have not been updated since 1968 and 1977, despite significant changes in financial markets and technology.
The amendments aim to modernize and streamline the reporting process while addressing the needs of today’s investors and market participants. They bring several key changes that will impact investment advisors.
Shortened filing deadlines
One of the most notable changes is the significant reduction in filing deadlines. For Schedule 13D filers, the initial filing deadline has been shortened from ten days to five business days. Amendments must now be filed within two business days.
For Schedule 13G filers, the changes vary depending on the category. Qualified institutional investors and exempt investors will see their initial filing deadline shortened from 45 days after the end of the calendar year to 45 days after the end of the calendar quarter in which they acquire more than 5 percent of the covered class. Passive investors will now have only five business days to make their initial filing.
Additionally, all Schedule 13G filers will have to file amendments 45 days after the calendar quarter in which a material change occurs, rather than the previous requirement of 45 days after the calendar year.
Increased amendment obligations
The amendments also introduce an acceleration of amendment obligations for qualified institutional investors and passive investors. When their beneficial ownership exceeds 10 percent or increases or decreases by 5 percent, they will now be required to file Schedule 13G amendments promptly.
Extended filing cut-off times
To alleviate administrative burdens resulting from shortened deadlines, the amendments extend the filing cut-off times in Regulation S-T for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. Eastern time. This extension provides filers with more time to complete their submissions on the same business day.
Clarity on derivative securities disclosure
The amendments also clarify the disclosure requirements regarding derivative securities. Item 6 of Schedule 13D has been revised to explicitly state that individuals must disclose interests in all derivative securities, including cash-settled derivative securities that use the issuer’s equity security as a reference security.
Structured, machine-readable data language
In an effort to enhance accessibility and analysis of disclosed information, the amendments require that all filings on Schedules 13D and 13G use a structured, machine-readable data language. This will make it easier for investors and markets to access, compile, and analyze this crucial information, ultimately promoting transparency and efficiency.
The SEC’s amendments to beneficial ownership reporting rules represent a significant modernization effort aimed at adapting to the evolving financial landscape and technological advancements. Investment advisors must stay well-informed about these changes to ensure compliance with the new filing deadlines and disclosure requirements. Additionally, they should consider leveraging structured, machine-readable data language to streamline their reporting processes and enhance transparency in the ever-changing investment landscape.
We can help
Our experts can support you to assess the impact of the changes to your compliance framework, ensuring policies, procedures and training are aligned to the new requirements ahead of the new year. Get in touch below if you’d like to discuss any areas further.
