SEC proposes significant amendments to beneficial ownership reporting

The US Securities and Exchange Commission (SEC) has proposed significant changes to beneficial ownership reporting (Schedule 13D & 13G reporting). These shareholding disclosure rules have not changed since the 1970s so the proposals are long overdue and something to be welcomed.

What’s the background?

Looking back, there may have been hints that the SEC was looking to review the 13d and 13g reporting requirements. In March 2021, the non-profit organisation ‘Americans for Financial Reform’ wrote to Allison Herren Lee, the acting chair of the SEC, urging for change to one of the US regimes, 13F. US reporting has long faced criticism for its lengthy deadlines and simplistic view on the inclusion of certain financial instruments. This has resulted in reports that are of little value to issuers or the market at large – and seemingly the SEC themselves: in their Review of the SEC’s Section 13(f)’s Reporting Requirements in August 2021, the regulator confessed that “…no SEC division or office conducts any regular or systematic review of the data filed on Form 13F”.

They are now ready to address similar issues with Schedule 13D and 13G reporting, stating that changes in financial markets and technology now require them to reassess and modernise their reporting.

What are the new SEC reporting requirements?

The SEC has proposed expanding Schedule 13D & 13G reporting to include certain cash-settled derivatives. This will bring the US more in line with European and some Asia-based regimes, which have included cash-settled derivatives for a number of years. Holders of cash-settled derivatives, with the exception of an equity swap, will be deemed to be the beneficial owner of the underlying equity securities.

The new Schedue 13G reporting requirements (ie. qualified institutional investors and exempt investors), would shorten the initial filing deadline from 45 days after year-end to five business days after the end of the month in which the investor beneficially owns more than five per cent. In addition, the new SEC 13D reporting requirements would shorten the initial filing deadline from 10 days to five days for 13D reporting and any amendments to the holding would need to be filed within one business day.

The proposals include beneficial owners reporting using a structured, machine-readable data language, which the SEC believes will make compiling and analysing the information disclosed on the 13D and 13G reports easier.

The consultation period is open for 60 days following publication of the proposed change on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

What is Schedule 13D and Schedule 13G reporting?

This is a shareholding disclosure obligation that requires that an investor who beneficially owns more than five per cent of a covered class of equity securities to publicly file either a 13D or a 13G form.

13D is intended to provide transparency to the market about shareholders and their intentions for taking a significant stake in an issuer. A 13G disclosure is a shorter version of the 13D and can be filed in lieu of a 13D if certain exemptions apply to the beneficial owner.

Automated beneficial ownership reporting

Kaizen continuously monitors and implements all changes to global shareholding disclosure including beneficial ownership rules, so that our service and technology platform are primed and ready to go with alerts and automated reports, ensuring your compliance from day one of the change. In addition, our team of shareholding disclosure subject matter experts work with our clients to help them understand the requirements and the subsequent amendments to regulation.