The SEC has proposed comprehensive changes to Regulation 13D-G and Regulation S-T to modernize the beneficial ownership reporting requirements and improve their operation and efficacy. Specifically, the SEC has proposed to:

• revise the current deadlines for Schedule 13D and Schedule 13G filings;
• amend Rule 13d-3 to deem holders of certain cash-settled derivative securities as beneficial owners of the reference covered class;
• align the text of Rule 13d-5, as applicable to two or more persons who act as a group, with the statutory language in Sections 13(d)(3) and (g)(3) of the Exchange Act;
• set forth the circumstances under which two or more persons may communicate and consult with one another and engage with an issuer without concern that they will be subject to regulation as a group with respect to the issuer’s equity securities; and
• require that Schedules 13D and 13G be filed using a structured, machine-readable data language.

To address concerns that the current deadlines for Schedule 13D and Schedule 13G filings are creating information asymmetries in today’s market, the SEC has proposed to:

• Revise the Rule 13d-1(a) filing deadline for the initial Schedule 13D to five days after the date on which a person acquires more than 5% of a covered class of equity securities;
• Amend Rules 13d-1(e), (f) and (g) to shorten the filing deadline for the initial Schedule 13D required to be filed by certain persons who forfeit their eligibility to report on Schedule 13G in lieu of Schedule 13D to five days after the event that causes the ineligibility;
• Revise the filing deadline under Rule 13d-2(a) for amendments to Schedule 13D to one business day after the date on which a material change occurs;
• Amend Rules 13d-1(b) and (d) to shorten the deadline for the initial Schedule 13G filing for Qualified Institutional Investors (“QIIs”) and exempt investors to within five business days after the last day of the month in which beneficial ownership first exceeds 5% of a covered class;
• Amend the deadline in Rule 13d-1(c), which permits passive investors to file an initial Schedule 13G in lieu of Schedule 13D within 10 days after acquiring beneficial ownership of more than 5% of a covered class, to five days after the date of such an acquisition;
• Revise the filing deadlines required for amendments to Schedule 13G in Rule 13d-2(b) to five business days after the end of the month in which a reportable change occurs;
• Amend Rule 13d-2(c) to shorten the filing deadline for Schedule 13G amendments filed pursuant to that provision to five days after the date on which beneficial ownership first exceeds 10% of a covered class, and thereafter upon any deviation by more than 5% of the covered class, with these requirements applying if the thresholds were crossed at any time during a month; and
• Amend Rule 13d-2(d) to revise the filing deadline for Schedule 13G amendments filed pursuant to that provision from a “promptly” standard to one business day after the date on which beneficial ownership exceeds 10% of a covered class, and thereafter upon any deviation by more than 5% of the covered class.

In addition, instead of an amendment obligation arising for Schedule 13G filers upon the occurrence of “any change” in the facts previously reported regardless of the materiality of such change, the SEC has proposed to revise Rule 13d-2(b) to require that an amendment to a Schedule 13G be filed only if a “material change” occurs. Further, the SEC has proposed to amend Rule 13(a) of Regulation S-T to permit Schedules 13D and 13G, and any amendments thereto, that are submitted by direct transmission on or before 10 p.m. eastern time on a given business day to be deemed to have been filed on the same business day. This amendment would provide additional time for beneficial owners to prepare and submit their Schedule 13D or Schedule 13G filings.

According to the SEC, the proposed amendments would align the text of Rule 13d-5, as applicable to two or more persons who act as a group, with the statutory language in Sections 13(d)(3) and (g)(3) of the Exchange Act. By conforming the rule text to Sections 13(d)(3) and 13(g)(3), the proposed amendments to Rule 13d-5 are intended to remove the potential implication that an express or implied agreement among group members is a necessary precondition to the formation of a group under those provisions of the Exchange Act and, by extension, Regulation 13D-G. In connection with those proposed amendments, the SEC has proposed to add a new provision in Rule 13d-5 that would affirm that if a person, in advance of filing a Schedule 13D, discloses to any other person that such filing will be made and such other person acquires securities in the covered class for which the Schedule 13D will be filed, then those persons are deemed to have formed a group within the meaning of Section 13(d)(3).

In addition, the SEC has proposed amendments that would revise Rule 13d-6 to set forth additional exemptions from Sections 13(d) and (g). Specifically, new Rule 13d-6(c) would set forth the circumstances under which two or more persons may communicate and consult with one another and engage with an issuer without concern that they will be subject to regulation as a group with respect to the issuer’s equity securities.

More specifically, proposed Rule 13d-6(c) would provide that two or more persons will not be deemed to have acquired beneficial ownership of, or otherwise beneficially own, an issuer’s equity securities as a group solely because of their concerted actions related to an issuer or its equity securities, including engagement with one another or the issuer, provided they meet certain conditions. Such interactions, depending upon the level of coordination and degree to which the persons advocate in furtherance of a common purpose or goal, could be found to satisfy the “act as” a group standard under Section 13(d)(3) or 13(g)(3) for the purpose of “holding” a covered class. To help ensure that the exemption is available only where such persons independently determine to take concerted actions, the proposed exemption would be available only if such persons are not directly or indirectly obligated to take such actions (e.g., pursuant to the terms of a cooperation agreement or joint voting agreement).