Modernization of Beneficial Ownership Reporting

Federal RegisterNov 7, 2023

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232 and 240

[Release Nos. 33-11253; 34-98704; File No. S7-06-22]

RIN 3235-AM93

Modernization of Beneficial Ownership Reporting

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule; guidance.

SUMMARY:

The Securities and Exchange Commission (“Commission”) is adopting amendments to certain rules that govern beneficial ownership reporting. The amendments generally shorten the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G. The amendments also clarify the disclosure requirements of Schedule 13D with respect to derivative securities. We also are expanding the timeframe within a given business day by which Schedules 13D and 13G must be filed, and separately requiring that Schedule 13D and 13G filings be made using a structured, machine-readable data language. Further, we discuss how, under the current rules, an investor's use of a cash-settled derivative security may result in the person being treated as a beneficial owner of the class of the reference equity security. We also are providing guidance on the application of the current legal standard found in section 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934 to certain common types of shareholder engagement activities. Finally, we are making certain technical revisions.

DATES:

Effective dates:

The amendments are effective on February 5, 2024.

Compliance dates:

See section II.G.

FOR FURTHER INFORMATION CONTACT:

Nicholas Panos, Senior Special Counsel, and Valian Afshar, Senior Special Counsel, Division of Corporation Finance, at (202) 551-3440, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

We are adopting amendments to 17 CFR 240.13d-1 (“Rule 13d-1”), 17 CFR 240.13d-2 (“Rule 13d-2”), 17 CFR 240.13d-3 (“Rule 13d-3”), 17 CFR 240.13d-5 (“Rule 13d-5”), 17 CFR 240.13d-6 (“Rule 13d-6”), 17 CFR 240.13d-101 (“Rule 13d-101”), and 17 CFR 240.13d-102 (“Rule 13d-102”) under the Securities Exchange Act of 1934 [15 U.S.C. 78a

et seq.

] (“Exchange Act”).

We also are adopting amendments to 17 CFR 232.13 (“Rule 13 of Regulation S-T”) and 17 CFR 232.201 (“Rule 201 of Regulation S-T”) under 17 CFR part 232 (“Regulation S-T”).

In addition, we are rescinding 17 CFR 240.13d-7 (“Rule 13d-7”).

Unless otherwise noted, when we refer to the Exchange Act, or any paragraph of the Exchange Act, we are referring to 15 U.S.C. 78a of the United States Code, at which the Exchange Act is codified, and when we refer to rules under the Exchange Act, or any paragraph of these rules, we are referring to title 17, part 240 of the Code of Federal Regulations [17 CFR part 240], in which these rules are published.

Unless otherwise noted, when we refer to Regulation S-T, or any paragraph of the rules thereunder, we are referring to title 17, part 232 of the Code of Federal Regulations [17 CFR part 232], in which these rules are published.

Table of Contents

I. Introduction

II. Discussion of the Final Amendments

A. Amendments to Rules 13D-1 and 13D-2 and Rules 13 and 201 of Regulation S-T To Revise Filing Deadlines and Filing Date Assignment

1. Rule 13d-1(a), (e), (f), and (g)

2. Rule 13d-1(b), (c), and (d)

3. Rule 13d-2(a) and (b)

4. Rule 13d-2(c) and (d)

5. Rules 13(a)(4) and 201(a) of Regulation S-T

B. Proposed Amendment to Rule 13D-3 Regarding the Use of Cash-Settled Derivative Securities

1. Proposed Amendment

2. Comments Received

3. Commission Guidance

C. Proposed Amendments to Rule 13D-5

1. Proposed Rule 13d-5(b)(1)(i), (b)(2)(i), and (b)(1)(ii)

2. Proposed Rule 13d-5(b)(1)(iii) and (b)(2)(ii)

3. Proposed Rule 13d-5(b)(1)(iv) and (b)(2)(iii)

D. Proposed Amendments to Rule 13D-6 To Create Certain Exemptions

1. Proposed Amendments

2. Comments Received

3. Final Amendments

E. Amendment to Schedule 13D To Clarify Disclosure Requirements Regarding Derivative Securities

1. Proposed Amendment

2. Comments Received

3. Final Amendment

F. Structured Data Requirement for Schedules 13D and 13G

1. Proposed Amendment

2. Comments Received

3. Final Amendment

G. Compliance Dates

III. Other Matters

IV. Economic Analysis

A. Overview

B. Baseline

1. Current Schedule 13D and 13G Filing Requirements

2. Market Trends

3. Affected Parties and Current Market Practices

C. Economic Effects of the Final Rules

1. Shortened Initial Schedule 13D Filing Deadline

2. Shortened Schedule 13G Filing Deadlines

3. Other Amendments

D. Reasonable Alternatives to the Final Rules

1. Alternative Filing Deadlines

2. Tiered Approaches

3. Modify Structured Data Requirement

V. Paperwork Reduction Act

A. Summary of the Collections of Information

B. Summary of Comment Letters on PRA Estimates

C. Burden and Cost Estimates for the Final Amendments

VI. Regulatory Flexibility Act Certification Statutory Authority

I. Introduction

We are amending certain rules within 17 CFR 240.13d-1 through 240.13f-1 (“Regulation 13D-G”)

and Regulation S-T to modernize the beneficial ownership reporting requirements and improve their operation and efficacy. Some

of these amendments are based on the amendments that the Commission proposed in 2022 (“Proposed Amendments”).

Specifically, we are adopting revisions to the deadlines for Schedule 13D and Schedule 13G filings. We also are adopting certain related technical changes to Regulation S-T that the Commission proposed in connection with these amendments. Further, we are requiring that Schedule 13D and 13G filings be submitted using a structured, machine-readable data language.

Unless otherwise noted, when we refer to Regulation 13D-G, we are referring to title 17, part 240 of the Code of Federal Regulations [17 CFR part 240], in which 17 CFR 240.13d-1 through 240.13f-1 are published.

See

infra

note 22 for a discussion of certain technical amendments we are adopting that the Commission did not previously propose.

See Modernization of Beneficial Ownership Reporting,

Release Nos. 33-11030; 34-94211 (Feb. 10, 2022) [87 FR 13846 (Mar. 10, 2022)] (“Proposing Release”). On Apr. 28, 2023, the Commission reopened the comment period for the Proposing Release in connection with the addition to the comment file of a memorandum prepared by staff of the Commission's Division of Economic and Risk Analysis.

See Reopening of Comment Period for Modernization of Beneficial Ownership Reporting,

Release Nos. 33-11180; 34-97405 (Apr. 28, 2023) [88 FR 28440 (May 4, 2023)] (“Reopening Release”). That memorandum provided supplemental data and analysis related to certain economic effects of the Proposed Amendments.

See

Memorandum of the Staff of the Division of Economic and Risk Analysis,

Supplemental data and analysis on certain economic effects of proposed amendments regarding the reporting of beneficial ownership

(Apr. 28, 2023),

available at https://www.sec.gov/comments/s7-06-22/s70622-20165251-334474.pdf

(“DERA Memorandum”).

In response to the comments we received on the Proposed Amendments,

however, we are making

certain adjustments from the proposal. For example, we are not adopting proposed 17 CFR 240.13d-3(e) (“Rule 13d-3(e)”) to deem certain holders of cash-settled derivative securities

as beneficial owners of the reference covered class.

Instead, we discuss how, under current Rule 13d-3, persons using these types of derivative securities may already be subject to regulation as beneficial owners. We also are not adopting many of the proposed amendments to Rules 13d-5

and 13d-6. Instead, we are issuing guidance on the application of the current legal standard found in sections 13(d)(3) and 13(g)(3) to certain common types of shareholder engagement activities.

See generally

letters submitted in connection with the Proposed Amendments,

available at

https://www.sec.gov/comments/s7-06-22/s70622.htm.

Unless otherwise specified, all references in this release to comment letters are to comments submitted on the Proposed Amendments. Further, on June 22, 2023, the Commission's Investor Advisory Committee (“IAC”) adopted recommendations (“IAC Recommendations”) with respect to the Proposed Amendments.

See

U.S. Securities and Exchange Commission Investor Advisory Committee, Recommendation of the Market Structure Subcommittee of the SEC Investor Advisory Committee on SEC Proposed Amendments to Regulation 13D-G, Proposed Rule 10B-1, and Proposed Rule 9j-1 (June 22, 2023),

available at https://www.sec.gov/files/spotlight/iac/20230622-recommendation-regarding-sec-proposed-amendments-regulation-13d-g-proposed-rule-10b-1-and.pdf.

The IAC was established in Apr. 2012 pursuant to section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (“Dodd-Frank Act”) to advise and make recommendations to the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. We discuss the IAC Recommendations in connection with the comments received on the Proposed Amendments below.

See infra

sections II.A.1.b, II.A.2.b, II.B.2, and II.C.1.b. In addition, on Sept. 21, 2022, the IAC held a meeting that included a panel discussion on the Proposed Amendments. See the agenda for that meeting, including the panelists that discussed the Proposed Amendments, at

https://www.sec.gov/spotlight/investor-advisory-committee/iac092122-agenda.htm.

As used in this release (including for purposes of proposed Rule 13d-3(e)), the term “derivative security” has the meaning set forth in 17 CFR 240.16a-1(c) (“Rule 16a-1(c)”).

See

Rule 16a-1(c) (defining “derivative securities” as including certain rights, such as options, warrants, convertible securities, stock appreciation rights, or similar rights “with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security,” excluding certain enumerated rights, obligations, interests, and options). For purposes of proposed Rule 13d-3(e), the term “derivative security” would not have included a security-based swap, as defined in section 3(a)(68) of the Exchange Act and the rules and regulations thereunder (“SBS”). As the context requires, references to “SBS” in this release includes both the singular (“security-based swap”) and plural (“security-based swaps”) form.

See

Proposing Release at 13864 & nn.110-114.

As used in this release, a “covered class” is a class of equity securities described in section 13(d)(1) of the Exchange Act and Rule 13d-1(i) and generally means, with limited exception, a voting class of equity securities registered under section 12 of the Exchange Act.

See

infra

note 22 and sections II.C.2 and II.C.3 for a discussion of the proposed amendments to Rule 13d-5 that we are adopting.

With respect to the Schedule 13D and Schedule 13G filing deadlines, we are amending the following rules:

• 17 CFR 240.13d-1(a) (“Rule 13d-1(a)”): Shortening the filing deadline for the initial Schedule 13D to within five business days

after the date on which a person acquires beneficial ownership of more than five percent of a covered class;

The term “business day” currently is not defined in section 13(d) or 13(g) or any rule of Regulation 13D-G. Accordingly, we are amending 17 CFR 240.13d-1(i) (“Rule 13d-1(i)”) by adopting a new paragraph (i)(2) that defines “business day” for purposes of Regulation 13D-G to mean any day, other than Saturday, Sunday, or a Federal holiday, from 12 a.m. to 11:59 p.m. Eastern Time. See

infra

notes 14 and 134 for further discussion of our new definition of “business day.”

Throughout this release, we refer to an initial Schedule 13D filing obligation as being incurred under Rule 13d-1(a) when a person “acquires beneficial ownership of more than 5% of a covered class,” among other similar formulations. These formulations refer to the requirement in Rule 13d-1(a), which currently states that “[a]ny person who, after acquiring directly or indirectly the beneficial ownership of any equity security of a [covered class], is directly or indirectly the beneficial owner of more than five percent of the class shall, within 10 days after the acquisition, file with the Commission, a . . . Schedule 13D.”

• 17 CFR 240.13d-1(e), (f), and (g) (“Rule 13d-1(e), (f), and (g)”): Shortening the filing deadline for the initial Schedule 13D required to be filed by certain persons who become ineligible to report on Schedule 13G in lieu of Schedule 13D to five business days after the event that causes the ineligibility;

• 17 CFR 240.13d-1(b) and (d) (“Rule 13d-1(b) and (d)”): Shortening the deadline for the initial Schedule 13G filing for Qualified Institutional Investors (“QIIs”)

and Exempt Investors

to within 45 days

after the end of the calendar quarter in which beneficial ownership first exceeds five percent of a covered class;

The institutional investors qualified to report on Schedule 13G, in lieu of Schedule 13D and in reliance upon Rule 13d-1(b), include a broker or dealer registered under section 15 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 of 1940, a person registered as an investment adviser under section 203 of the Investment Advisers Act of 1940, a parent holding company or control person (if certain conditions are met), an employee benefit plan or pension fund that is 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 an investment company under section 3(c)(14) of the Investment Company Act of 1940, non-U.S. institutions that are the functional equivalent of any of the institutions listed in Rule 13d-1(b)(1)(ii)(A) through (I), so long as the non-U.S. institution is subject to a regulatory scheme that is substantially comparable to the regulatory scheme applicable to the equivalent U.S. institution, and related holding companies and groups (collectively, “Qualified Institutional Investors” or “QIIs”). 17 CFR 240.13d-1(b)(1)(ii). In addition, under Rule 13d-1(b), in order to qualify to report on Schedule 13G in lieu of Schedule 13D, a QII must have acquired securities in the covered class in the ordinary course of business and not with the purpose nor with the effect of changing or influencing the control of the issuer, nor in connection with or as a participant in any transaction having such purpose or effect. 17 CFR 240.13d-1(b)(1)(i).

The term “Exempt Investor” as used in this release refers to persons holding beneficial ownership of more than 5% of a covered class, but who have not made an acquisition of beneficial ownership subject to section 13(d). For example, persons who acquire all of their securities prior to the issuer registering the subject securities under the Exchange Act are not subject to section 13(d). In addition, persons who acquire no more than 2% of a covered class within a 12-month period are exempted from section 13(d) by section 13(d)(6)(B). In both cases, however, those persons are subject to section 13(g). Amendments to Beneficial Ownership Reporting Requirements, Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, n.8 (Jan. 16, 1998)];

see also

Proposing Release at 13856, n.55.

Any reference to “day” in this release means “calendar day,” and those terms may be used interchangeably. Any reference to “business day” means “business day,” as we are defining that term. See

supra

note 10 and

infra

note 134 for discussions of our new definition of “business day.”

In addition, we are retaining the requirement in Rule 13d-1(b)(2) that a QII file its initial Schedule 13G on a more expedited basis if its beneficial ownership exceeds 10% of a covered class. 17 CFR 240.13d-1(b)(2). We are amending that rule, however, to require that such an initial Schedule 13G be filed within five business days after the end of the first month in which the QII's beneficial ownership exceeds 10% of a covered class, computed as of the last day of the month, rather than the current requirement of 10 calendar days after month-end.

• 17 CFR 240.13d-1(c) (“Rule 13d-1(c)”): Shortening the deadline for Passive Investors

to file an initial Schedule 13G in lieu of Schedule 13D to within five business days after the date on which they acquire beneficial ownership of more than five percent of a covered class;

The term “Passive Investors” as used in this release refers to beneficial owners of more than 5% but less than 20% of a covered class who can certify under Item 10 of Schedule 13G that the subject securities were not acquired and are not held for the purpose or effect of changing or influencing the control of the issuer of such securities and were not acquired in connection with or as a participant in any transaction having such purpose or effect.

Amendments to Beneficial Ownership Reporting Requirements,

Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, n.9 (Jan. 16, 1998)]. These investors are ineligible to report beneficial ownership pursuant to Rule 13d-1(b) or (d) but are eligible to report beneficial ownership on Schedule 13G in reliance upon Rule 13d-1(c).

• 17 CFR 240.13d-2(a) (“Rule 13d-2(a)”): Revising the deadline for filing amendments to Schedule 13D to two business days after the date on which a material change occurs;

• 17 CFR 240.13d-2(b) (“Rule 13d-2(b)”): Shortening the deadline for Schedule 13G amendments filed pursuant to that provision to 45 days after the end of the calendar quarter in which a reportable change occurs;

• 17 CFR 240.13d-2(c) (“Rule 13d-2(c)”): Shortening the filing deadline for Schedule 13G amendments filed pursuant to that provision to five business days after the end of the month in which beneficial ownership first exceeds 10 percent of a covered class, and thereafter upon any deviation by more than five percent of the covered class, with these requirements applying if the thresholds were crossed at any time during a month; and

• 17 CFR 13d-2(d) (“Rule 13d-2(d)”): Revising the deadline for Schedule 13G amendments filed pursuant to that provision to two business days after the date on which beneficial ownership exceeds 10 percent of a covered class, and thereafter upon any deviation by more than five percent of the covered class.

In addition, we are amending Rule 13d-2(b) to require that an amendment to a Schedule 13G be filed only if a “material change” occurs (replacing the current rule text that requires an amendment upon the occurrence of “any change” in the facts previously reported). Further, we are amending 17 CFR 232.13(a) (“Rule 13(a) of Regulation S-T”) to permit Schedules 13D and 13G, and any amendments thereto, that are submitted by direct transmission commencing 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 should provide additional time for beneficial owners to prepare and submit their Schedule 13D or 13G filings.

The following table summarizes the changes we are adopting with respect to Schedule 13D and 13G filings, as described more fully in section II.A:

When we refer to “Eastern Time” in this release, we mean Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect.

This rule applies to filing deadlines expressed both in calendar days and in business days. For example, for filing deadlines expressed in calendar days, if the deadline falls on a Federal holiday, a Saturday, or a Sunday, then the filing may be made on the next business day thereafter.

See infra

note 268.

See

Rule 13(a)(2) of Regulation S-T. We also are amending 17 CFR 232.201(a) (“Rule 201(a) of Regulation S-T”) to make the temporary hardship exemption set forth in that rule—which applies to unanticipated technical difficulties preventing the timely preparation and submission of an electronic filing—unavailable to Schedules 13D and 13G, including any amendments thereto.

Issue

Current Schedule 13D

New Schedule 13D

Current Schedule 13G

New Schedule 13G

Initial Filing Deadline

Within 10 days after acquiring beneficial ownership of more than 5% or losing eligibility to file on Schedule 13G. Rule 13d-1(a), (e), (f), and (g)

Within five business days after acquiring beneficial ownership of more than 5% or losing eligibility to file on Schedule 13G. Rule 13d-1(a), (e), (f), and (g)

QIIs & Exempt Investors:

45 days after calendar year-end in which beneficial ownership exceeds 5%. Rule 13d-1(b) and (d)

QIIs:

10 days after month-end in which beneficial ownership exceeds 10%. Rule 13d-1(b)

QIIs & Exempt Investors:

45 days after calendar quarter-end in which beneficial ownership exceeds 5%. Rule 13d-1(b) and (d).

QIIs:

Five business days after month-end in which beneficial ownership exceeds 10%. Rule 13d-1(b).

Passive Investors:

Within 10 days after acquiring beneficial ownership of more than 5%. Rule 13d-1(c)

Passive Investors:

Within five business days after acquiring beneficial ownership of more than 5%. Rule 13d-1(c).

Amendment Triggering Event

Material change in the facts set forth in the previous Schedule 13D. Rule 13d-2(a)

Same as current Schedule 13D:

Material change in the facts set forth in the previous Schedule 13D. Rule 13d-2(a)

All Schedule 13G Filers:

Any change in the information previously reported on Schedule 13G. Rule 13d-2(b)

QIIs & Passive Investors:

Upon exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. Rule 13d-2(c) and (d)

All Schedule 13G Filers:

Material change in the information previously reported on Schedule 13G. Rule 13d-2(b).

QIIs & Passive Investors:

Same as current Schedule 13G: Upon exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. Rule 13d-2(c) and (d).

Amendment Filing Deadline

Promptly after the triggering event. Rule 13d-2(a)

Within two business days after the triggering event. Rule 13d-2(a)

All Schedule 13G Filers:

45 days after calendar year-end in which any change occurred. Rule 13d-2(b)

QIIs:

10 days after month-end in which beneficial ownership exceeded 10% or there was, as of the month-end, a 5% increase or decrease in beneficial ownership. Rule 13d-2(c)

All Schedule 13G Filers:

45 days after calendar quarter-end in which a material change occurred. Rule 13d-2(b).

QIIs:

Five business days after month-end in which beneficial ownership exceeds 10% or a 5% increase or decrease in beneficial ownership. Rule 13d-2(c).

Passive Investors:

Promptly after exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. Rule 13d-2(d)

Passive Investors:

Two business days after exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership. Rule 13d-2(d).

Filing “Cut-Off” Time

5:30 p.m. Eastern Time. Rule 13(a)(2) of Regulation S-T

10 p.m. Eastern Time. Rule 13(a)(4) of Regulation S-T

All Schedule 13G Filers:

5:30 p.m. Eastern Time. Rule 13(a)(2) of Regulation S-T

All Schedule 13G Filers:

10 p.m. Eastern Time. Rule 13(a)(4) of Regulation S-T.

As noted above, we are not adopting proposed Rule 13d-3(e). Instead, we discuss the circumstances in which a holder of a cash-settled derivative security, excluding SBS, may be deemed the beneficial owner of the reference covered class under Rule 13d-3. We also are not adopting the proposed exemption in 17 CFR 240.13d-6(d)

(“Rule 13d-6(d)”), which the Commission proposed to enable certain persons to transact in derivative securities in the ordinary course of business without concern that they had formed a group under section 13(d)(3) or 13(g)(3), in part because we are not adopting proposed Rule 13d-3(e).

To further clarify the disclosure requirements with respect to derivative securities, particularly cash-settled derivative securities, held by a person required to report on Schedule 13D, the Commission is adopting an amendment to Schedule 13D. Specifically, we are amending Item 6 of Schedule 13D, codified at Rule 13d-101, to remove any implication that a person is not required to disclose interests in all derivative securities that use a covered class as a reference security. This amendment is intended to eliminate any ambiguity regarding the scope of the disclosure obligations of Item 6 of Schedule 13D as to derivative securities, including with respect to any derivative not originating with, or offered or sold by, the issuer, such as a cash-settled option or SBS.

As noted above, we are not adopting most of the proposed substantive amendments to Rule 13d-5.

We also are not adopting proposed 17 CFR 240.13d-6(c) (“Rule 13d-6(c)”), which would have specified certain circumstances under which two or more persons may coordinate and consult with one another and engage with an issuer without being subject to regulation as a group. Instead, we are issuing guidance regarding the appropriate legal standard for determining whether a group is formed. This guidance is intended to provide clarity on the circumstances under which a person may be deemed to have formed a group with another person or persons within the meaning of sections 13(d)(3) and 13(g)(3).

But see infra

note 22 and sections II.C.2 and 3 for a discussion of the proposed amendments to Rule 13d-5 that we are adopting.

We are adopting the proposed requirement that Schedules 13D and 13G be filed using a structured, machine-readable data language. We are, therefore, now requiring that all disclosures, including quantitative disclosures, textual narratives, and identification checkboxes, on Schedules 13D and 13G be filed using an XML-based language.

This requirement is intended to make it easier for investors and other market participants to access, compile, and analyze information that is disclosed on Schedules 13D and 13G.

Under this structured data requirement, only the exhibits to Schedules 13D and 13G will remain unstructured.

Finally, we also are adopting certain technical revisions, some of which were not included among the Proposed Amendments.

Specifically, as proposed, we are: (1) changing the title of Rule 13d-5 from “Acquisition of securities” to “Acquisition of beneficial ownership”; (2) revising 17 CFR 240.13d-5(a) (“Rule 13d-5(a)”) to conform the text to the new title; (3) redesignating current Rule 13d-6 as new 17 CFR 240.13d-6(a) (“Rule 13d-6(a)”); and (4) redesignating current 17 CFR 240.13d-5(b)(2) (“Rule 13d-5(b)(2)”) as new 17 CFR 240.13d-6(b) (“Rule 13d-6(b)”). The Commission did not receive any substantive comments on these amendments, so we are adopting them as proposed for the reasons set forth in the Proposing Release. We also are making other technical changes not included in the Proposing Release, namely: (1) rescinding in its entirety Rule 13d-7 because Congress already repealed the statutory requirements under sections 13(d)(1), (d)(2), (g)(1), and (g)(2) for beneficial owners to deliver a copy of a Schedule 13D or 13G, and any amendments thereto, to the issuer of the covered class and any national securities exchanges where such equity securities are listed,

see

Public Law 111-203, 124 Stat. 1900 929R(a)(1)(B) through (4)(B) (2010); (2) making conforming amendments to Schedules 13D and 13G to remove the notes in those Schedules that refer to Rule 13d-7 and its requirements; (3) correcting incorrect cross references in Item 8 of Schedule 13G; and (4) replacing the gender-based pronouns used in Rules 13d-1, 13d-3, 13d-6, 13d-101, and 13d-102 with gender-neutral phrases and making additional conforming edits to the surrounding text as necessary. Although the Commission did not propose these amendments, we find good cause, in accordance with the Administrative Procedure Act (“APA”), Public Law 79-404, 60 Stat. 237 (June 11, 1946), that, in light of their technical nature, notice and public comment in respect of these amendments is impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(3)(B).

II. Discussion of the Final Amendments

A. Amendments to Rules 13d-1 and 13d-2 and Rules 13 and 201 of Regulation S-T To Revise Filing Deadlines and Filing Date Assignment

We are adopting a series of amendments to the deadlines for filing initial and amended beneficial ownership reports on Schedules 13D and 13G and expanding the timeframe within a given business day in which such filings may be timely made. These amendments are listed in section I above and discussed in more detail below.

1. Rule 13d-1(a), (e), (f), and (g)

Section 13(d)(1) of the Exchange Act requires a disclosure statement to be filed “within ten days after [acquiring beneficial ownership of more than five percent of a covered class] or within such shorter time as the Commission may establish by rule.”

Consistent with this provision, Rule 13d-1(a) sets forth the 10-day filing deadline for the initial Schedule 13D.

Although the Dodd-Frank Act amended section 13(d)(1) to grant the Commission the authority to shorten the deadline for filing the initial Schedule 13D, the 10-day deadline has not been updated since it was enacted more than 50 years ago.

15 U.S.C. 78m(d)(1).

17 CFR 240.13d-1(a) (requiring that a Schedule 13D be filed “within 10 days after the acquisition” of beneficial ownership of more than 5% of a covered class).

Section 13(d)(1) of the Exchange Act was enacted by the Ninetieth Congress in 1968 through the approval of Senate Bill 510.

Rule 13d-1(e), (f), and (g) set forth the initial Schedule 13D filing obligations for investors who are no longer eligible to rely upon Rule 13d-1(b)

or (c)

(which permit investors to file the more abbreviated Schedule 13G in lieu of the longer-form Schedule 13D). Rule 13d-1(e), (f), and (g) ensure that initial Schedule 13D filings uniformly are subject to a 10-day deadline, regardless of whether the beneficial owners were previously eligible to file a Schedule 13G in lieu of the Schedule 13D.

17 CFR 240.13d-1(b).

17 CFR 240.13d-1(c).

Rule 13d-1(e) applies to persons who have been filing a Schedule 13G in lieu of Schedule 13D in reliance upon either Rule 13d-1(b) or (c). Rule 13d-1(b) and (c) both provide that a person may not rely on those provisions if he or she beneficially owns the relevant equity securities with the purpose or effect of changing or influencing the control of the issuer.

Institutional and non-institutional beneficial owners who are unable to certify that they do not hold beneficial ownership for the purpose of or with the effect of changing or influencing the control of the issuer or in connection with any transaction that would have such purpose or effect, as described more fully under Item 10 of Schedule 13G, or certain institutional investors that also acquire or hold beneficial ownership outside of the ordinary course of business, are considered to have, for purposes of this release, a “disqualifying purpose or effect.”

Rule 13d-1(e)(1) requires

such persons to file their initial Schedule 13D within 10 days of losing their Schedule 13G eligibility because they beneficially own a covered class with a disqualifying purpose or effect.

The provision at 17 CFR 240.12b-2 (“Rule 12b-2 of Regulation 12B”) defines the term “control” to mean “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” The provision at 17 CFR 240.12b-1 sets forth the scope of Regulation 12B and provides that all rules contained in Regulation 12B “shall govern . . . all reports filed pursuant to section[ ] 13.”

Whether investors are engaged in activity with the purpose or effect of changing or influencing control of an issuer, and thus holding beneficial ownership with a disqualifying purpose or effect, ordinarily is a determination that would be based upon the specific facts and circumstances. For that reason, the Commission has not provided extensive guidance on this issue. The Commission has

previously expressed the view that most solicitations in support of a proposal specifically calling for a change of control of the company (

e.g.,

a proposal to seek a buyer for the company or a contested election of directors or a sale of a significant amount of assets or a restructuring of a corporation) would clearly have that purpose and effect. For a more expansive discussion of the Commission's reasoning and factors to consider when making this determination, see

Amendments to Beneficial Ownership Reporting Requirements,

Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)].

Similarly, Rule 13d-1(f) applies to persons who have been filing a Schedule 13G in lieu of Schedule 13D in reliance on Rule 13d-1(c). Rule 13d-1(c) provides that persons may not rely on that provision if they beneficially own 20 percent or more of a covered class. Rule 13d-1(f)(1) currently requires that such persons file their initial Schedule 13D within 10 days of losing their Schedule 13G eligibility because they beneficially own 20 percent or more of a covered class.

Finally, Rule 13d-1(g) applies to persons who have been filing a Schedule 13G in lieu of Schedule 13D in reliance upon Rule 13d-1(b). Only QIIs may rely on Rule 13d-1(b). Further, in order to rely on Rule 13d-1(b), a QII must beneficially own the relevant equity securities in the ordinary course of its business. Rule 13d-1(g) currently requires that such persons either file their initial Schedule 13D or amend their Schedule 13G to indicate that they are now relying on Rule 13d-1(c) (assuming they are eligible to rely on that rule) within 10 days of losing their Schedule 13G eligibility under Rule 13d-1(b) because they either no longer are a QII or no longer beneficially own the relevant equity securities in the ordinary course of their business.

Rule 13d-1(e), (f), and (g) operate as regulatory safeguards that reestablish the application of Rule 13d-1(a) to beneficial owners who previously relied on Rule 13d-1(b) or (c). Under Rule 13d-1(e), (f), and (g), beneficial owners “shall immediately become subject to” Rules 13d-1(a) and 13d-2(a), which provisions are reinstated anew with respect to those persons the moment they become ineligible to rely upon Rule 13d-1(b) and (c).

a. Proposed Amendments

In the Proposing Release, the Commission proposed to amend Rule 13d-1(a) to require a Schedule 13D to be filed within five days after the date on which a person acquires beneficial ownership of more than five percent of a covered class. The Commission stated that the deadline for filing an initial Schedule 13D should be revised in light of advances in technology and developments in the financial markets and noted that shortening that deadline would be consistent with previous efforts to accelerate public disclosures of material information to the market.

The Commission also asserted that the proposed five-day deadline would maintain an appropriate balance between the requirement that material information be timely disseminated to investors and the competing interest that undue burdens not be imposed in the change of control context.

In addition, the Commission stated that it was mindful of the need to balance the market's demand for timely information and the administrative burden placed upon a filer to adequately and accurately prepare that information.

Finally, the Commission noted that the current 10-day filing deadline “contributes to information asymmetries that could harm investors” and stated that shortening that deadline could increase transparency and provide assurance “that transactions are not being made based on mispriced securities caused by a prolonged lag in the dissemination of market-moving information,” thereby improving investor confidence, market efficiency, and liquidity.

Proposing Release at 13851.

Id.

at 13852.

Proposing Release at 13850, 13852.

In the Proposing Release, the Commission also proposed to amend the initial Schedule 13D filing deadline under Rule 13d-1(e)(1), (f)(1), and (g) for largely the same reasons that it proposed to amend Rule 13d-1(a). Specifically, the Commission proposed to make conforming revisions to Rule 13d-1(e), (f), and (g) so that persons who initially elected to report beneficial ownership on Schedule 13G, in lieu of a Schedule 13D, but subsequently lost their eligibility would be treated no differently from persons who make a Schedule 13D their initial filing.

Accordingly, the Commission proposed to amend Rule 13d-1(e), (f), and (g) to make the required Schedule 13D—or, in the case of Rule 13d-1(g), the amendment to Schedule 13G indicating that the filer is now relying on Rule 13d-1(c), if applicable—due no later than five days after the date on which the person became ineligible to report on Schedule 13G.

Id.

at 13854.

Id.

b. Comments Received

Commenters

expressed a range of views on the proposed amendments to Rule 13d-1(a), (e), (f), and (g). A number of commenters supported shortening the deadline for filing an initial Schedule 13D from 10 days to five days.

Several

commenters asserted that the proposed amendments would increase the timeliness and quality of information for market participants.

A number of commenters asserted that the proposed amendments would increase transparency and fairness in the financial markets.

Throughout the release, in describing some of the comments we received on the Proposed Amendments, we focus on those commenters that responded to a specific request for comment or question raised in the Proposing Release or Reopening Release, or that addressed a specific Proposed Amendment. We note that several commenters expressed general support or opposition for the Proposed Amendments or raised concerns or made recommendations that are unrelated to or beyond the scope of the Proposed Amendments; we do not, however, summarize all of their comments in this release. For the sake of brevity, we also do not cite letters that substantially duplicate comments made in other letters that we cite in this release. For example, in response to the Reopening Release, a number of commenters submitted substantially identical letters generally supporting some of the Proposed Amendments and expressing concerns or making recommendations with respect to other parts of the Proposed Amendments.

See, e.g.,

Letter Type B,

available at https://www.sec.gov/comments/s7-06-22/s70622-typeb.htm;

Letter Type C,

available at https://www.sec.gov/comments/s7-06-22/s70622-typec.pdf.

We also note that several commenters submitted letters with substantially similar views as those expressed in Letter Type B, but with the letters worded sufficiently differently that they could not be consolidated with Letter Type B.

See, e.g.,

letter from Gerardo Cruz (June 27, 2023). We note the same with respect to Letter Type C.

See, e.g.,

letters from Chad Thompson (June 29, 2023); Bert Abanes (June 28, 2023). See

infra

note 37 for a discussion of Letter Type A. See

infra

note 458 for a discussion of Letter Type D and Letter Type E.

See, e.g.,

letters from Committee on Federal Regulation of Securities of the Section of Business Law of the American Bar Association (Apr. 28, 2022) (“ABA”) (expressly supporting only the proposed amendment to Rule 13d-1(a), but noting that “[t]he Committee is not unanimous in this view” and that “[t]here is support among some members of the Committee to further shorten the initial filing deadline to one or two calendar days” and that “there are other members of the Committee that suggest a five business day deadline is more appropriate”); Brandon Rees, Deputy Director of Corporations and Capital Markets, AFL-CIO (Apr. 11, 2022) (“AFL-CIO”) (expressly supporting only the proposed amendment to Rule 13d-1(a)); Americans for Financial Reform Education Fund (Apr. 11, 2022) (“AFREF”) (same); Americans for Financial Reform Education Fund, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), Communications Workers of America (CWA), Interfaith Center on Corporate Responsibility (ICCR), Public Citizen (June 27, 2023) (“AFREF, et al.”) (same); Anonymous (Feb. 19, 2022) (“Anonymous 1”); Anonymous (Feb. 19, 2022) (“Anonymous 3”); Anonymous (Feb. 20, 2022) (“Anonymous 5”); Anonymous (Mar. 14, 2022) (“Anonymous 11”); Anonymous (Mar. 14, 2022) (“Anonymous 12”); Anthony R., Individual Investors (Feb. 18, 2022) (“Anthony R.”); Better Markets (Apr. 11, 2022) (“Better Markets I”) (same); Better Markets (June 27, 2023) (“Better Markets II”) (same); Maria Ghazal, Senior Vice President and Counsel, Business Roundtable (Apr. 11, 2022) (“BRT”) (same); Curtis Robinson (Feb. 18, 2022) (“C. Robinson”); Richard F. McMahon, Jr., Senior Vice President, Energy Supply & Finance Edison Electric Institute (Mar. 22, 2022) (“EEI”); An Investor, Engineer (Apr. 4, 2022) (“Engineer”); Mark R. Allen, Executive Vice

President, FedEx Corporation (Apr. 12, 2022) (“FedEx”); Freeport-McMoRan Inc./Douglas N. Currault II, Senior Vice President and General Counsel (Apr. 11, 2022) (“Freeport-McMoRan”); Tyler Gellasch, Executive Director, Healthy Markets Association (Mar. 22, 2022) (“HMA I”); Healthy Markets Association (Apr. 29, 2022) (“HMA II”) (same); Jack Pieper (Feb. 21, 2022) (“J. Pieper”); Joshua Soucie, Managing Director, Singularity Acquisitions LLC (Feb. 21, 2022) (“J. Soucie”); Jonah (Feb. 18, 2022) (“Jonah”); Juan, Relationship Banker II (Feb. 19, 2022) (“Juan”); Brandon Rees, Deputy Director of Corporations and Capital Markets, AFL-CIO (June 6, 2022) (“Labor Unions”) (same); Mark C. (Feb. 19, 2022) (“Mark C.”); Mike (Feb. 23, 2022) (“Mike”); Jeffrey S. Davis, Senior Vice President and Senior Deputy General Counsel, Nasdaq, Inc. (Apr. 12, 2022) (“Nasdaq”); National Investor Relations Institute (Apr. 15, 2022) (“NIRI”) (same); Phillip Worts (July 29, 2023) (“P. Worts”); Marc Steinberg, Radford Chair in Law and Professor of Law, Southern Methodist University (Feb. 22, 2022) (“Prof. Steinberg”) (same); Society for Corporate Governance (Apr. 13, 2022) (“SCG”) (same); Christina Maguire, President and Chief Executive Officer, Society for Corporate Governance and Matthew D. Brusch, President and CEO, National Investor Relations Institute (July 7, 2023) (“SCG & NIRI”) (same); Tammy Baldwin, Sherrod Brown, Bernard Sanders, Elizabeth Warren, Tammy Duckworth, and Jeffrey A. Merkley, United States Senators (July 18, 2022) (“Sen. Baldwin, et al.”) (same); SIFMA Asset Management Group, William Thurn, Managing Director, SIFMA AMG (Apr. 11, 2022) (“SIFMA AMG”) (same); Theodore N. Mirvis, Adam O. Emmerich, David A. Katz, Sabastian V. Niles, Jenna E. Levine, and Carmen X. W. Lu (Feb. 10, 2022) (“T. Mirvis, et al.”); Taj Reilly (Feb. 19, 2022) (“T. Reilly”); TIAA (Apr. 11, 2022) (“TIAA”) (same); Todd (Feb. 19, 2022) (“Todd”); Wachtell, Lipton, Rosen & Katz (Apr. 11, 2022) (“WLRK I”) (same); Wachtell, Lipton, Rosen & Katz (Oct. 4, 2022) (“WLRK II”);

see also

Letter Type B; Letter Type C. We note that commenters submitted a substantively identical version of the letter from Sen. Baldwin, et al. an additional 16 times.

See

Letter Type A,

available at https://www.sec.gov/comments/s7-32-10/s73210-typeb.pdf.

As such, every citation to the letter from Sen. Baldwin, et al. in this release should also be read as a citation to those additional 16 submissions of the substantively identical letter.

See, e.g.,

letters from ABA; Anthony R.; FedEx; Freeport-McMoRan; Jonah; P. Worts; T. Mirvis, et al.

See, e.g.,

letters from ABA; AFREF, et al.; Anonymous 5; Anonymous 12; Better Markets I; FedEx; Freeport-McMoRan; Labor Unions; Nasdaq; P. Worts; Sen. Baldwin, et al.

Several commenters identified potential specific benefits of the proposed amendments. For example, some commenters asserted that the proposed amendments would be particularly beneficial for retail investors by providing them with additional information and transparency.

Another commenter stated that the proposed amendments would enable investors and the market to “better track when beneficial owners take significant positions in covered securities for purposes of controlling or exerting influence over issuers, resulting in more informed decision-making by investors and more accurate valuation of securities by the market.”

See, e.g.,

letters from C. Robinson (“I welcome all rules that require more disclosure and faster times to report[ ].”); J. Soucie; P. Worts.

See

letter from TIAA;

see also

letter from P. Worts.

Other commenters highlighted potential downsides of the current 10-day deadline. For example, one commenter described the 10-day deadline as costly to public companies and investors generally and based its support for the proposed amendments “on the fundamental concept that a public company must have timely information about its owners in order to engage with them effectively and respond promptly to their concerns.”

Another commenter stated that “[i]nvestors' and market participants' abilities to prudently manage their positions and exposures is materially undermined by the arbitrary, unnecessary, discriminatory delay in reporting.”

See

letter from SCG;

see also

letter from NIRI (stating that the proposal “would also ensure that public companies are not ambushed and are better prepared to respond to an activist investor who has accumulated a significant position over a relatively short period of time”).

See

letter from HMA I.

Several commenters suggested that the proposed amendments would reduce information asymmetry among market participants.

Other commenters raised similar information asymmetry-based concerns regarding the 10-day filing deadline. For example, one commenter expressed concern that under the current deadline, pension funds are deprived of any short-term gains from hedge fund activism if they sell shares during the 10-day delay in disclosure of a beneficial ownership stake.

Another commenter asserted that the current 10-day deadline “disadvantages selling shareholders after the 5% threshold is reached and permits activist investors to ambush public companies, often by disclosing an ownership interest that far exceeds 5% of shares outstanding.”

Further, one commenter suggested that the proposed amendments could help address information asymmetries that facilitate “stealth” accumulations at artificially low market prices, which purportedly transfer value from public investors to those activists engaged in seeking ownership, control, or influence over the target company.

See, e.g.,

letters from ABA; AFREF; AFREF, et al.; Better Markets II; Freeport-McMoRan; Nasdaq; NIRI; SCG; SCG & NIRI;

see also

Letter Type C. One of these commenters stated that “if the filing window is shortened, institutional investors will be better able to manage liquidity shocks in a way that serves their ultimate beneficiaries, instead of costing them money by unknowingly selling undervalued shares.”

See

letter from AFREF, et al.

See

letter from Labor Unions.

See

letter from NIRI.

See

letter from Better Markets I;

see also

letter from Better Markets II.

Other commenters supported the proposed amendments based on changes in technology and developments in the financial markets.

For example, one commenter supported the proposal based on the “increasing effectiveness of activist campaigns and their decreased cost due to advances in information technology and the rise of concentrated economic ownership in the United States,” citing “cost-effective activism” due to both the fact that “little more than 10 to 15 institutions are the target audience” and “the Commission's new universal proxy rule.”

Similarly, other commenters described the current Schedule 13D filing deadline as “outdated.”

One commenter agreed with the expressed concern in the Proposing Release that material information about potential change of control transactions is not being disseminated to the public in a manner that would be considered timely in today's financial markets.

One commenter cited an April 2020 survey it conducted of its members (composed of corporate officers and investor relations consultants) indicating that 82 percent supported modernization of the Schedule 13D filing deadlines.

See, e.g.,

letters from ABA; AFL-CIO; Better Markets I; BRT; C. Robinson; FedEx; Freeport-McMoRan; HMA I; HMA II; NIRI; SCG; Sen. Baldwin, et al.; T. Mirvis, et al.; T. Reilly; WLRK I; WLRK II;

see also

Letter Type B.

See

letter from WLRK II. The commenter also noted that “successful activism campaigns have been run by stockholders with relatively small stakes, often below or well below 5%.”

Id.

See, e.g.,

letters from Sen. Baldwin, et al.; T. Mirvis, et al.

See

letter from BRT.

See

letter from NIRI.

Several commenters noted that many foreign jurisdictions require beneficial ownership reporting on a shorter deadline than currently required under Regulation 13D-G.

One commenter disagreed with the notion expressed in the Proposing Release that the comparison of the beneficial ownership reporting deadline in the United States to foreign jurisdictions is imperfect because U.S. corporate law permits anti-takeover provisions that are not present in those jurisdictions.

To the contrary, that commenter asserted that some of those foreign jurisdictions are even less

“stockholder” and “activism” friendly than the United States, making corporate takeovers and activism more difficult, and described the corporate laws and corporate governance practices of those foreign jurisdictions as compared to the United States (focusing, in particular, on Delaware corporate law).

Other commenters noted that the proposed amendments would be consistent with similar Commission efforts to accelerate filing deadlines.

See, e.g.,

letters from AFREF; Better Markets I; SCG; Sen. Baldwin, et al.; WLRK II.

See

letter from WLRK II.

See id.

The commenter also presented statistics indicating that, notwithstanding the stricter beneficial ownership reporting obligations and purportedly increased inhibitions on shareholder activism, those foreign jurisdictions have experienced increased shareholder activism in recent years.

Id.

Some commenters, however, disagreed with and questioned the utility of this analysis of foreign jurisdictions.

See

letters from Jose Ceballos, Council for Investor Rights and Corporate Accountability (Dec. 20, 2022) (“CIRCA III”); Richard B. Zabel, General Counsel Chief Legal Officer, Elliott Investment Management L.P. (Nov. 21, 2022) (“EIM III”);

see also

letter from Richard B. Zabel, General Counsel Chief Legal Officer, Elliott Investment Management L.P. (June 27, 2023) (“EIM IV”) (reiterating the points made in the commenter's letter dated Nov. 21, 2022). One of those commenters asserted that “regulatory structures, as well as cultural norms . . . mean that activism in non-U.S. markets is less prevalent than in the United States” which is “to the detriment of investors in those non-U.S. markets where, in many cases, there remains a lack of independent voices in the market able to hold boards and management accountable.”

See

letter from EIM III. The commenter also stated that, because activism is less prevalent in those foreign jurisdictions than in the U.S., “[s]ome level of increased activist engagement in a handful of non-U.S. markets . . . does not mean that the Commission should seek to emulate regulatory structures in those other jurisdictions.”

Id.

The other commenter noted that the analysis ignores that some of the cited foreign jurisdictions offer benefits to shareholders that the United States does not.

See

letter from CIRCA III.

See, e.g.,

letters from SCG; WLRK I.

A number of commenters asserted that the proposed amendments would not impose significant costs or burdens on beneficial owners of more than five percent of a covered class.

For example, one of those commenters stated that the compliance costs of the proposed amendments “are unlikely to be unduly burdensome, in a manner that outweighs the benefits” of the proposal given the nature of investors that generally file a Schedule 13D and the technology available to them.

Another commenter agreed that the proposed amendments would be consistent in balancing investors' need for adequate disclosures with the burdens placed on filers to accurately prepare required disclosures.

See, e.g.,

letters from ABA; Anonymous 11; BRT; Freeport-McMoRan; J. Soucie; WLRK I.

See

letter from WLRK I.

See

letter from FedEx.

Several commenters stated that the proposed amendments would not significantly reduce shareholder activism.

For example, one commenter asserted that the proposed five-day deadline would not significantly impair the ability of activists to pursue their agendas.

Another commenter questioned whether there is an empirical basis for asserting that the proposed amendments would prevent shareholder activism and engagement.

Some commenters asserted that the proposed amendments would not interfere with shareholder activism on environmental, social, or governance (“ESG”) issues because many such activists are not Schedule 13D filers.

One commenter was “not persuaded that a 10-day delay in beneficial ownership disclosure after acquiring a 5 percent stake is needed to incentivize . . . [a] large investor to be an activist investor.”

And, one commenter asserted that the proposed amendments are “more likely to adversely affect short-term behaviors than long-term oriented activism.”

See, e.g.,

letters from ABA; AFREF; Better Markets I; Better Markets II; HMA II; Labor Unions; Sen. Baldwin, et al.; WLRK I.

See

letter from Better Markets I. The commenter stated that that many Schedule 13D filers currently do not avail themselves of the full 10-day filing period, many activists are effective in their campaigns without reaching the 5% beneficial ownership reporting threshold, and the proposed five-day deadline would give activists enough time to accumulate profits before public disclosure of their goals, enabling them to offset the costs of their activism.

Id.; see also

letter from Better Markets II (reiterating the point made in its first letter and citing the data and analysis in the DERA Memorandum for support).

See

letter from HMA II.

See

letters from Labor Unions; Sen. Baldwin, et al. One of those commenters noted that some of the most impactful ESG campaigns to date have occurred in Australia, where the beneficial ownership reporting deadline for a 5% stake is two business days, which “provides further evidence that a 10 day window is not needed to use shareholder activism to meaningfully change corporate behavior.”

See

letter from Sen. Baldwin, et al. The Commission is not expressing any view as to whether the measures described by the commenters referenced herein would constitute activities undertaken for the purpose of changing or influencing control of an issuer. Nothing stated in this release changes or supersedes the Commission's prior guidance regarding whether certain soliciting activity has a control purpose or effect.

See supra

note 29.

See

letter from AFL-CIO.

See

letter from WLRK I.

In addition, a number of commenters stated that shareholder activism is not uniformly beneficial for issuers and their shareholders.

For example, one commenter asserted that hedge fund activism could be contributing to an emphasis on short-term gains over sustainable, long-term growth that benefits longer-term investors.

One commenter noted that while a Schedule 13D filing by an activist may often lead to an immediate bump in the issuer's stock price, there is no compelling evidence that activist interventions deliver long-term value to shareholders.

One commenter asserted that the current 10-day deadline may discourage companies from going public, inhibiting capital formation, based on the threat of activism and “the burden of being subject to attacks by activist investors, a number of whom have short-term agendas.”

One commenter stated that activist investors often pressure companies and their management to agree to their short-term demands that may or may not be in the long-term interests of shareholders, employees, and other stakeholders.

Further, one commenter cited a study indicating that activist hedge fund campaigns targeting public companies are associated with a reduction in jobs, research and development spending, and capital expenditures, which arguably harms employees.

See, e.g.,

letters from AFREF; Better Markets I; HMA II; Labor Unions; NIRI; SCG; Sen. Baldwin, et al.; WLRK I.

See

letter from AFREF. The commenter also noted that while hedge fund activism is associated with short-term increases in shareholder value, the evidence is much more mixed on the question of whether hedge fund activism results in long-term gains.

Id.; see also

letter from Better Markets I (stating that the benefits of shareholders seeking to acquire or influence corporate control and policy are mixed because some act out of short-term profit motives, not a desire to promote long-term value).

See

letter from WLRK I.

See

letter from SCG. The commenter also stated that although activists would have less time to buy additional shares after crossing 5% under the proposal, there is no shareholder protection rationale that would justify forcing other investors to subsidize activists' efforts to build larger positions in issuers.

Id.

See

letter from NIRI.

See

letter from Labor Unions. The commenter also asserted that the proposed amendments would benefit pension funds based on a study it cited that found that while company value tends to increase in the first three years after being targeted by an activist hedge fund, these gains tend to be reversed in the fourth and fifth years.

Id.; see also

letter from Sen. Baldwin, et al. (citing the same study for the proposition that “research . . . shows the stock price increase [associated with an activist's Schedule 13D filing] is temporary and in fact the company is often in a weaker economic position post-activist intervention”).

But see

letter from International Institute of Law and Finance (Nov. 1, 2022) (“Profs. Bishop and Partnoy II”) (critiquing the cited study, noting, among other things, that “a simple analysis of the data, not undertaken in that study, shows that employment levels at firms targeted by activists decrease substantially in the years prior to an activist intervention, violating the parallel trends assumption that is required to make any sort of causal inference from the empirical design”).

Finally, commenters raised a variety of other points in support of the proposed amendments. For example, one commenter stated that the balance that Congress sought to strike in the Williams Act

was between activist investors seeking to change companies

and those companies' management—not between an activist investor and a company's other investors.

One commenter stated that the proposed amendments could moderate the sudden, abrupt changes in corporate governance that often occur in issuers targeted by activist investors.

And, one commenter noted that the proposed amendments fall “squarely” within the Commission's legal authority under section 929R of the Dodd-Frank Act and align with the Williams Act's intent because Congress chose a 10-day deadline to accommodate the practical challenges associated with preparing and filing a Schedule 13D.

Public Law 90-439, 82 Stat. 454 (July 29, 1968).

See

letter from HMA II. The commenter also stated that there is no evidence or legitimate policy rationale to support a connection between the purported benefits of activist strategies generally on the one hand, and the purported need to preserve the ability of the small subset of investors engaged in them to be able to trade while in possession of material, non-public information to the detriment of other investors—for precisely 10 days.

Id.

See

letter from AFREF. The commenter stated that the proposed amendments could decrease the likelihood of issuers that are not targeted by activist investors taking preemptive steps (

e.g.,

overspending on short-term shareholder payouts and forgoing investments necessary for long-term financial health and growth) to avoid becoming targets of activism.

Id.

The commenter also asserted that the proposed amendments would benefit shareholders and other market participants by facilitating sound corporate governance.

Id.

For example, the commenter stated that a shortened filing deadline would help investors ensure their asset managers are fulfilling their fiduciary duties and help inform the education and advocacy efforts of those with a stake in proxy contests, shareholder resolutions, and other important votes.

Id.

See

letter from Better Markets I.

A number of commenters opposed shortening the initial Schedule 13D filing deadline to five days.

Several commenters expressed concern that the proposed amendments would disincentivize shareholder activism by reducing the amount of time that such shareholders have to accumulate positions in an issuer before filing a Schedule 13D, thereby depriving issuers and their shareholders of the positive benefits of such activism.

For example, one commenter stated that “if active shareholders are unable to establish an economically efficient pre-disclosure ownership stake, public company shareholders (and the economy more broadly) will be less likely to benefit from the improved stock price performance that often attends the monitoring and engagement activities pursued by engaged shareholders, given that such shareholders would have difficulty justifying certain engagements with issuers.”

Similarly, another commenter asserted that the proposal would “mak[e] it more costly for blockholders to build a sufficient position to effect change” and “reduce the profitability of, and therefore the incentive to pursue, activist strategies,” which would “reduce management's accountability to shareholders and corporate governance generally.”

And another commenter stated that “although the SEC requires an activist buyer to disclose information that the buyer

has acquired,

the SEC fails to ask whether the buyer

would acquire

the information initially” and suggested that, under the proposed deadline, “the buyer would often be unlikely to make the original investment in information.”

See, e.g.,

letters from Adrian Day, RIA (Feb. 12, 2022) (“A. Day”); Daniel Austin, Director, U.S. Policy and Regulation, Alternative Investment Management Association (Apr. 11, 2022) (“AIMA”); Ben Mason (June 26, 2023) (“B. Mason”); Bernard Sharfman (Mar. 22, 2022) (“B. Sharfman”) (expressly opposing only the proposed amendment to Rule 13d-1(a)); CIRCA (Apr. 11, 2022) (“CIRCA I”) (same); CIRCA III (same); Milan Dalal, CIRCA (June 27, 2023) (“CIRCA IV”) (same); Charles F. Pohl, Chairman, Dodge & Cox (Apr. 12, 2022) (“Dodge & Cox”); Edwin Fraser (Apr. 11, 2022) (“E. Fraser”) (same); Susan Olson, General Counsel and Sarah Bessin, Associate General Counsel, Investment Company Institute (Apr. 7, 2022) (“ICI I”); Irenic Capital Management LP (Apr. 11, 2022) (“ICM”) (same); Marcus Frampton (Mar. 16, 2022) (“M. Frampton”) (same); Managed Funds Association (Apr. 11, 2022) (“MFA”) (same); National Venture Capital Association (Apr. 11, 2022) (“NVCA”) (same); Perkins Coie LLP (Apr. 12, 2022) (“Perkins Coie”); Jeffrey N. Gordon, Professor of Law, Columbia Law School (June 20, 2022) (“Prof. Gordon”) (same); Robert Eccles and Shivaram Rajgopal (Mar. 31, 2022) (“Profs. Eccles and Rajgopal”) (same); Alan Schwartz, Sterling Professor, Yale Law School and the Yale School of Management and Steven Shavell, Samuel R. Rosenthal Professor of Law and Economics, Harvard Law School Director, John M. Olin Center for Law, Economics & Business, Harvard University (Apr. 12, 2022) (“Profs. Schwartz and Shavell I”) (same); Alan Schwartz, Sterling Professor, Yale Law School and the Yale School of Management and Steven Shavell, Samuel R. Rosenthal Professor of Law and Economics, Harvard Law School Director, John M. Olin Center for Law, Economics & Business, Harvard University (May 15, 2022) (“Profs. Schwartz and Shavell II”) (same); Edward P. Swanson, Texas A&M University, Glen M. Young, Texas State University, and Christopher G. Yust, Texas A&M University (Feb. 19, 2022) (“Profs. Swanson, Young, and Yust”) (same); Rolf Parta (Apr. 7, 2022) (“R. Parta”) (same); Allison K. Thacker, President and Chief Investment Officer, Rice Management Company, Treasurer, William Marsh Rice University (Mar. 21, 2022) (“Rice Management”) (same); Jennifer Nadborny, Simpson Thacher Bartlett LLP (Apr. 11, 2022) (“STB”) (same); Donna Anderson, Marc Wyatt, and Bob Grohowski, T. Rowe Price (Apr. 11, 2022) (“TRP”) (same).

See, e.g.,

letters from AIMA; CIRCA I; CIRCA III; CIRCA IV; Dodge & Cox; ICM; MFA; Prof. Gordon; Profs. Eccles and Rajgopal; Profs. Schwartz and Shavell I: Profs. Schwartz and Shavell II; Profs. Swanson, Young, and Yust; Rice Management; TRP.

See

letter from ICM.

See

letter from AIMA.

See

letter from Profs. Schwartz and Shavell II (emphasis in original);

see also

letter from Profs. Schwartz and Shavell I.

In addition, one commenter expressed concern that the proposed amendments would disproportionately disincentivize shareholder activism that is targeted towards reforms other than a sale of the issuer.

Another commenter asserted that the proposed amendments would inhibit an activist investor's ability to make overtures to an issuer's management prior to public disclosure and to consult with other shareholders to ensure that shareholders' opinions and proposals are considered when approaching management.

And, one commenter stated that the proposed amendments would particularly disincentivize activism at medium- and small-cap companies because a larger economic position is needed to offset the activists' costs.

See

letter from Profs. Swanson, Young, and Yust. The comment letter also stated that if the proposed accelerated initial Schedule 13D filing deadline reduces activists' ability to profit from price discovery, the proposed amendments could reduce market efficiency.

Id.

See

letter from CIRCA I. In a separate letter, this commenter also disagreed with those supporting commenters that expressed concern about the negative effects that activists may have on targeted companies and cited data indicating that activist interventions benefit all shareholders in both the short- and long-term.

See

letter from CIRCA III.

See

letter from Prof. Gordon;

see also

letter from ICM (predicting a reduction in shareholder activism and related benefits for other shareholders and stating that the predicted “harms . . . will be most pronounced at micro-, small-, and mid-capitalization issuers . . . where the majority of active shareholder engagement occurs”).

Several commenters took issue with the information asymmetry concerns that the Commission expressed as a justification for the proposed amendments.

For example, one commenter cited data indicating that shareholders who sell during the period after an activist accumulates more than five percent beneficial ownership but before the activist files its Schedule 13D

still generally benefit from that activist's accumulation because the stock price generally increases prior to the Schedule 13D filing.

Some commenters stated that the information asymmetry described in the Proposing Release is no different from the general asymmetry that exists in the market when any investor—activist or otherwise—determines to invest the time and resources to develop and then implement an investment thesis.

Similarly, some commenters asserted that information asymmetry is a quintessential element of the U.S. capital markets where investors are, and should be, entitled to profit from their analysis, hard work, and risk taking.

Other commenters stated that selling shareholders are not forced to sell their shares and do so voluntarily, either seeking liquidity or because they have doubts about the issuer's prospects, and noted that such shareholders have the same access as the Schedule 13D filer to disclosures from both the issuer and insiders.

Some commenters asserted that the Commission ignored the fact that although some investors may miss out on selling at an appreciated price once the Schedule 13D is filed, a larger number of investors generally will benefit from the efforts of an activist.

Finally, one commenter asserted that the Williams Act was not intended to address information asymmetry-based concerns or the interests of shareholders who elect to sell prior to the disclosure of an initial Schedule 13D and cited to the legislative history and a U.S. Supreme Court decision to support such assertion.

See, e.g.,

letters from AIMA; CIRCA I; CIRCA III; CIRCA IV; Dodge & Cox; ICM; Prof. Gordon; Profs. Swanson, Young, and Yust; TRP. In addition, one commenter did not oppose the proposal but expressed concern about the information asymmetry-based justification.

See

letter from Elliott Investment Management L.P. (Apr. 11, 2022) (“EIM I”). That commenter stated, among other things, that “the suggestion that an activist's awareness of her confidential intention to build a position in a public company should prohibit her from trading is both illogical and inconsistent with established law” and contrasted the proposal with the “recently proposed short sale reporting rulemaking” in which “the Commission . . . expressly provided an alternative that protects the confidentiality of short sellers and their strategies, in recognition that disclosure would vitiate the value of their research.”

Id.

(citing Short Position and Short Activity Reporting by Institutional Investment Managers, Release No. 34-94313 (Feb. 25, 2022) [87 FR 14950 (Mar. 16, 2022)] (“Short Position Reporting Proposal”));

see also

letter from Richard B. Zabel, General Counsel & Chief Legal Officer, Elliott Investment Management L.P. (Sept. 18, 2023).

See

letter from Profs. Swanson, Young, and Yust.

See, e.g.,

letters from CIRCA I; ICM; Prof. Gordon. These commenters also asserted that the Commission has long recognized the legitimacy of this asymmetry, including by allowing confidential treatment in Form 13F filings and in other contexts.

Id.

See, e.g.,

letters from CIRCA I; ICM; Prof. Gordon.

See, e.g.,

letters from AIMA; ICM. Similarly, one commenter noted the absence of data indicating that shareholders are harmed by the timing of when they sell a security under the current Schedule 13D reporting regime and posited that shareholders selling during the 10-day period are generally sophisticated, non-retail investors seeking liquidity based on an investment strategy which is unrelated (and indifferent) to disclosure indicating whether an activist has a stake in the company.

See

letter from CIRCA III.

See

letters from AIMA; TRP.

See

letter from ICM (citing

Rondeau

Mosinee Paper Corp.,

422 U.S. 49 (1975));

see also

letters from B. Sharfman (“[T]he U.S. Supreme Court has repeatedly and unambiguously stated that the `sole purpose' of the Williams Act was for the protection of investors who are confronted with a

cash tender offer.”

(citing

Piper et al.

Chris-Craft Industries, Inc.,

430 U.S. 1 (1977)); EIM IV (citing

Rondeau,

422 U.S. 49, for the same proposition, but not expressly opposing the proposal).

A number of commenters also disagreed with the Commission's technological advancement- and financial market development-based justifications for the proposed acceleration of the beneficial ownership reporting deadlines.

For example, some commenters asserted that neither Congress nor the Commission previously suggested that technological ability to file is or should be the primary basis to determine the appropriate filing deadlines for Schedules 13D and 13G.

One commenter asserted that the Commission has not made significant technological advances over the years to its own systems that market participants rely on to prepare Schedules 13D and 13G, making it challenging and costly for investors to gather the information about beneficial ownership they need to file Schedules 13D and 13G.

One commenter asserted that technological advances do not support shortening the filing deadline as proposed because despite advances in technology, the filing process still has numerous operational components that take time to complete.

Another commenter stated that recent trends indicate that activist investors are having a moderate and declining impact in the United States and, therefore, the Commission should “encourage new forms of activism, not suppress them.”

See, e.g.,

letters from AIMA; CIRCA IV; Dodge & Cox; ICI I; ICM; Robert E. Bishop, Fellow, UC Berkeley School of Law Center for Law and Business, Frank Partnoy, Adrian A. Kragen Professor of Law, UC Berkeley School of Law (Apr. 11, 2022) (“Profs. Bishop and Partnoy I”); STB;

see also

letter from Investment Adviser Association (Apr. 11, 2022) (“IAA”) (neither clearly supporting nor opposing the proposed amendments, but expressing certain concerns and making certain recommendations regarding the proposed amendments).

See, e.g.,

letters from AIMA; ICI I; ICM; STB.

See

letter from ICI I.

See

letter from IAA. The commenter cited legal developments since 1968, including various anti-takeover mechanisms and the adoption of section 13(f) and Form 13F, as well as certain technological developments that provide public companies with the benefit of nearly-contemporaneous insight into their shareholder base and that have facilitated management entrenchment as offsetting factors to any technological advancements during that time period that would increase the ease of making a Schedule 13D filing.

Id.

See

letter from Profs. Bishop and Partnoy I. The commenter further said that “given the development of poison pills, public company boards are no longer monitored by hostile takeovers, so activism is the remaining recourse.”

Id.

Several commenters expressed concerns that the proposed amendments do not align with the purpose or objectives of the Williams Act. For example, one commenter asserted that the proposed amendments “would necessarily be considered to be beyond [the Commission's] statutory authority and an `abuse of discretion,' if not `arbitrary and capricious' under the APA” because the proposed rule does not connect the proposed reduction in filing time with what the commenter described as the “sole purpose” of the Williams Act under Supreme Court precedent, namely the protection of shareholders confronted with a cash tender offer.

Another commenter stated that not all of the investors who file on Schedule 13D are activist investors engaging in the types of activities the Williams Act seeks to regulate.

Other commenters expressed concern that the proposed amendments would disrupt the balance that the Williams Act sought to strike.

See

letter from B. Sharfman.

See

letter from STB. The commenter noted that many Schedule 13D filers are former Exempt Investors who became disqualified to file on Schedule 13G because they acquired more than 2% beneficial ownership in a 12-month period.

Id.

The commenter also noted that many Schedule 13D filers are investors who seek a minority position and potentially a board seat (given their desire to more actively monitor their sizeable investment), but seek to work cooperatively with the issuer, with the goal of building shareholder value for all investors, and possess no intent to replace a majority of the board of directors, launch a tender offer, or make an offer to take the company private.

Id.

See

letters from CIRCA IV; ICM.

Some opposing commenters detailed the potential compliance burdens that the proposed amendments could impose. For example, some commenters expressed concern that the proposed five-day deadline would be unduly burdensome for smaller and non-institutional beneficial owners.

Other commenters asserted that the proposed amendments would present compliance challenges

100

and create significant reporting and monitoring burdens.

101

One commenter expressed concern that the proposed amendments could negatively impact the ability of investors and their advisors to draft meaningful disclosures and engage in thoughtful analysis.

102

See

letters from A. Day; E. Fraser.

100

See

letter from NVCA.

101

See

letter from Perkins Coie;

see also

letter from Jennifer W. Han, Executive Vice President, Chief Counsel & Head of Global Regulatory Affairs, Managed Funds Association and National Association of Private Fund Managers (July 24, 2023) (“MFA & NAPFM”) (describing potential costs associated with the Proposed Amendments, but not expressly opposing the Proposed Amendments).

102

See

letter from STB. For example, the commenter suggested that in order to avoid making a “late” filing with the Commission, beneficial owners may shift to boilerplate disclosures in their Schedule 13D filings, which can be prepared more quickly but are less useful to investors and regulators.

Id.

Other commenters raised various other concerns regarding the proposed

amendments. For example, a number of commenters expressed concerns that the proposed amendments would increase management entrenchment and reduce shareholder engagement and corporate accountability.

103

One commenter stated that although “some purchasers may file within fewer than the required 10 days for Schedule 13D,” that “does not justify accelerating the reporting timeline.”

104

One commenter also noted that the proposed accelerated initial Schedule 13D filing deadline could result in activist investors relying more heavily on derivatives, such as total return swaps and call options.

105

One commenter asserted that the Commission has not provided a compelling justification for the proposed amendments or provided evidence to support its concerns regarding information asymmetries and reporting gaps that would warrant the proposed acceleration of the beneficial ownership reporting deadlines.

106

One commenter expressed concern that the proposed amendments would induce a front-running effect that would distort market pricing and increase market volatility.

107

Other commenters asserted that investors already have access to all of the volume and price data for publicly traded companies that they need to take appropriate action and, therefore, do not need additional information regarding holdings by significant beneficial owners.

108

103

See, e.g.,

letters from AIMA; CIRCA I; CIRCA III; Dodge & Cox; ICM; M. Frampton; MFA; Rice Management; TRP.

104

See

letter from AIMA. According to the commenter, “[m]ost investors will have a total aggregate investment in mind,” and “[w]hen the investor reaches this level and exceeds the 5% threshold, she files her Schedule 13D,” but “[t]his standard market practice in no way suggests that all other holders who are continuing to accumulate shares should be required to file earlier.”

Id.

105

See

letter from Profs. Swanson, Young, and Yust.

106

See

letter from ICI I.

107

See

letter from Rice Management.

108

See

letters from ICM; R. Parta.

In addition, one commenter expressed concern that the Commission has not cited a market event or failure related to the existing beneficial ownership regime to support the proposed amendments.

109

That commenter distinguished the proposed amendments from other congressional efforts to accelerate public disclosures based on the fact that the proposed amendments apply to unrelated, third-party investors rather than issuers or insiders.

110

Finally, one commenter asserted that the proposed amendments conflict with contract law in the United States, which generally refrains from imposing disclosure obligations on buyers of property.

111

109

See

letter from AIMA.

110

Id.

The commenter also stated that although some beneficial owners file a Schedule 13D before the end of the 10-day deadline, this does not support shortening the deadline because the decision as to when to file is based on each investor's target accumulation level.

Id.

111

See

letter from Profs. Schwartz and Shavell I.

Some of the commenters that generally supported the proposed amendments also made various recommendations to the Commission. For example, one commenter recommended that the Commission require that an initial Schedule 13D be filed by the end of the day on which a person acquires beneficial ownership of more than five percent of a covered class.

112

Another recommended that the Commission require that an initial Schedule 13D be filed within one calendar day of a person acquiring three percent, rather than more than five percent, of a covered class and that a person be prohibited from acquiring more than three percent until one business day after filing a Schedule 13D.

113

Similarly, one commenter recommended that the Commission require that an initial Schedule 13D be filed within one business day after crossing the five percent threshold and institute a moratorium on the acquisition of beneficial ownership of additional equity securities of an issuer by any acquirer required to file a Schedule 13D that would be in effect from the acquisition of a five percent beneficial ownership stake until two business days after filing the Schedule 13D.

114

112

See

letter from Corey (Feb. 19, 2022) (“Corey”).

113

See

letter from Prof. Steinberg.

114

See

letter from WLRK I. The commenter asserted that the proposed five-day deadline will still substantially fail to serve the purpose of the Williams Act to require the timely release of information to the investing public with respect to the accumulation of substantial ownership of an issuer's voting securities.

Id.

According to the comment, this will “provide hedge funds and activist shareholders ample time to accrue significant stakes in an issuer and “improperly exploit, and profit from, information asymmetries at the expense of other public investors.”

Id.

The commenter also stated that the moratorium is necessary to address information asymmetries and ensure the markets have time to assess impact of Schedule 13D filing and likened it to the 10-business day cooling off period applicable to Passive Investors switching from Schedule 13G filers to Schedule 13D filers.

Id.

Other supporting commenters recommended that the Commission require that an initial Schedule 13D be filed within two business days, consistent with the filing deadline for a Form 4.

115

One supporting commenter recommended that the Commission require that an initial Schedule 13D be filed within three days rather than five days.

116

Other supporting commenters recommended that the Commission consider further shortening the beneficial ownership reporting deadlines without specifying an alternative filing deadline.

117

115

See, e.g.,

letters from NIRI; SCG; SCG & NIRI;

see also

Letter Type C; letter from PL Salvati (Aug. 9, 2023) (“PL Salvati”) (neither clearly supporting nor opposing the proposal, but recommending a two-business day deadline).

116

See

letter from T. Reilly.

117

See, e.g.,

letters from AFREF; Freeport-McMoRan; HMA I.

In addition, some of the commenters that generally opposed the proposed amendments made various recommendations to the Commission. For example, one recommended that rather than shortening the Schedule 13D filing deadline, the Commission should impose a prohibition on tipping by an activist as soon as it reaches the five percent threshold until it files a Schedule 13D.

118

Another recommended that the Commission include an assets under management-based threshold for the proposed accelerated Schedule 13D filing deadlines.

119

118

See

letter from Prof. Gordon.

119

See

letter from A. Day.

Other opposing commenters recommended that the Commission consider a “tiered approach” to Rule 13d-1(a).

120

For example, one commenter suggested a tiered approach designed to vary the reporting deadline for an initial Schedule 13D based on the issuer's market capitalization without any limitation on acquisitions during the period between the time that the investor acquires more than five percent of a covered class and the time that the initial Schedule 13D is filed.

121

Another opposing commenter recommended that the Commission require those who cross certain thresholds (

e.g.,

10 percent) or accumulate certain amounts after crossing five percent (

e.g.,

an additional three percent) to file on the more accelerated timeline, but allowing investors who trigger Schedule 13D filings for more technical reasons and who are not accumulating stock in connection with a potential activist engagement (

e.g.,

proxy contests or intended take-private activity) to continue filing under the current regime.

122

120

See

letters from ICM; STB.

121

See

letter from ICM.

122

See

letter from STB.

Some opposing commenters recommended that if the Commission revises the initial Schedule 13D filing deadline, it should adopt a different deadline than proposed. For example, one commenter recommended that the

Commission consider extending the filing deadline (

e.g.,

to 15 or 30 days) rather than accelerating it.

123

One commenter recommended that the Commission require an initial Schedule 13D be filed within eight days rather than the proposed five days.

124

Other commenters recommended that the Commission require an initial Schedule 13D be filed in five business days rather than five calendar days.

125

Some of those commenters suggested that a five-business day deadline would be more appropriate in light of the steps required to prepare and file an accurate Schedule 13D,

126

and one commenter noted that most analogous securities laws governing reporting of material changes (

e.g.,

Form 8-K and Exchange Act section 16 filings) require filings within time periods designated in business days rather than calendar days.

127

123

See

letter from E. Fraser. The commenter also recommended that the Commission consider a provision for when a shareholder's position goes over the 5% threshold because of ordinary corporate actions that result in the number of outstanding shares to drop such that the shareholder unwittingly holds over the 5% of outstanding shares and recommended that the Commission consider increasing the threshold from greater than 5% beneficial ownership to 10%.

Id.

124

See

letter from MFA.

125

See, e.g.,

letters from Dodge & Cox; ICI I; SIFMA AMG; STB;

see also

IAC Recommendations (recommending that the Commission adopt a five-business day deadline, rather than a five-calendar day deadline, for an initial Schedule 13D filing).

126

See

letters from Dodge & Cox; ICI I.

127

See

letter from STB;

see also

IAC Recommendations.

Finally, some commenters that neither clearly supported nor opposed the proposed amendments made recommendations to the Commission. Several commenters recommended an alternative filing deadline than proposed, with some suggesting that the Commission require an initial Schedule 13D be filed within one day,

128

within two days,

129

five business days,

130

or on the same day as the event triggering the filing obligation.

131

Some commenters expressed a general preference for a deadline expressed in “business days” rather than “calendar days.”

132

And, one commenter recommended that to the extent the Commission is concerned about Schedule 13D filers acquiring additional shares after crossing the five percent threshold without public disclosure, it should prohibit trading after crossing the five percent threshold rather than accelerating the filing deadlines.

133

128

See, e.g.,

letters from Jason Dunlop, Software Developer for the FAA (Feb. 19, 2022) (“J. Dunlop”); John Kennedy, Tax Paying American Citizen (Feb. 22, 2022) (“J. Kennedy”); Phillip, Retail Investor (Feb. 19, 2022) (“Phillip”). These commenters suggested that all beneficial ownership reports should be filed within one day.

see also

Adam O. Emmerich et al.,

Fair Markets and Fair Disclosure: Some Thoughts on the Law and Economics of Blockholder Disclosure, and the Use and Abuse of Shareholder Power,

3 Harv. Bus. L. Rev. 135, 143 (2013) (noting that the 10-day Schedule 13D filing deadline reflected “commercial and technological realities that existed in 1968, [which] would have included the time required to mail the Schedule 13D to the SEC's office”); letter from Wachtell, Lipton, Rosen & Katz to Elizabeth M. Murphy, Sec'y, U.S. Sec. & Exch. Comm'n (Mar. 7, 2011) (“Wachtell Petition”) at 1-7,

available at https://www.sec.gov/rules/petitions/2011/petn4-624.pdf

(petitioning the Commission to propose amendments to the beneficial ownership reporting rules to, among other things, shorten the Schedule 13D filing deadline from 10 days to one business day based, in part, on “[c]hanges in technology, acquisition mechanics and trading practices [that] have given investors the ability to make these types of reports with very little advance preparation time” and the fact that “the markets rely on the expectation that material information wil1 be disseminated promptly and widely, in no small part due to the impact of the internet and online information exchange”).

140

See, e.g.,

letter from SCG. This commenter noted, for example, that “investment managers [in 1968] didn't have access to email, instant messaging, fax machines, market data terminals, computer-assisted trading technology, or alternative `dark pool' trading venues that help facilitate the accumulation of significant positions.”

Id.

The commenter also noted that “[d]aily trading volumes on U.S. exchanges, which averaged 22 million shares in 1968, have grown by more than 1,000 times.”

Id.

141

Shortening the Securities Transaction Settlement Cycle,

Release No. 34-96930 (Feb. 15, 2023) [88 FR 13872, 13873 (Mar. 6, 2023)].

142

Id.

at 13873, 13916.

143

See

letter from SCG (“Fifty-four years ago, there was no standard period for settling securities trades; today the settlement cycle is two business days and the Commission recently proposed shortening that period further to `T+1' (one business day) by 2024 to reduce risks to investors.”). See also

infra

text accompanying note 677 for further discussion of some ways in which investors may be able to acquire a significant equity stake more quickly in today's financial markets.

144

Public Law 111-203, 124 Stat. 1900 929R(a)(1)(A) (2010).

We note that our shortening of the initial filing deadline for Schedule 13D is consistent with previous congressional and Commission efforts to accelerate public disclosures of material information to the market.

145

For example, in 2002, when the Commission accelerated the deadlines for issuers to submit their periodic reports, it reasoned that “[s]ignificant technological advances over the last three decades have both increased the market's demand for more timely corporate disclosure and the ability of companies to capture, process and disseminate this information.”

146

Similarly, the Commission has long recognized the benefits of more expedient reporting, stating, for example, that “a lengthy delay before . . . information becomes available makes the information less valuable to investors.”

147

145

For example, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) amended section 16(a) of the Exchange Act to require that change of beneficial ownership reports under section 16(a) of the Exchange Act be filed by officers, directors and beneficial owners of more than 10% of a covered class “before the end of the second business day following the day on which the subject transaction has been executed.” On Aug. 27, 2002, the Commission adopted amendments to implement the accelerated deadline for Form 4 filings, shortening the deadline from 10 days after the close of each calendar month to two business days after a filing obligation is triggered.

See Ownership Reports and Trading by Officers, Directors and Principal Security Holders,

Release No. 34-46421 (Aug. 27, 2002) [67 FR 56461 (Sept. 3, 2002)]. On Mar. 16, 2004, the Commission amended Form 8-K to generally require that such filings be made within four business days of a triggering event. In adopting the accelerated timeline, the Commission explained the amended requirement “should enhance investor confidence in the financial markets.”

Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date,

Release No. 34-49424 (Mar. 16, 2004) [69 FR 15593 at 15611 (Mar. 25, 2004)]. The Commission further explained that “[t]he requirement of enhanced, timely disclosure should raise investors' expectations regarding the amount and timing of information that reporting companies must make available to the public” and that “[c]onfidence in the expectation of such enhanced disclosure should provide more certainty to those investors that they are making investment decisions in a more transparent market, which should reduce market volatility as a result of uncertainty of the availability of accurate timely information about public companies.”

Id.

146

Acceleration of Periodic Report Filing Dates and Disclosure Concerning website Access to Reports,

Release No. 34-46464 (Sept. 5, 2002) [67 FR 58479 (Sept. 16, 2002)]. We recognize that these accelerated deadlines applied to periodic filings made by issuers, whereas sections 13(d) and (g) relate to filings made by investors.

See supra

note

110 and accompanying text. We also recognize that the acceleration of these deadlines was prompted, in part, by section 409 of the Sarbanes-Oxley Act, which “added Section 13(l) of the Exchange Act . . . [to] require[ ] disclosure on a

rapid and current

basis of such additional information concerning material changes in the financial condition or operations of the issuer,”

id.

at n.15 and accompanying text (emphasis added), whereas no such “rapid and current” language exists in sections 13(d) and 13(g). Nonetheless, the technological advances that have increased both the market's demand for more timely disclosure and the ability of issuers to file more rapidly are equally applicable to the information disclosed on Schedule 13D and available to investors making Schedule 13D filings. For example, Congress recognized the market's demand for more timely disclosure of non-issuer filings by accelerating the deadline for section 16 filings in the Sarbanes-Oxley Act.

See supra

note 145. As such, we believe that these technological advances and market practices also support accelerating the initial Schedule 13D filing deadline.

147

Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports,

Release No. 34-46464 (Sept. 5, 2002) [67 FR 58479, 58483 (Sept. 16, 2002)];

see also

H.R. Rep. 90-550 (1967) (“The persons seeking control, however, have information about themselves and about their plans which, if known to investors, might substantially change the assumptions on which the market price is based. The bill is designed to make relevant facts known so that shareholders have a fair opportunity to make their decision.”).

Despite those efforts to accelerate various other reporting deadlines, the initial Schedule 13D filing deadline has remained unchanged since its enactment in 1968. As a number of commenters pointed out, there have been significant changes in technology and developments in the financial markets in the intervening years that have rendered the 10-day deadline “outdated.”

148

Commenters also highlighted some costs that the current 10-day deadline may be imposing on market participants (

i.e.,

by delaying the disclosure of potentially material information)

149

and identified some potential benefits of shortening that deadline, including increased timeliness of information and improved transparency and fairness in the financial markets.

150

We agree with those commenters that shortening the initial Schedule 13D filing deadline will increase the timeliness of the disclosure of material information, thereby improving market transparency, facilitating better-informed decision-making by investors, and enhancing the efficiency of resource allocation (

i.e.,

the direction of capital and other resources to their most productive uses) across the economy.

151

148

See supra

notes 48-52 and accompanying text.

149

See supra

notes 42-43 and accompanying text.

150

See supra

notes 38-41 and accompanying text.

151

See infra

section IV.C.1.a.ii.

We recognize that several commenters opposed the proposed amendments to Rule 13d-1(a), (e), (f), and (g). Some commenters asserted that neither Congress nor the Commission previously suggested that technological ability to file should be the primary basis to determine the appropriate initial Schedule 13D filing deadline.

152

There is some indication, however, that when enacting the 10-day deadline, Congress considered the amount of time a beneficial owner would need to prepare and submit a filing.

153

As noted above, there have been significant technological advancements since 1968 that have made it easier to prepare and file a Schedule 13D more quickly.

154

There also is some indication that Congress enacted section 13(d), in part, to provide shareholders with material information regarding potential changes in control in a timely manner to facilitate their investment decisions.

155

Because changes in technology and developments in the financial markets since 1968 have facilitated investors' abilities to rapidly accumulate beneficial ownership,

156

we believe it is appropriate to shorten the initial Schedule 13D deadline so that the rate at which shareholders become aware of such accumulations keeps pace.

157

152

See supra

note 92 and accompanying text.

153

See, e.g.,

Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. on Securities of the S. Comm. on Banking and Currency, 90th Cong. 136 (1967) (statement of Stanley Kaplan, Professor, University of Chicago) (stating that “[r]equiring the filing . . . within seven days after acquisition of 10% of equity securities seems to provide an unduly short time for preparation of a document of that magnitude and significance” and noting that “[i]t will take longer to prepare and check such a document properly”).

154

See supra

notes 138-139 and accompanying text.

155

See

Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. On Securities of the S. Comm. On Banking and Currency, 90th Cong. 25 (1967) (statement of Manuel F. Cohen, Chairman, Securities and Exchange Commission) (“We think that this bill would improve our ability to elicit . . . information [regarding changes of control] . . . in a timely way, that is necessary for appropriate investor information and judgment.”);

see also

letter from STB (stating that “calculation of beneficial ownership remains an extremely manual process, can involve significant judgment and relies on third party information”). Others described some ways in which it may be more difficult to accumulate a significant equity stake in today's financial markets.

See infra

notes 678-679 and accompanying text. As an initial matter, we expect that the change from the proposed five-calendar day deadline to a five-business day deadline should mitigate these concerns.

See infra

note 165 and accompanying text. In addition, for the reasons discussed

infra

notes 166-168 and accompanying text, we believe that our analyses of the current timing of Schedule 13D filings and accumulations of significant equity stakes demonstrate that Schedule 13D filers are capable, utilizing modern technology and in light of the characteristics of today's financial markets, of complying with the amended five-business day deadline. This is especially so given the sophistication and size of many Schedule 13D filers.

See supra

note 58 and accompanying text. Finally, some commenters expressed concerns about filers' ability to meet the proposed deadline (as well as the other Schedule 13D and 13G filing deadlines) given the amount of time it may take to obtain EDGAR filer codes.

See, e.g.,

letters from MSBA; STB. To ensure they obtain their EDGAR filer codes in a timely manner, we generally expect filers to begin the process of applying for their EDGAR filer codes before they have incurred a filing obligation (

e.g.,

as they begin to acquire shares with a control intent but before crossing the 5% threshold). Filers should note that the Commission's staff reviews all Form ID applications, and filers should allow sufficient time for that review. Further, the Commission's staff works diligently to process Form IDs promptly upon receipt of an application.

Many commenters also expressed concern that shortening the initial Schedule 13D filing deadline could, among other things, disincentivize shareholder activism by reducing the amount of time such shareholders have to accumulate positions in an issuer's covered class before filing a Schedule 13D.

158

According to those commenters, this reduction of time could deprive issuers and their shareholders of the positive benefits of such activism, thereby increasing management entrenchment and reducing shareholder engagement and corporate accountability.

159

158

See supra

notes 77-83 and accompanying text.

159

See supra

notes 77-83, 103 and accompanying text.

Although we primarily are concerned with ensuring that investors receive material information in a timely manner, we agree that we should remain conscious of the competing interest that undue burdens not be imposed on shareholders engaging in change of

control transactions.

160

In the Proposing Release, the Commission “recognize[d] the chilling effect that a shortening of the initial Schedule 13D filing deadline could have on a shareholder's ability . . . to effect changes at companies” if the shortened deadline increases the costs and reduces the incentives for shareholders attempting to effect a change of control.

161

Yet, the Commission further stated that it did not believe “that a shortening of the deadline would unduly disrupt that balance,” noting that “many Schedule 13D filers currently do not avail themselves of the full 10-day filing period.”

162

A number of commenters similarly asserted that the proposed five-day deadline would not significantly impede shareholder activism or impose significant costs or burdens on beneficial owners of more than five percent of a covered class.

163

160

See

Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. on Securities of the S. Comm. on Banking and Currency, 90th Cong. 1 (1967) (statement of Manuel F. Cohen, Chairman, Securities and Exchange Commission) (“It must be emphasized again that in establishing requirements which will make this important information available to stockholders, we must be careful not to tip the scales to favor either incumbent management or those who would seek to oust them. We believe that the provisions of the present bill . . . reflect an appropriate balance among competing interests which, at the same time, will fulfill the need of public stockholders to be fully informed about the control and potential control of the company in which they have invested.”); H.R. Rep. No. 1711, at 4 (1968) (“The bill avoids tipping the balance of regulation either in favor of management or in favor of the person making the takeover bid. It is designed to require full and fair disclosure for the benefit of investors while at the same time providing the offeror and management equal opportunity to fairly present their case.”); 113 Cong. Rec. 24, 664 (1967) (noting that “takeover bids should not be discouraged, since they often serve a useful purpose by providing a check on entrenched but inefficient management”) (statement of Sen. Harrison A. Williams, Jr.).

161

Proposing Release at 13851. The Commission noted academic research indicating that large blockholders may improve the share price and the corporate governance of the companies in which they invest and that all of a company's shareholders enjoy these benefits. Proposing Release at 13851, n.30. The Commission further recognized that shortening the initial Schedule 13D filing deadline could reduce the profitability of such investments, making large blockholders less inclined to make those investments or engage with the companies in ways that produce such benefits.

Id.

This is consistent with the concerns that many opposing commenters expressed.

See supra

notes 77-83 and accompanying text;

see also

letter from Better Markets II (citing the same analysis conducted in the DERA Memorandum for the proposed five-day deadline and stating that the analysis “indicate[s] that shortening the deadline should not significantly impede activist campaigns”).

169

See infra

note 847 and accompanying text.

170

See infra

section IV.C.1.b.i, Table 6 (noting that for the 7 campaigns conducted annually for which less than 90% of the total equity stake was accumulated by the amended five-business day deadline, and the 1 campaign conducted annually for which less than 75% of the total equity stake was accumulated by the amended five-business day deadline, the average percentages of the filer's unrealized gains on reported equity stake, as of the day after filing date, attributable to shares accumulated after amended deadline were 9.1% and 22.6%, respectively);

see also

letter from Better Markets II (citing the same analysis conducted in the DERA Memorandum for the proposed five-day deadline and stating that “for filers who acquired less than 100% of their reported stake by the proposed deadline, only 6.8% of their unrealized gains on average were attributable to shares accumulated after the proposed deadline”).

Finally, we note that profits from shareholder activism may not be derived solely from the increase in share price associated with the public disclosure of an activist's more than five percent beneficial ownership stake. Specifically, shareholder activists may continue to experience abnormal positive returns from activism even after filing their initial Schedule 13D. Thus, to the extent a shareholder activist seeks to profit from increases in share price after the public disclosure of its more than five percent beneficial ownership stake, we would not expect a reduction in the profits associated with such disclosure to be determinative as to whether a shareholder engages in an activist campaign.

The amended five-business day deadline reflects our attempt to ensure

investors receive material information in a timely manner while, at the same time, maintaining the appropriate balance between issuers of securities and the shareholders who seek to exert influence or control over issuers, especially when compared with the proposed five-calendar day deadline, which many commenters supported,

171

and the even shorter deadlines many commenters recommended.

172

We believe a five-business day deadline is sufficiently prompt and represents a more modern approach that reflects the technological advancements and other developments in the financial markets in the more than 50 years since the 10-day deadline was enacted. A five-business day deadline, as compared to the current 10-day deadline, also would more closely align the initial Schedule 13D filing deadline with the reporting deadline on Form 8-K for issuers (generally, four business days) and Form 4 for officers, directors, and beneficial owners of more than 10 percent of a covered class (two business days), both in terms of the length of the deadline and the use of “business days,” rather than “days,” to express the deadline.

173

This alignment should help to ensure that investors consistently receive prompt disclosures of material information, irrespective of the source. A five-business day deadline for the initial Schedule 13D also is more consistent in both length and form with the filing deadlines for similar beneficial ownership reports in foreign jurisdictions.

174

171

See supra

note 37 and accompanying text.

172

See, e.g.,

letters from C. McEntee (recommending a same-day initial Schedule 13D filing deadline); D. Choate (same); Corey (same); Prof. Steinberg (recommending, among other things, a one-day initial Schedule 13D filing deadline); J. Dunlop (recommending a one-day initial Schedule 13D filing deadline); J. Kennedy (same); Juan B. (same); Phillip (same); WLRK I (recommending, among other things, a one-business day initial Schedule 13D filing deadline); C. Jacobs (recommending a two-day initial Schedule 13D filing deadline); NIRI (recommending a two-business day initial Schedule 13D filing deadline); PL Salvati (same); SCG (same); SCG & NIRI (same); T. Reilly (recommending a three-day initial Schedule 13D filing deadline).

173

See supra

note 150;

see also

letter from STB (noting that most analogous securities laws governing reporting of material changes (

e.g.,

Form 8-K and section 16 filings) require filings within time periods designated in business days rather than calendar days). We further believe it is advisable to express all Schedule 13D filing deadlines (

i.e.,

for both initial filings and amendments) in “business days.” We expect that the consistent use of “business days”—as opposed to using “days” or inconsistently using both “days” and “business days” to express the filing deadlines—will ease Schedule 13D filers' administrative burdens. We also anticipate that this uniform approach across the filing deadlines will make it easier for Schedule 13D filers to comply with those deadlines. In addition, as amended, all of the Schedule 13G deadlines that are less than 45 days also will be expressed in “business days,” consistent with one commenter's recommendation.

See

letter from IAA (recommending that the Commission express deadlines consistently in either calendar days or business days across all of the Schedule 13D and 13G initial and amendment filing deadlines, where the deadlines are less than 45 days to promote compliance by making it simpler and less confusing to keep track of the various deadlines).

174

For example, Australia requires disclosure of any position of 5% or more within two business days if any transaction affects or is likely to affect control or potential control of the issuer.

See

Corporations Act 2001 (Cth) sec. 671B (Austl.). The United Kingdom imposes a two-trading-day deadline for disclosure of acquisitions in excess of 3% of an issuer's securities.

See

Disclosure Rules and Transparency Rules, Ch. 5 (U.K.). Germany requires a report “immediately,” but in no event later than four days after crossing the acquisition threshold.

See

Securities Trading Act, Sept. 9, 1998, BGBL. I at 2708, as amended, pt. 5 (Ger.). Hong Kong securities laws require a report within three business days of the acquisition of a “notifiable interest” under the law.

See

Part XV of the Securities and Futures Ordinance (promulgated by the Securities and Futures Commission, effective Apr. 1, 2003) (H.K.). We note that commenters disagreed as to the utility of referencing foreign jurisdictions' beneficial ownership reporting deadlines for purposes of determining the appropriate initial Schedule 13D filing deadline.

See supra

note 55 and accompanying text. Nonetheless, we believe that this comparative analysis suggests that a shortened deadline is workable based on the experiences of these foreign jurisdictions.

Overall, because we expect that the vast majority of activist campaigns, and the value they create, will continue unabated under the amended rules,

175

we conclude that the significant benefits of the amendments outlined here and below

176

justify their costs.

175

See infra

section IV.C.1.b.

176

See infra

section IV.C.a.

Some commenters expressed other objections to the proposed amendments. For example, several commenters disagreed with the information asymmetry-based concerns in the Proposing Release as a basis for the proposed amendments.

177

We recognize that there are information asymmetries involved in any market transaction and agree that not all information asymmetries warrant a regulatory response. For example, one commenter stated that the information asymmetries described in the Proposing Release “are simply the beneficial result of research and initiative by investors and the sign of properly functioning markets” and expressed concern that “[i]f activists have no economic incentive to pursue activism, other shareholders will not experience the increase in value that would have otherwise resulted from the activist's conduct.”

178

We acknowledge that benefits may stem from the information asymmetry between a Schedule 13D filer and the market, and we recognize that the informational advantage of Schedule 13D filers results, in general, from their own expenditures on research and analysis or from their efforts and expenditures to pursue changes at the issuers in which they accumulate these shareholdings.

179

As such, although the Proposing Release referred to information asymmetries between Schedule 13D filers and selling shareholders and expressed concern that those information asymmetries “could harm investors,”

180

we do not focus on the reduction of these asymmetries as a justification for shortening the initial Schedule 13D deadline, as discussed in sections IV.C.1.a.iii and iv below.

177

See supra

notes 84-90 and accompanying text.

178

See

letter from EIM I. Further, that commenter contrasted the proposal with the Short Position Reporting Proposal and stated that “[t]he Commission does not explain why the research and analysis of a short seller is entitled to protection and does not constitute material non-public information about the company it is shorting, while the research and analysis of an activist is somehow characterized differently.”

Id.; see also supra

note 84. The commenter's comparison of our shortening of the initial Schedule 13D deadline to the Short Position Reporting Proposal is inapt. We are shortening the Schedule 13D deadline in order to ensure that investors receive material information regarding potential changes in control in a timely manner to facilitate their investment decisions. This is consistent with the purpose of section 13(d), and necessarily requires public disclosure, including of the Schedule 13D filer's identity.

See supra

note 155 and accompanying text; Exchange Act section 13(d)(1)(A) (requiring a Schedule 13D filer to disclose, among other things, its “background and identity”). The Short Position Reporting Proposal addresses a different regulatory scheme, and the reasons for those proposed amendments are discussed in that release.

See

Short Position Reporting Proposal. In addition, contrary to the commenter's suggestion that the Commission is disregarding the value of an activist's research and analysis, the amended five-business day deadline represents our attempt to maintain an appropriate balance between the requirement that material information be timely disseminated to investors and the competing interest that undue burdens not be imposed in the change of control context.

179

See infra

sections IV.C.1.a.iii and iv.

180

See

Proposing Release at 13850 & n.19, 13881 & n.214.

Some other information asymmetries may, however, raise concerns that warrant a regulatory response. Specifically, the research and analysis prepared by the staff of the Division of Economic and Risk Analysis indicate that shortening the initial Schedule 13D deadline to five business days could meaningfully reduce information asymmetries between “informed bystanders”

181

and other, less-informed investors who sell their shares during the period after which an initial Schedule 13D filing obligation has been incurred but before the filing is made.

182

The informational advantage those

“informed bystanders” have over the selling shareholders in these transactions and the associated wealth transfers may be perceived by some market participants to be unfair. Thus, to the extent that a shortened initial Schedule 13D filing deadline would reduce these wealth transfers, thereby addressing this perceived unfairness, this change could enhance trust in the securities markets and promote capital formation.

183

181

See infra

note 753 and accompanying text for a discussion of the term “informed bystanders,” as used in this release.

182

See infra

section IV.C.1.a.iii.

183

See id.

We also note that some commenters questioned the appropriateness and legality of the proposed amendments in light of certain U.S. Supreme Court cases that the commenters cited for the proposition that the “sole purpose” of the Williams Act is to protect shareholders confronted with a cash tender offer.

184

In both cases, the Court made the cited statements in the limited context of determining causes of action or remedies that are available for purported violations of certain provisions of the Williams Act. Neither decision suggests that the provisions and protections of the Williams Act are available only when a cash tender offer is involved; in fact, the Court in

Rondeau

Mosinee Paper Corp.

referred to the defendant-shareholder's belated compliance with section 13(d), notwithstanding the absence of a pending or threatened cash tender offer.

185

We also note statements in the legislative history indicating that Congress intended that the Williams Act would apply to any “acqui[sition] of a substantial block of equity securities . . . by a cash tender offer . . .

or through open market or privately negotiated purchases.”

186

We do not believe, therefore, that our shortening of the initial Schedule 13D deadline must be tied to risks shareholders face in connection with cash tender offers.

184

See supra

notes 90, 96 and accompanying text (describing comment letters citing

Piper et al.

Chris-Craft Industries, Inc.

430 U.S. 1 (1977) and

Rondeau

Mosinee Paper Corp.,

422 U.S. 49 (1975)).

185

442 U.S. at 59 (noting, in relevant part, that the shareholder “has now filed a proper Schedule 13D, and there has been no suggestion that he will fail to comply with the Act's requirement of reporting any material changes in the information contained therein” notwithstanding the fact that the shareholder “has not attempted to obtain control of respondent, either by a cash tender offer or any other device”).

186

S. Rep. No. 90-550 to Accompany S. 510, (Aug. 29, 1967);

see also

Finally, some opposing commenters expressed other doubts regarding the Commission's authority to shorten the initial Schedule 13D deadline as proposed

187

and asserted that the Commission did not identify a market event or failure that would justify the proposed amendments.

188

As noted above, however, section 13(d)(1) of the Exchange Act clearly grants the Commission authority to shorten the initial Schedule 13D filing deadline.

189

In addition, the Commission has long recognized that acquisitions made after a person acquires beneficial ownership of more than five percent of a covered class but before the person files an initial Schedule 13D constitute a “disclosure gap [that] may deprive security holders of a fair opportunity to adjust their evaluation of the securities of a company with respect to [a] potential change in control.”

190

We believe that the current length of that disclosure gap, together with the information asymmetry

191

that it may facilitate and the advancements in technology and developments in the financial markets since Congress enacted the Williams Act, provide grounds to shorten the initial Schedule 13D filing deadline from 10 days to five business days.

187

See supra

note 96 and accompanying text.

188

See supra

notes 106, 109 and accompanying text.

189

15 U.S.C. 78m(d)(1) (requiring a Schedule 13D to be filed “within ten days . . . or within such shorter time as the Commission may establish by rule”).

190

Report of the Securities and Exchange Commission on Beneficial Ownership Reporting Requirements pursuant to section 13(h) of the Securities Exchange Act of 1934 (June 27, 1980). Following a review of the effectiveness of section 13(d) conducted more than four decades ago, the Commission evaluated the then “increasingly prevalent practice of [large blockholders] acquiring additional securities of [a covered] class during the 10-day period after the acquisition which results in the beneficial ownership of more than 5 percent and before the disclosure statement is required to be, and normally is, filed. . . .” Securities and Exchange Commission Report on Tender Offer Laws, printed for the Use of the S. Comm. on Banking, Housing and Urban Affairs (Comm. Print 1980). The Commission provided multiple illustrative examples in which “the existing notification system often does not provide shareholders with relevant information in a timely manner.”

Id.

191

See supra

notes 181-183 and accompanying text.

2. Rule 13d-1(b), (c), and (d)

Congress enacted section 13(g) in 1977

192

to address the absence of beneficial ownership reporting by persons who had accumulated large amounts of stock in a public issuer but were not required to file a beneficial ownership report under section 13(d).

193

Section 13(g) was intended to “supplement the current statutory scheme by providing legislative authority for certain additional disclosure requirements that in some cases could not be imposed administratively.”

194

Beneficial owners who currently report on Schedule 13G pursuant to section 13(g) and corresponding Rule 13d-1(d) are not subject to section 13(d) because they either made an exempt acquisition or an acquisition otherwise not covered by the statute. Section 13(d), in contrast to section 13(g), applies only to beneficial owners who make non-exempt acquisitions of more than five percent of a covered class. Section 13(g) was intended to close this gap.

192

Domestic and Foreign Investment Improved Disclosure Act of 1977, Public Law 95-214, sec. 203, 91. Stat. 1494.

193

S. Rep. No. 114, at 13 (1977).

194

S. Rep. No. 95-114, at 13 (1977),

as reprinted in

1977 U.S.C.C.A.N. 4098, 4111.

In response to the enactment of section 13(g), the Commission adopted Schedule 13G to serve two purposes: (1) provide an optional short form disclosure statement for certain persons subject to section 13(d); and (2) provide a mandatory disclosure statement for persons subject to section 13(g).

195

Together with section 13(d), section 13(g) was intended to provide a “comprehensive disclosure system of corporate ownership” applicable to all persons who are the beneficial owners of more than five percent of a covered class.

196

Rule 13d-1(b), (c), and (d) provide the filing deadlines for the initial Schedule 13G. Which deadline a person is subject to for its initial Schedule 13G filing depends on whether the person is a QII, Exempt Investor, or Passive Investor.

195

Filing and Disclosure Requirements Relating to Beneficial Ownership,

Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 (Apr. 28, 1978)] (“Filing and Disclosure Release”).

196

Id.

at 18486;

see also

S. Rep. No. 114, at 14 (1977).

A QII relying upon Rule 13d-1(b) currently is obligated under Rule 13d-1(b)(2) to file a Schedule 13G “within 45 days after the end of the calendar year in which the person became obligated” to report beneficial ownership, but only if such QII beneficially owns more than five percent of a covered class at the end of a calendar year.

197

If the QII

beneficially owns more than 10 percent of a covered class as of the last day of any month, then the initial Schedule 13G must be filed within 10 days after the end of that month. A QII relying on Rule 13d-1(b), therefore, may have beneficial ownership in excess of five percent throughout the calendar year without incurring a filing obligation unless the QII beneficially owns more than 10 percent of a covered class at the end of any month during that year.

197

First adopted as Rule 13d-5 in 1977 and subsequently redesignated as Rule 13d-1(b)(1) in 1978, the predecessor to current Rule 13d-1(b)(2) established that an institution eligible to report on Schedule 13G had until 45 days after the end of the calendar year to report beneficial ownership to the extent the percentage beneficially owned exceeded 5% as of the end of the calendar year.

See

Filing and Disclosure Release at 18486 (explaining that

“the first proviso in new Rule 13d-1(b) has been added to make clear that the obligation to file a Schedule 13G . . . need be determined only on the last day of the calendar year” and that “filing [a] Schedule 13G to disclose a beneficial ownership interest of more than five but not more than ten percent will be required forty-five days after the end of the calendar year”);

see also Adoption of Beneficial Ownership Disclosure Requirements,

Release No. 34-13291 (Feb. 24, 1977) [42 FR 12342 (Mar. 3, 1977)] (describing the Commission's adoption of new Rule 13d-5 and related new Form 13D-5, which permitted brokers, dealers, banks, investment companies, investment advisers, and employee benefit plans to utilize an abbreviated disclosure notice).

Rule 13d-1(d),

198

as with Rule 13d-1(b), imposes an initial Schedule 13G filing deadline of 45 days after the end of the calendar year, but only for investors who have become beneficial owners without having made an acquisition recognized under section 13(d)(1). Given that these investors did not make the requisite acquisition that would have subjected them to section 13(d), the Commission has previously referred to this type of beneficial owner as an “Exempt Investor.” Unlike the QIIs and Passive Investors—discussed below, in the context of Rule 13d-1(c)—who file a Schedule 13G in lieu of Schedule 13D and at all times remain subject to section 13(d), Exempt Investors are subject to section 13(g) at the time their initial filing obligation arises. Exempt Investors reporting pursuant to Rule 13d-1(d) today may include persons such as founders of companies and early investors in an issuer's class of equity securities who made their acquisition before the class was registered under section 12 of the Exchange Act.

199

These beneficial owners may continue to influence or control the issuer. Accordingly, the Commission has emphasized that the disclosures required under section 13(g) are obtained in connection with the overall regulatory purposes served by section 13(d).

200

198

17 CFR 240.13d-1(d).

199

The Commission has explained that certain “persons who are not required to file under Rule 13d-1(a) . . . would be required to file a Schedule 13G pursuant to the amendments herein proposed.” Filing and Disclosure Release at 18502. Such persons may include “persons who acquired not more than two percent of a class of securities within a twelve month period, who are exempt from Rule 13d-1(a) by Section 13(d)(6)(B).”

Id.

The Commission also stated that “Regulation 13D-G . . . would require any person `otherwise' not required to report pursuant to Section 13(d), but who is a beneficial owner of more than five percent of a specified class of equity securities to report on Schedule 13G.”

Id.

200

Filing and Disclosure Release at 18486 (stating that “the enactment of section 13(g) has rendered moot the issue of whether obtaining” disclosure from institutional investors in the ordinary course of their business and without any control intent “under section 13(d)(5) is within the primary purpose of section 13(d)”). The Commission also emphasized “the importance of disclosing to the public the location of rapidly accumulated blocks of stock, even though they have been acquired not with the purpose or with the effect of changing or influencing control” as a predicate for its position.

Id.

Finally, a beneficial owner electing to report on Schedule 13G in lieu of Schedule 13D in reliance on Rule 13d-1(c) as a Passive Investor must file a Schedule 13G within 10 days after acquiring beneficial ownership of more than five percent of a covered class. A person is eligible to file as a Passive Investor only if such person is not seeking to acquire or influence control of an issuer and beneficially owns less than 20 percent of a covered class. Persons unable or unwilling to certify under Item 10 of Schedule 13G that they do not have a disqualifying purpose or effect because, for example, the possibility exists that they may seek to exercise or influence control, are ineligible to file a Schedule 13G and must instead file a Schedule 13D.

a. Proposed Amendments

The Commission proposed to amend Rule 13d-1(b) and (d) to shorten the filing deadline for the initial Schedule 13G to be filed by QIIs and Exempt Investors to five business days after the end of the month in which beneficial ownership exceeds five percent of a covered class. The Commission expected that the proposed acceleration of these deadlines would result in more timely disclosures while minimizing any potential additional burdens.

201

The Commission also believed that these investors should already have well-established compliance systems in place to monitor Schedule 13G ownership levels to determine whether filing obligations have been triggered.

202

201

Proposing Release at 13856.

202

Id.

Given the proposal to shorten the initial reporting deadline to five business days after the end of the month, the Commission also recognized that the current provision of Rule 13d-1(b)(2) that operates to accelerate that initial filing deadline if beneficial ownership exceeds 10 percent at the end of any month would be unnecessary in light of Rule 13d-2(c)'s overlapping Schedule 13G amendment requirement.

203

Accordingly, the Commission proposed to further amend Rule 13d-1(b)(2) to delete the language that imposes an initial reporting obligation on QIIs after exceeding 10 percent of a covered class.

203

Id.

The Commission also proposed to amend the filing deadline in Rule 13d-1(c) to five days after the date the person becomes obligated to file an initial Schedule 13G. The Commission believed that it would be appropriate to amend the initial Schedule 13G filing deadline in Rule 13d-1(c) to match the proposed initial Schedule 13D filing deadline in Rule 13d-1(a) in order to maintain the historical consistency between the deadlines in Rule 13d-1(c) and (a) and to facilitate the overall goal of increasing transparency in beneficial ownership.

204

Id.

In proposing these amendments, the Commission stated that the current initial Schedule 13G filing deadlines' length and manner of applicability to QIIs and Exempt Investors together could, in certain circumstances, frustrate the purposes of sections 13(d) and 13(g).

205

For example, the Commission noted investors reporting pursuant to current Rule 13d-1(b) and (d) may avoid beneficial ownership reporting by selling down their positions before the end of the calendar year, and, in the case of QIIs, selling down before the end of a month if ownership exceeds 10 percent.

206

The proposed amendments to the filing deadlines for initial Schedule 13G filings by QIIs and Exempt Investors, therefore, were intended to improve transparency and avoid any gaps in reporting.

207

205

Id.

at 13855.

206

Id.

207

Id.

at 13855-56.

In addition, the Commission noted that when Rule 13d-1(c) was adopted in 1998, Passive Investors may not have had reasonable access to advanced technologies to make more immediate filings possible.

208

Consistent with its justification for proposing to shorten the initial Schedule 13D filing deadline under Rule 13d-1(a), the Commission asserted that Passive Investors today not only have gained valuable experience complying with these reporting provisions, but also have ready access to the necessary filing technology.

209

As such, the Commission proposed amending Rule 13d-1(c) in light of those technological advancements and

its proposed amendment to the analogous filing deadline in Rule 13d-1(a).

208

Id.

at 13856.

209

Id.

b. Comments Received

Commenters submitted a variety of views on the proposed amendments to Rule 13d-1(b), (c), and (d). Several commenters supported the proposed amendments.

210

Some of those commenters supported accelerating the initial Schedule 13G filing deadlines for many of the same reasons they supported accelerating the initial Schedule 13D filing deadline.

211

Another commenter asserted that the proposed amendments would benefit shareholders and other market participants by facilitating sound corporate governance.

212

210

See, e.g.,

letters from AFL-CIO (supporting only the proposed amendment to Rule 13d-1(c)); AFREF (same); AFREF, et al. (same); Anonymous 3; Anonymous 5; Anonymous 11; Anonymous 12; Anthony R.; C. Robinson; John F. Phinney Jr, CEO & Founder, Convergence Inc. (June 15, 2023) (“Convergence”) (supporting only the proposed amendment to Rule 13d-1(b)); EEI; Engineer; FedEx; Freeport-McMoRan; Andrew Patrick White, Founder CEO of FundApps (Feb. 28, 2022) (“FundApps”) (same); HMA I; J. Pieper; J. Soucie; Jonah; Juan; Mark C.; Mike; Nasdaq; P. Worts; T. Mirvis, et al.; Todd.

211

See supra

notes 38-40, 43-44 and accompanying text.

212

See

letter from AFREF. For example, the commenter asserted that a shortened filing deadline would help investors ensure their asset managers are fulfilling their fiduciary duties and help inform the education and advocacy efforts of those with a stake in proxy contests, shareholder resolutions, and other important votes.

Id.

Several commenters supported the proposed amendments based on changes in technology and developments in the financial markets.

213

A number of commenters noted that some foreign jurisdictions require beneficial ownership reporting on a shorter deadline than currently required under Regulation 13D-G.

214

One commenter viewed the current Schedule 13G filing deadlines as outdated.

215

Other commenters asserted that the proposed amendments would not impose significant costs to beneficial owners of more than five percent of a covered class.

216

And, another commenter stated that the proposed amendments would be consistent in balancing the need for adequate disclosures with burdens placed on filers to accurately prepare required disclosures.

217

213

See, e.g.,

letters from AFL-CIO; C. Robinson; FedEx; Freeport-McMoRan; T. Mirvis, et al.

214

See, e.g.,

letters from AFREF; Convergence; FundApps.

215

See

letter from T. Mirvis, et al.

216

See, e.g.,

letters from Anonymous 11; Freeport-McMoRan; J. Soucie.

217

See

letter from FedEx.

Several commenters opposed the proposed amendments.

218

Some of those commenters disagreed with the Commission's technological advancement-based justifications for the proposed acceleration of the beneficial ownership reporting deadlines.

219

For example, one commenter asserted that the Commission has never suggested that technological ability to file is or should be the primary basis to determine the appropriate filing deadlines for Schedules 13D and 13G.

220

Another commenter stated that electronic filing of a Schedule 13G can take longer than physical mailing because of the time and effort required to obtain EDGAR filing codes as compared to simply making an overnight mailing or hand delivery of a paper filing.

221

Another commenter questioned why the existence of new filing technologies justify subjecting QIIs to Schedule 13G filing requirements so much shorter than the ones currently in place.

222

218

See, e.g.,

letters from A. Day; ABA; AIMA; B. Mason; Dodge & Cox; E. Fraser (opposing only the proposed amendment to Rule 13d-1(c)); IAA (opposing only the proposed amendments to Rule 13d-1(b) and (d)); ICI I; MFA (same); MSBA (supporting only the proposed amendments to Rule 13d-1(c) and (d)); Perkins Coie; Kenneth E. Bentsen, Jr, CEO and President,

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