As published on: transactions.freshfields.com, Thursday 23 November, 2023.
Any corporate or individual investor likely to acquire an over 5% stake in the equity of a US-listed company (for the first time) should consider applying for an EDGAR filer code following significant changes to the SEC’s beneficial ownership reporting regime, adopted in October 2023.
EDGAR is the SEC’s Electronic Data Gathering, Analysis, and Retrieval system.
The longstanding reporting regime applies to investors everywhere beneficially holding equity in US-listed companies, who cross the 5% beneficial ownership threshold.
The SEC has considerably shortened the deadline for filing beneficial ownership reports on Schedule 13D required when an active investor acquires more than 5% of the equity of a US-listed company.
From 5 February 2024, the deadline for initial Schedule 13D filings is within five business days of crossing the threshold (reduced from the current 10-day deadline) and for amendments reflecting a material change in the disclosure, for example, in ownership, the deadline is within two business days of the change (from “promptly”).
Investors need an EDGAR filer code to file the report and EDGAR filer codes can take up to two weeks to obtain.
The same deadline change applies to certain passive investors crossing the 5% threshold who are eligible to make an initial filing on the shortform Schedule 13G. However, this goes into effect later, from 30 September 2024.
From 18 December 2024, Schedules 13D and 13G filings must be made using a structured, machine-readable data language – for some filers, this may mean engaging a financial printer to make the filings. Early voluntary compliance is welcome from 18 December 2023.
Details including other important changes to the SEC’s beneficial ownership regime
In the Adopting Release, the SEC noted the concerns commentators had raised about the feasibility of meeting the shortened filing deadlines and responded as follows:
“…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 … but before crossing the 5% threshold).” SEC Adopting Release page 44 at footnote 157, emphasis added.
Other changes include:
Shortening the Schedule 13G deadline for qualified institutional investors and exempt passive investors to 45 days after the first calendar quarter-end on which they held more than 5% (from 45 days after the first calendar year-end). This change is also effective from 30 September 2024.
Clarifying that disclosure is required as to interests in all derivative securities that use the issuer’s equity security as a reference security (including cash-settled derivatives).
Providing guidance on the circumstances under which a group may be formed and when holders of cash-settled derivative securities may be beneficial owners of the reference equity security for purposes of calculating their ownership percentage.
Note that a Schedule 13D is not comparable to a UK TR-1 in that it is a complex form to prepare so takes time. It requires disclosure of the stakeholder’s purpose and plans in acquiring the shares, details of sources of funds and exhibits. The form becomes a matter of public record so filers may wish to consider applying for confidential treatment of any sensitive documents that might otherwise be required to be filed publicly as exhibits. There are civil and criminal penalties for failure to comply and for defective disclosure.