SEC Shortens Beneficial Ownership Reporting Period; Backs Off Other Proposals

The SEC amended rules on the filing of certain beneficial ownership reports and provided guidance on (i) disclosure requirements with respect to derivative securities and (ii) the legal standards applicable to certain common types of shareholder engagement activities.

Amendments to the beneficial ownership requirements were originally proposed in February 2022. In May, the SEC extended the original comment period and provided a a supplemental analysis on the proposal's economic impact (see here).

As adopted, the amendments shorten the reporting periods under Exchange Act Sections 13(d) ("Reports by Persons Acquiring More Than Five per Centum of Certain Classes of Securities") and 13(g) ("Statement of Equity Security Ownership") as follows:

• in the case of Schedule 13D filings, from ten days to five business days;
• for Schedule 13G filers that are qualified institutional investors or exempt investors making an initial filing, from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which the investor owns more than 5% of the covered class;
• for Schedule 13G filers that are passive investors making an initial filing, from ten days to five business days; and
• for Schedule 13G investors making an amending filing, 45 days after the end of the relevant calendar quarter.

The SEC decided not to expand the definition of "acting in concert" under Section 13(d) or to expand the circumstances in which a cash-settled derivative on a security would have been treated as ownership of the security for purposes of Section 13(d). The SEC described a variety of situations in which investors might be deemed or not to be acting in concert (at pp. 133-9). The SEC made clear that entities otherwise required to report their ownership positions because of their cash market holdings were also required to report their derivative positions.

Statements

Chair Gary Gensler stated that the rule amendments will "reduce[] information asymmetries."

Commissioner Mark T. Uyeda supported the amendments, stating they "are appropriate in light of advances in the communications and technology used by market professionals since those timeframes were first established in 1968, while at the same time recognizing the importance of shareholder activism."

In dissent, Commissioner Hester M. Peirce asserted that there were no reasons to change the existing reporting periods. She also argued that there was nothing inherently wrong with information asymmetries that result from investors doing research on companies and determining that they are undervalued. In fact, she said, the economy benefits from these efforts and the investors who do the work are entitled to be rewarded for their efforts.