Modernization of Beneficial Ownership Reporting | SEC Adopts Rule Amendments

SEC Releases

Brief Introduction

On October 10^th, the SEC adopted rule amendments related to beneficial ownership reporting requirements.

The amendments to Section 13(d) and 13(g) of the Securities Exchange Act marks the first changes in over fifty (50) years.

The SEC expects these amendments will help meet the needs of investors in the current fast-paced financial market.

Compliance Deadlines

• Revised Schedule 13D filing requirements effective ninety (90) days after publication in the Federal Register.
• Revised Schedule 13G filing deadlines start on September 20^th, 2024.
• Structured Data Requirements start on December 18^th, 2024.

Biggest Changes from the Original Rule

• For investors with control intent, the Schedule 13D initial filing deadline is shortened from ten (10) days to five (5) business days.
  • Amendments must be filed within two business days.
• Schedule 13G Filers
  • Qualified institutional investors and exempt investors – initial filing deadline is shortened from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter where the investor beneficially owns more than 5% of the covered class.
  • Passive Investors – initial filing deadline from 10 days to five business days.
  • All Filers – amendment must be filed 45 days after the quarter in which a material change occurred instead of 45 days after the calendar year.
• The filing cut-off time is moved from 5:50pm to 10:00pm EST.
• 13D disclosure requirements
  • A person is required to disclose interests in all derivative securities that use the issuer’s equity security as a reference security.
• All information disclosed on 13D and 13G, other than exhibits, must use a structured, machine-readable data language.
• Who is a group?
  • Concerted actions by two or more persons for the purpose of acquiring, holding, or disposing securities of an issuer is sufficient.
  • Does not depend solely on an expressed agreement.

Takeaways from SEC Comments

1. The SEC looks to modernize the regulatory environment.
   1. SEC Chair, Gary Gensler, supports updating reporting requirements to keep pace with modern markets and ensure that information is made public in a timely manner.
   2. Gensler discusses the history of the amendments, and sees these amendments as an attempt to reduce the information asymmetries in the market that have developed over time.
   3. SEC Commissioner,  Mark Uyeda, defends the amendments, saying that they are appropriate considering the changes in communications and technology over the past 50 years.
2. The amendments may have unintended consequences, and SEC Commissioner, Hester Pierce, did not support them.
   1. Pierce argues that information asymmetry allows profits that reward the efforts of informed investors if the information is lawfully obtained.
   2. The shortening of 13G requirements involves the giving up of intellectual property by 13G filers, thus creating costs that outweigh the benefits to other investors.
3. Pierce argues that the although the technology has changed since 1968, the underlying economic principles have not.

Vigilant’s Conclusion

Firms that provide discretionary and fiduciary management for investors should take into consideration the filing requirements and how it may affect their business.

If you are in need of support or have any questions, please reach out to us to help determine best steps for your Firm.

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