On February 10, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed amendments to expedite the filing deadlines for Schedules 13D and 13G beneficial ownership reports, expand ownership reporting requirements to include the acquisition of certain derivative securities and to clarify the standards for forming a group that would be subject to beneficial ownership reporting requirements. The proposed changes are intended to provide more timely information to meet the needs of today’s financial markets. SEC Chairman Gary Gensler said, “These changes would update our reporting requirements for modern markets, reduce information asymmetries, and address the timeliness of Schedule 13D and Schedule 13G filings. Investors can currently withhold information on market developments from other shareholders for 10 days after crossing the 5% threshold before filing an Schedule 13D, which creates an information asymmetry between these investors and other shareholders. . Filing Schedule 13D can have a significant impact on a company’s share price, so it’s important that shareholders get this information sooner.

context

Pursuant to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an investor who acquires beneficial ownership of more than 5% of a class of securities of equity interests registered under Section 12 of the Exchange Act (referred to as a “covered class”) must publicly disclose such beneficial ownership by filing a Schedule 13D or Schedule 13G with the SEC. Section 13(d) of the Exchange Act requires disclosure by investors of the accumulation of large positions or increases in such positions with respect to voting shares of public companies, while the Section 13(g) of the Exchange Act permits disclosure in abbreviated form by investors who hold/obtain significant positions in voting shares of public companies. This information is intended to provide transparency to the company, its shareholders and the market generally about significant holdings in reporting companies and the intentions of the acquirer, including the possibility of a change of control.

Proposed changes

• Filing deadlines.

  • Annex 13D.

    • Initial deposits. The SEC’s proposed changes would shorten the time to file an initial Schedule 13D from ten days to five days after crossing the 5% threshold or otherwise losing eligibility to file on Schedule 13G.

    • Amendments. Pursuant to the SEC’s proposed amendments, if a material change occurs in an investor’s holdings or status from that disclosed in its Schedule 13D, that investor would be required to file an amended Form 13D within one business day (compared to the current rule of filing such an amendment “without delay”).

  • Annex 13G.

    • Initial deposits. For Schedule 13G filers who qualify as Qualified Institutional Investors (“QII”)^[1]or exempt investors^[2], the proposed amendments would shorten the initial filing period from 45 days after the end of the year to five business days after the end of the month in which the beneficial ownership of the investor first exceeds 5% of the target class of equity securities. For other Schedule 13G filers considered passive investors, the proposed amendments would shorten the initial filing period from ten days after crossing the 5% threshold to five days.

    • Amendments. The SEC’s proposed changes would shorten the period from 45 days after the end of the year in which a change occurred to five business days after the end of the month in which a material change occurred. For QIIs, the proposed changes would shorten the time period to ten days after the end of the month in which beneficial ownership exceeded 10% or there was, at the end of the month, a 5% increase or decrease in beneficial ownership on the date five days after ownership exceeds 10% or there has been a 5% increase or decrease in beneficial ownership. Finally, with respect to passive investors, the proposed amendments would change the timeframe from “promptly” to one business day after beneficial ownership exceeds 10% or there has been a 5% increase or decrease in beneficial ownership.

• Amendment Trigger Events. Instead of amending an appendix 13G if there is a change in previously reported information, the proposed amendments would revise rule 13d-2(b) to require filers to amend an appendix 13G only if a material change in previously reported information occurs. .

• Filing deadline. The proposed changes would extend the filing deadlines for Schedule 13 filings from 5:30 p.m. ET to 10 p.m. ET on a business day.

• Derivative securities. The proposed amendments would consider certain holders of cash-settled derivative securities (as defined in Rule 16a-1(c) of the Exchange Act), other than a securities swap (as defined in Section 3(a) (68) of the Exchange Act), a beneficial owner of the reference equity securities if the derivative is held (i) for the purpose or for the effect of changing or influencing the control of the issuer of the reference securities or (ii) in connection with or as a participant in any transaction having such an object or effect, which would cause such derivatives position to be subject to the reporting thresholds in Section 13(d). The Proposed Amendments would also amend Item 6 of Schedule 13D to clarify that a person is required to disclose their interests in all derivative securities, including cash-settled derivative securities, that use the equity security of the issuer as a reference.

• Group training and related exemptions. The proposed amendments clarify the circumstances in which two or more persons form/act as a group under Sections 13(d) and (g) of the Exchanges Act removing any requirement for an agreement between two or more persons to form a group as long as the persons act as a group for the purpose of acquiring, holding or disposing of securities of an issuer. In addition, under proposed amendments, in order to enhance investor confidence and promote accurate price discovery in financial markets, if a person discloses information about an upcoming Schedule 13D filing, to the extent that such information are not yet public, to any other person with the aim of inducing this other person to acquire securities of the issuer on the basis of this information, these persons will be deemed to have formed a group.

• XML-based language. The proposed amendments would require that all information disclosed on schedules 13D and 13G be filed in a structured, machine-readable data language.

Comment period

The comment period for the proposed rule changes will remain open until no later than April 11, 2022 or 30 days after publication in the Federal Register.

FOOTNOTES

^[1] “Institutional investors qualified to report on Schedule 13G, instead of Schedule 13D and based on Rule 13d-1(b), include a broker or dealer registered under Section 15(b) ) of the Exchange Act, a bank as defined in Section 3(a)(6) of the Exchange Act, an insurance company as defined in Section 3(a)(19) of the Exchange Act, an investment company registered under Section 8 of the Investment Company Act 1940, an investment adviser registered under Section 203 of the Investment Advisers Act 1940, a parent holding company or a control person (if certain conditions are met), a benefit plan or a pension fund subject to the provisions of the Employee Retirement Income Security Act of 1974, a savings association as defined in section 3(b) of the Federal Deposit Insurance Act, a church plan that is excluded from the definition of a corporation investment under section 3(c)(14) of the Investment Companies Act of 1940, non-US institutions which are the functional equivalent t of any of the institutions listed in the rules 13d-1(b)(1)(ii)(A)-(I), so long as the non-US institution is subject to a regulatory regime that is substantially comparable to the regulatory regime applicable to the institution U.S. equivalent, as well as holding companies and related groups (collectively, “Qualified Institutional Investors” or “QIIs”)”.

^[2] “Exempt Investor” means persons having beneficial ownership of more than 5% of a Covered Class at the end of the calendar year, but who have not acquired beneficial ownership subject to Article 13(d).