By Greg Hotaling, Regulatory Content Manager, Confluence
Corporate lawyers and compliance personnel who update regulatory reports about their firms’ large holdings in American public companies – which is possibly the world’s least romantic endeavor – call it the “Valentine’s Day filing”. They are due to the SEC 45 days after the end of each calendar year: February 14th.
In a new Rule officially published last week, the SEC has taken aim at that deadline, and several other aspects of filings made by shareholders with stakes of at least 5%. In its first major changes to these disclosure requirements in decades, the SEC reaches into its regulatory quiver to target deadlines, security types, filing methods, group aggregation and more. For shareholding firms, it’s especially the stricter deadlines that will require them to act urgently across their compliance, operations and legal departments.
A uniquely complicated regime
Among the one hundred or so countries that impose “major shareholder” filing obligations, the American requirements are the most complex (as illustrated for example by the SEC’s legalistic term for such holdings, “beneficial ownership”). No other regime in the world establishes as many conditions affecting filing triggers, thresholds, deadlines and forms, as does the SEC.
On one hand, this can be helpful to shareholders on U.S. markets, enabling them to qualify for a shortened form (Schedule 13G rather than Schedule 13D) or forgiving deadlines (e.g. Valentine’s Day) in several different ways.
On the other hand, the numerous permutations for satisfying Regulation 13D-G require a learning curve for which many firms are ill equipped. For example, a Schedule 13D filer that experiences a “material change” in its beneficial ownership must file an amended 13D. According to the SEC a material change includes a 1% swing in ownership, but can also include changes in the shareholder’s funding sources, its purpose or other circumstances, which often require analysis by legal counsel. Moreover, the 13D amendment is due “promptly” according to current SEC rules. This can mean within one business day or up to 10 days, depending on the situation.
Eligibility for the shorter form, Schedule 13G, can also require legal analysis. Generally institutional investors (“QIIs”) qualify to submit a 13G, as long as they are passive investors. When first surpassing 5%, such investors may wait until the following year’s Valentine’s Day to file. Passive non-QIIs may use 13G as well, but they must file more immediately (within 10 days). For either purpose, defining a “passive investor” can be a legal question subject to interpretation. (As seen in a high-profile submission in 2022, when Elon Musk controversially announced his 9.2% stake in Twitter on Schedule 13G as a “passive investor”.)
The new requirements
The new SEC Rule’s “modernization” aspect is reflected in a new filing method and tighter deadlines, both of which the SEC justifies in part by citing investors’ access to modern technology. Under the changes, transmitting the disclosures will require “13D/G-specific XML”, it being a machine-readable, structured data language (unlike HTML and ASCII currently used for filings).
As for the deadlines, the SEC points out that among the initial 13D filings made in 2022, that were timely filed within the 10-day deadline, 41% of those were filed within just 5 business days. Hence the SEC’s logic for imposing a new, 5-business day deadline for 13D filings: shareholders can, and many already do, satisfy it without undue burden.
Some of the key deadlines being tightened:
Schedules 13D and 13D/A (amendment)
| Form | Current deadline | New deadline |
| Schedule 13D (initially crossing 5%) | 10 calendar days | 5 business days |
| Schedule 13D/A (material change) | “Promptly” | 2 business days |
Schedules 13G and 13G/A (amendment)
| Form | Current deadline | New deadline |
| Schedule 13G (initially crossing 5%), for QIIs and Exempt Investors | 45 days after next calendar year | 45 days after next calendar quarter |
| Schedule 13G (initially crossing 5%), for Passive Investors | 10 calendar days | 5 business days |
| Schedule 13G/A (material change) | 45 days after next calendar year | 45 days after next calendar quarter |
Investors will welcome the clarity brought by certain of these changes, such as replacement of the “promptly” deadline with a more straightforward time limit of 2 business days. Meanwhile other deadlines, when surpassing a 10% stake, are being tightened as well. With respect to all of the deadlines, the SEC modified Regulation S-T, to change the “cut-off” time for filing on the relevant deadline dates from 5:30pm to 10:00pm U.S. Eastern time, providing some relief for filers.
The SEC also set forth new guidance, both on the inclusion of cash-settled derivatives under certain circumstances, and on shareholders acting together who thus may be deemed a “group”. Either of these assessments can significantly affect a firm’s total holdings amount for the purpose of triggering filings.
How firms should respond
The changes will require significant action by investment firms globally, across their compliance, operations and legal departments. The disclosure rules apply to shareholders wherever they may be based across the world, and complying with them requires an understanding of data and legal nuances relating to the interests held, corporate affiliations, investment discretion, and other characteristics of the shareholding entity.
The first order of business for firms is to mark out the key compliance dates:
| SEC amendment | Compliance date |
| Filing deadlines – Schedule 13D | 5 February 2024 |
| Filing deadlines – Schedule 13G | 30 September 2024 |
| Structured data submission format | 18 December 2024 (voluntary submissions start 18 Dec 2023) |
Investment firms will need to examine and adjust their processes, both across their internal compliance and operations teams, and in lockstep with external counsel and any vendor support they receive such as post-trade monitoring systems. The shorter deadlines especially, of 2 and 5 business days, will leave little margin for delay or complacency here.
Meanwhile Valentine’s Day will lose some of its enamoredness, yielding its status as the annual date for eligible 13G filers, to take a lesser place as one of four quarterly filing deadlines. Firms will therefore need to translate their annual 13G-related workflows into quarterly processes.
The SEC also made it clear that 1% swings are “material”, for the purpose of needing to amend a 13D or 13G (in the current rules this is made explicit only for 13D amendments). Shareholding firms should adjust their systems accordingly, to ensure an alert is triggered for 1% swings in ownership for both 13D and 13G amendment purposes.
As for the SEC’s new guidance on derivatives and group consolidation, firms should draw on legal expertise to know exactly where they stand under the SEC’s approach. (They should likewise do so for the purpose of any “insider” disclosures they might be required to submit under Section 16 of the Exchange Act, which relies on the same definition of “beneficial ownership” for its filing trigger at 10%.) Operations and data personnel, as well as monitoring systems, will then need to ensure that any qualifying derivatives, and affiliated holdings within a “group”, are properly aggregated into the firm’s total “beneficial ownership” position for filing purposes.
