Schedule 13D
A person or group of persons that acquires beneficial ownership of more than 5% of a covered class of equity securities must report that acquisition on an initial Schedule 13D. An initial Schedule 13D must also be filed by persons or groups that previously reported their ownership on Schedule 13G but subsequently become ineligible to use Schedule 13G, for example because they originally qualified as “passive investors” without control intent but later hold the securities with the purpose or effect of changing or influencing the control of the issuer.
Under the prior rule, new 13D filers, including those who previously filed a Schedule 13G, were required to file their initial Schedule 13D within ten days after acquiring beneficial ownership of greater than 5% of a covered class of equity securities or losing 13G eligibility. Under the new rule, the 10-day deadline has been shortened to five business days.
In addition, the SEC revised the deadline to file amendments to Schedule 13D to within two business days of the triggering event. Previously, any amendment to Schedule 13D, whether triggered as a result of an acquisition or disposition of securities or due to a material change in the facts set forth in a prior Schedule 13D, was required to be filed “promptly.” The SEC noted that specifying a deadline for Schedule 13D amendments is intended to remove any uncertainty as to the date a filing is due and to ensure consistency and uniformity in filings.
Schedule 13G
Passive investors
Any person who would otherwise be required to file a Schedule 13D may instead file a “short-form” beneficial ownership statement on Schedule 13G if that person: (1) has not acquired the securities with the purpose or effect of changing or influencing the control of the issuer; (2) is not a qualified institutional investor (as described below); and (3) is not, either directly or indirectly, a beneficial owner of 20% or more of the class of securities that is the subject of the Schedule 13G filing.
Under the prior rule, these “passive investors” were required to file an initial Schedule 13G within ten days after crossing the 5% beneficial ownership threshold. Under the new rule, the SEC has accelerated this deadline to five business days.
Additionally, the SEC clarified the circumstances under which a passive investor is required to file an amendment to Schedule 13G. Passive investors were required to file an amendment upon the occurrence of “any change” in the facts previously reported in a Schedule 13G. Under the new rule, the SEC clarified that Schedule 13G now must be amended in the case of a “material” change in the facts previously reported, thus aligning the amendment triggers for Schedules 13D and 13G.
In addition to clarifying the circumstances under which an amendment to a Schedule 13G must be filed, the SEC also accelerated the corresponding filing deadline. Under the prior rule, amendments generally needed to be filed no later than 45 days after the end of the calendar year in which the triggering event occurred, and under the new rule amendments must now be filed within 45 days after the end of the calendar quarter in which the triggering event occurs.
Furthermore, under the prior rule, passive investors were required to file an amendment to Schedule 13G “promptly” upon exceeding 10% beneficial ownership of a covered class of securities or experiencing a 5% increase or decrease in beneficial ownership. Under the new rule, the SEC clarified that the deadline for a passive investor to file an amended Schedule 13G is two business days following the date their beneficial ownership exceeds 10% or they experience a 5% increase or decrease in beneficial ownership.
Exempt investors
A person who qualifies as an “exempt investor” may file a Schedule 13G instead of a Schedule 13D. To qualify as an exempt investor, a person must not have made an acquisition subject to Section 13(d) of the Exchange Act. Exempt investors generally include persons that acquired all (or substantially all) of their covered securities prior to the issuer going public (i.e., registering the subject securities under the Exchange Act, whether in connection with an IPO, spin-off or other transaction) and persons that acquire no more than 2% of a class of covered securities within a 12‐month period.
Under the new rule, the SEC shortened the deadline to file an initial Schedule 13G from 45 days after the end of the calendar year to 45 days after the end of the calendar quarter, in each case in which beneficial ownership first exceeds 5%.
Additionally, the SEC applied the same materiality-based clarification for amendments and 45-dayfollowing- calendar-quarter-end deadline for amendments to Schedule 13G to exempt investors as applied to passive investors.
Qualified institutional investors
A person may file a Schedule 13G if that person meets the so called “qualified institutional investor” definition by: (1) acquiring the securities in the ordinary course of business and not with the purpose or effect of changing or influencing the control of the issuer; (2) promptly notifying any other person (or group) on whose behalf it holds securities exceeding 5% of the class of equity securities of any acquisition or transaction on behalf of that other person that might be reportable by that person under Section 13(d); and (3) being an institutional investor, such as a broker-dealer, a bank, an insurance company, a qualified employee benefit plan or pension fund or a registered investment company or investment advisor.
Under the prior rule, qualified institutional investors who beneficially owned more than 5% but not more than 10% of a covered class of securities were required to file an initial Schedule 13G no later than 45 days after the end of the calendar year, and qualified institutional investors who beneficially owned a stake greater than 10% of a covered class of securities were required to file an initial Schedule 13G within ten days after the end of the month, in each case, in which the applicable beneficial ownership threshold was crossed.
Under the new rule, a qualified institutional investor who beneficially owns more than 5% but not more than 10% of a covered class of securities must file an initial Schedule 13G no later than 45 days after the end of the calendar quarter in which the beneficial ownership threshold was crossed. For qualified institutional investors who beneficially own a stake greater than 10% of a covered class of securities, the deadline was accelerated to five business days following the end of the month in which the 10% threshold was crossed.
Additionally, the SEC applied the same materiality-based clarification for amendments and 45-dayfollowing-calendar-quarter-end deadline for amendments to Schedule 13G to qualified institutional investors as described above with respect to passive investors and exempt investors.
Furthermore, for qualified institutional investors whose beneficial ownership exceeds 10% or who experience a greater than 5% increase or decrease in beneficial ownership, an amendment to Schedule 13G must now be filed within five business days after the end of the month in which the triggering event occurs. Under the prior rule, the deadline was ten days following the end of the month in which the triggering event occurred.
Filing cut‑off time
To relieve the burden placed on filers by the newly accelerated filing deadlines for Schedules 13D and 13G, the SEC extended the cut-off time by which filers must make submissions to the SEC’s EDGAR electronic filing system. Filers were previously required to commence transmission no later than 5:30 p.m. Eastern time in order to obtain a same-day filing date. The new rules extend this filing cut-off to 10:00 p.m. Eastern time, aligning the cut-off time for Section 13 filings with the cut-off for filings made under Section 16 of the Exchange Act and Rule 144.
Treatment of cash‑settled derivatives
Disclosure of cash‑settled derivatives in Schedule 13D
The prior rule required 13D filers to disclose, in Item 6 of Schedule 13D, any contracts, arrangements, understandings or relationships with respect to any securities of the issuer, and included a non-exhaustive list of types of disclosable contracts that mentioned puts and calls (among other contract types) but did not expressly refer to security-based swaps or other derivatives that used the issuer’s securities as reference securities.
The final rule revised Item 6 of Schedule 13D to add precisely such a reference, which the SEC noted will now explicitly require disclosure of cash-settled security-based swaps and other derivatives settled exclusively in cash. This revision will not result in cash-settled derivatives, as such, being required to count toward the beneficial ownership threshold determination that triggers the filing of a Schedule 13D. It will, however, remove any ambiguity about the need to disclose purely synthetic positions under Item 6 once a Schedule 13D has otherwise been triggered by virtue of crossing the relevant beneficial ownership threshold without counting those purely synthetic positions.
Beneficial ownership of reference securities of cash‑settled derivatives
The SEC did not adopt a proposed addition to Rule 13d-3 that would have treated a holder of a cash settled derivative security (other than a security-based swap) as the beneficial owner of the equity securities in the covered class referenced by the cash-settled derivative security if such person held the cash-settled derivative security with the purpose or effect of changing or influencing the control of the issuer of the class of equity securities, or in connection with or as a participant in any transaction having that purpose or effect. Instead, the SEC decided to issue guidance on the applicability of existing Rule 13d-3 to cash-settled derivative securities (other than security-based swaps), similar to the guidance the SEC provided in its 2011 release on security-based swaps and provided a framework for analyzing whether holders of cash-settled securities may be deemed beneficial owners of the reference class of securities.
