The Securities and Exchange Commission (the “SEC”) recently proposed amendments (the “Proposed Amendments”) to certain rules that govern beneficial ownership reporting under the Securities Exchange Act of 1934 (the “Exchange Act”).1 Sections 13(d) and 13(g) of the Exchange Act and the rules promulgated thereunder require, among other things, that an investor who beneficially owns more than five percent of any voting class of equity securities2 (each, a “Covered Class”) report such beneficial ownership by publicly filing either a Schedule 13D or a Schedule 13G. If adopted, the Proposed Amendments would, among other things: (i) accelerate initial and amendment filing deadlines for Schedules 13D and 13G beneficial ownership reports; (ii) establish a new rule providing that the holder of a cash-settled derivative security (other than a security-based swap3) will be deemed the beneficial owner of the reference equity securities under certain circumstances; and (iii) provide further clarification and guidance regarding the circumstances under which two or more persons will be deemed to have formed a “group” for purposes of their respective beneficial ownership reporting obligations.
Accelerated Filing Deadlines
The Proposed Amendments would significantly accelerate Schedule 13D and 13G filing deadlines as set forth in the following chart.
| Current Initial Filing Deadline | Proposed Initial Filing Deadline | Current Amendment Filing Deadline | Proposed Amendment Filing Deadline | |
| Schedule 13D | • 10 days after acquiring beneficial ownership of more than 5% of a Covered Class or losing eligibility to file on Schedule 13G | • 5 days after acquiring beneficial ownership of more than 5% of a Covered Class or losing eligibility to file on Schedule 13G | • “promptly” if there is any material change in the facts set forth in the filer’s current Schedule 13D | • 1 business day if there is any material change in the facts set forth in the filer’s current Schedule 13D |
| Schedule 13G for Institutional Investors | • 45 days after the end of the year if it makes an acquisition resulting in it beneficially owning more than 5% of the Covered Class as of the last day of that year • 10 days after the end of any month if it makes an acquisition resulting in it beneficially owning more than 10% of the Covered Class as of the last day of that month |
• 5 business days after the end of any month if it makes an acquisition resulting in it beneficially owning more than 5% of the Covered Class as of the last day of that month | • 45 days after the end of a year if, as of the end of the year, there are any changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding • 10 days after the end of the first month in which its beneficial ownership as of the last day of the month exceeds 10% of the Covered Class, and thereafter within 10 days after the end of the first month in which its beneficial ownership as of the last day of the month increases or decreases by more than 5% of the Covered Class |
• 5 business days after the end of a month if, as of the end of the month, there are any “material” changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding • 5 days after the date on which its beneficial ownership exceeds 10% of a Covered Class, and thereafter within 5 days after the date on which its beneficial ownership increases or decreases by more than 5% of the Covered Class |
| Schedule 13G for Passive Investors | •10 days after acquiring beneficial ownership of more than 5% of a Covered Class | • 5 days after acquiring beneficial ownership of more than 5% of a Covered Class | • 45 days after the end of a year if, as of the end of the year, there are any changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding • “promptly” after acquiring beneficial ownership of more than 10% of a Covered Class, and thereafter “promptly” upon increasing or decreasing its beneficial ownership by more than 5% of the Covered Class |
• 5 business days after the end of a month if, as of the end of the month, there are any “material” changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding • 1 business day after the date on which its beneficial ownership exceeds 10% of a Covered Class, and thereafter within 1 business day after the date on which its beneficial ownership increases or decreases by more than 5% of the Covered Class |
| Schedule 13G for Exempt Investors | • 45 days after the end of the year if, as of the end of the year, it beneficially owns more than 5% of the Covered Class | • 5 business days after the end of any month if, as of the end of the month, it beneficially owns more than 5% of the Covered Class | • 45 days after the end of a year if, as of the end of the year, there are any changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding | • 5 business days after the end of a month if, as of the end of the month, there are any “material” changes in the information reported in the filer’s current Schedule 13G, except if the change is solely attributable to a change in the number of shares of the Covered Class outstanding |
Schedule 13D and 13G filing deadline cut-off times would also be extended from 5:30 p.m. to 10:00 p.m. Eastern time.
Application to Specified Cash-Settled Derivative Securities
In addition, a new rule would be established providing that a holder of a cash-settled derivative security (other than a security-based swap) will be deemed the beneficial owner of the reference equity securities if the derivative is held with the purpose or effect of changing or influencing the control of the issuer of the reference securities, or in connection with or as a participant in any transaction having such purpose or effect. It is worth noting that Section 16 of the Exchange Act references the Section 13 beneficial ownership calculation in determining whether an investor is a 10% owner and therefore subject to the reporting, disgorgement and other requirements under Section 16. The reporting of security-based swap positions is addressed in the SEC’s recently proposed Rule 10B-1 under the Exchange Act, which, if adopted, would require holders of security-based swap positions in excess of specified threshold amounts to publicly report such positions on proposed Schedule 10B.
Section 13 “Group” Determinations
The Proposed Amendments would also clarify the circumstances under which two or more persons have formed a “group” subject to Exchange Act beneficial ownership reporting obligations. In particular, an existing rule would be amended to provide that a group is formed if two or more persons “act as a group” for purposes of acquiring, holding or disposing of securities in order to “remove the potential implication that an express or implied agreement among group members is a necessary precondition to the formation of a group”. In that regard, the Proposed Amendments provide that if a person shares non-public information about an upcoming Schedule 13D filing obligation with another person with the purpose of causing such other person to acquire securities of the same Covered Class, a group would be deemed to be formed by such persons. The Proposed Amendments also provide new exemptions to permit certain persons to communicate and consult with one another, jointly engage issuers and execute certain transactions (e.g., a purchase and sale agreement setting forth the terms of a derivative security) without being subject to regulation as a “group” under the Exchange Act. These exemptions apply to investors whose communications with each other are not undertaken with the purpose or the effect of changing or influencing control of the issuer, and are not made in connection with or as a participant in any transaction having such purpose or effect.
***
The Proposed Amendments are subject to a public comment period.4 Seward & Kissel will continue to monitor and keep our clients informed of any developments. If you have any questions regarding the Proposed Amendments, please contact one of the attorneys listed below or your Seward & Kissel contact attorney.
