13846 Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 

1Unless 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. 

2Unless 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. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 232 and 240 

[Release Nos. 33–11030; 34–94211; File No. 

S7–06–22] 

RIN 3235–AM93 

Modernization of Beneficial Ownership 

Reporting 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

proposing to amend certain rules that 

govern beneficial ownership reporting. 

The proposed amendments would 

modernize the filing deadlines for initial 

and amended beneficial ownership 

reports filed on Schedules 13D and 13G. 

The proposed amendments also would 

deem holders of certain cash-settled 

derivative securities as beneficial 

owners of the reference equity securities 

and clarify the disclosure requirements 

of Schedule 13D with respect to 

derivative securities. In addition, the 

proposed amendments would clarify 

and affirm the operation of the 

regulation as applied to two or more 

persons that form a group under the 

Securities Exchange Act of 1934, and 

provide new exemptions to permit such 

persons to communicate and consult 

with each other, jointly engage issuers 

and execute certain transactions without 

being subject to regulation as a group. 

We also are proposing to amend 

provisions regarding the date on which 

Schedules 13D and 13G filings are 

deemed to have been made. Finally, we 

are proposing to require that Schedules 

13D and 13G be filed using a structured, 

machine-readable data language. 

DATES: Comments should be received on 

or before April 11, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–06–22. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. The 

Commission will post all submitted 

comments on its website (https://

www.sec.gov/rules/proposed.shtml). 

Typically, comments also are available 

for website viewing and printing in the 

Commission’s public reference room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10 a.m. and 3 p.m. Operating 

conditions may limit access to the 

Commission’s public reference room. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information. You should submit only 

information that you wish to make 

publicly available. 

Studies, memoranda or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Nicholas Panos, Senior Special Counsel, 

and Valian Afshar, Special Counsel, in 

the Office of Mergers and Acquisitions, 

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 

proposing 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’’) and 17 CFR 

240.13d–101 (‘‘Rule 13d–101’’), under 

the Securities Exchange Act of 1934 [15 

U.S.C. 78a et seq.] (‘‘Exchange Act’’).1

We also are proposing 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’’).2

Table of Contents 

I. Introduction 

II. Discussion of the Proposed Amendments 

A. Proposed 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) 

2. Rules 13d–1(e), (f) and (g) 

3. Rules 13d–1(b), (c) and (d) 

4. Rules 13d–2(a) and (b) 

5. Rules 13d–2(c) and (d) 

6. Rules 13(a)(4) and 201(a) of Regulation 

S–T 

B. Proposed Amendment to Rule 13d–3 To 

Regulate the use of Cash-Settled 

Derivative Securities 

1. Background 

2. Proposed Amendment 

C. Proposed Amendments to Rule 13d–5 

To Affirm Its Application and Operation 

1. Background 

2. The Commission’s View of Group 

Formation 

3. Proposed Amendments 

D. Proposed Amendments to Rule 13d–6 

To Create Certain Exemptions 

1. Background 

2. Proposed Amendments 

E. Proposed Amendments to Schedule 13D 

To Clarify Disclosure Requirements 

Regarding Derivative Securities 

1. Background 

2. Proposed Amendments 

F. Proposed Structured Data Requirements 

for Schedules 13D and 13G 

1. Background 

2. Proposed Amendments 

G. Implications of the Proposed 

Amendments on Section 16 

III. Economic Analysis 

A. Introduction 

B. Economic Baseline 

1. Current Regulatory Framework 

2. Affected Parties 

C. Potential Benefits and Costs of the 

Proposed Amendments 

1. Proposed Amendments to Rules 13d–1 

and 13d–2 and Rules 13 and 201 of 

Regulation S–T 

2. Proposed Amendment to Rule 13d–3 

3. Proposed Amendments to Rules 13d–5 

and 13d–6 

4. Proposed Amendments to Item 6 of 

Schedule 13D 

5. Proposed Structured Data Requirement 

for Schedules 13D and 13G 

D. Anticipated Effects on Efficiency, 

Competition and Capital Formation 

E. Reasonable Alternatives 

1. Alternative Filing Deadlines 

2. Tiered Approach and Purchasing 

Moratorium 

3. Consolidate Beneficial Ownership 

Reporting 

4. Section 16 Rule Amendment 

5. Modify Scope of Structured Data 

Requirement 

F. Request for Comment 

IV. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

B. Incremental and Aggregate Burden and 

Cost Estimates for the Proposed 

Amendments to Rules 13d–2, 13d–3, 

13d–5 and 13d–101 

V. Small Business Regulatory Enforcement 

Fairness Act 

VI. Regulatory Flexibility Certification 


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Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 13847 

3Consistent with the current ‘‘10-day’’ deadline 

in Rule 13d–1(a), the proposed ‘‘five-day’’ deadline 

for filing the initial Schedule 13D would be 

measured in calendar days. If the last day of the 

initial Schedule 13D deadline falls on a Federal 

holiday, a Saturday or a Sunday, then such filing 

may be made on the next business day thereafter. 

17 CFR 240.0–3 (‘‘[I]f the last day on which [a 

filing] can be accepted as timely filed falls on a 

Saturday, Sunday or holiday, such [filing] may be 

[made] on the first business day following.’’). Any 

reference to ‘‘days’’ in either this release or any of 

our proposed amendments means ‘‘calendar days,’’ 

and any reference to ‘‘business days’’ means 

‘‘business days,’’ as we are proposing to define that 

term. See infra note 5 for a discussion of our 

proposed definition of ‘‘business days.’’ 

4As 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. 

5The term ‘‘business day’’ is not defined in 

Section 13(d) or 13(g) or any rule of Regulation 

13D–G. Accordingly, we are proposing to define 

‘‘business day’’ for purposes of Regulation 13D–G 

to mean any day, other than Saturday, Sunday or 

a Federal holiday, from 6 a.m. to 10 p.m. eastern 

time. 

6The 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(b) 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, an 

investment adviser registered 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 Rules 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). 

7The term ‘‘Exempt Investor’’ as used in this 

release refers to persons holding beneficial 

ownership of more than 5% of a covered class at 

the end of the calendar year, but who have not 

made an acquisition of beneficial ownership subject 

to Section 13(d). For example, persons who acquire 

all their securities prior to the issuer registering the 

subject securities under the Exchange Act are not 

subject to Section 13(d) and persons who acquire 

not more than two percent of a covered class within 

a 12-month period are exempted from Section 13(d) 

by Section 13(d)(6)(B), but in both cases are subject 

to Section 13(g). Section 13(d)(6)(A) exempts 

acquisitions of subject securities acquired in a 

stock-for-stock exchange that is registered under the 

Securities Act of 1933. 

8The 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 or 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. These 

investors are ineligible to report beneficial 

ownership pursuant to Rules 13d–1(b) or (d) but are 

eligible to report beneficial ownership on Schedule 

13G in reliance upon Rule 13d–1(c). 

9See Rule 13(a)(2) of Regulation S–T. We also are 

proposing to amend 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. 

VII. Statutory Authority 

I. Introduction 

We are proposing comprehensive 

changes to 17 CFR 240.13d–1 through 

240.13d–102 (‘‘Regulation 13D–G’’) and 

Regulation S–T to modernize the 

beneficial ownership reporting 

requirements and improve their 

operation and efficacy. Specifically, we 

are proposing to: (1) Revise the current 

deadlines for Schedule 13D and 

Schedule 13G filings; (2) amend Rule 

13d–3 to deem holders of certain cashsettled derivative securities as beneficial 

owners of the reference covered class; 

(3) align the text of Rule 13d–5, as 

applicable to two or more persons who 

act as a group, with the statutory 

language in Sections 13(d)(3) and (g)(3) 

of the Exchange Act; and (4) set forth 

the circumstances under which two or 

more persons may communicate and 

consult with one another and engage 

with an issuer without concern that they 

will be subject to regulation as a group 

with respect to the issuer’s equity 

securities. We also are proposing certain 

related technical changes to Regulation 

S–T in connection with these proposed 

amendments. Finally, we are proposing 

to require that Schedules 13D and 13G 

be filed using a structured, machinereadable data language. 

To address concerns that the current 

deadlines for Schedule 13D and 

Schedule 13G filings are creating 

information asymmetries in today’s 

market, we are proposing to: 

• Revise the Rule 13d–1(a) filing 

deadline for the initial Schedule 13D to 

five days 3 after the date on which a 

person acquires more than 5% of a 

covered class of equity securities; 4

• Amend Rules 13d–1(e), (f) and (g) to 

shorten the filing deadline for the initial 

Schedule 13D required to be filed by 

certain persons who forfeit their 

eligibility to report on Schedule 13G in 

lieu of Schedule 13D to five days after 

the event that causes the ineligibility; 

• Revise the filing deadline under 

Rule 13d–2(a) for amendments to 

Schedule 13D to one business day 5 after 

the date on which a material change 

occurs; 

• Amend Rules 13d–1(b) and (d) to 

shorten the deadline for the initial 

Schedule 13G filing for Qualified 

Institutional Investors (‘‘QIIs’’) 6 and 

Exempt Investors 7 to within five 

business days after the last day of the 

month in which beneficial ownership 

first exceeds 5% of a covered class; 

• Amend the deadline in Rule 13d– 

1(c), which permits Passive Investors 8

to file an initial Schedule 13G in lieu of 

Schedule 13D within 10 days after 

acquiring beneficial ownership of more 

than 5% of a covered class, to five days 

after the date of such an acquisition; 

• Revise the filing deadlines required 

for amendments to Schedule 13G in 

Rule 13d–2(b) to five business days after 

the end of the month in which a 

reportable change occurs; 

• Amend Rule 13d–2(c) to shorten the 

filing deadline for Schedule 13G 

amendments filed pursuant to that 

provision to five days after the date on 

which beneficial ownership first 

exceeds 10% of a covered class, and 

thereafter upon any deviation by more 

than 5% of the covered class, with these 

requirements applying if the thresholds 

were crossed at any time during a 

month; and 

• Amend Rule 13d–2(d) to revise the 

filing deadline for Schedule 13G 

amendments filed pursuant to that 

provision from a ‘‘promptly’’ standard 

to one business day after the date on 

which beneficial ownership exceeds 

10% of a covered class, and thereafter 

upon any deviation by more than 5% of 

the covered class. 

In addition, instead of an amendment 

obligation arising for Schedule 13G 

filers upon the occurrence of ‘‘any 

change’’ in the facts previously reported 

regardless of the materiality of such 

change, we are proposing to revise Rule 

13d–2(b) to require that an amendment 

to a Schedule 13G be filed only if a 

‘‘material change’’ occurs. Further, we 

are proposing to amend Rule 13(a) of 

Regulation S–T to permit Schedules 13D 

and 13G, and any amendments thereto, 

that are submitted by direct 

transmission 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 

would provide additional time for 

beneficial owners to prepare and submit 

their Schedule 13D or Schedule 13G 

filings.9

The following table summarizes the 

changes we are proposing, as described 

more fully in Section II.A: 


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13848 Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 

10See 15 U.S.C. 78m(d)(3) and (g)(3) (‘‘When two 

or more persons act as a . . . group for the purpose 

of acquiring, holding, or disposing of securities of 

an issuer, such . . . group shall be deemed a 

‘person’ for the purposes of this subsection.’’). The 

determination of whether two or more persons act 

as a group under these statutory provisions depends 

upon the particular facts and circumstances and 

may vary on a case-by-case basis. 

11Further, to reinforce that Rule 13d–5, which is 

currently titled ‘‘Acquisition of securities,’’ is 

intended to set forth the circumstances under 

which an acquisition is deemed to occur for 

purposes of Section 13(d)(1) and Rule 13d–1, we 

also propose to delete Rule 13d–5(b)(2)—which 

provides that, under certain conditions, a group 

shall not be deemed to have made an acquisition 

if persons take concerted action to make purchases 

in a covered class directly from an issuer—and to 

redesignate it as new Rule 13d–6(b). Rule 13d–6, 

titled ‘‘Exemption of certain acquisitions,’’ exempts 

certain acquisitions from the scope of Section 13(d). 

Because Rule 13d–5(b)(2) operates as the equivalent 

of an exemption, moving Rule 13d–5(b)(2) to Rule 

13d–6 would harmonize the subject matter of those 

rules. 

Issue Current Schedule 13D Proposed New Schedule 13D Current Schedule 13G Proposed 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. 

Rules 13d–1(a), (e), (f) and 

(g).

Within five days after acquiring 

beneficial ownership of more 

than 5% or losing eligibility 

to file on Schedule 13G. 

Rules 13d–1(a), (e), (f) and 

(g).

QIIs & Exempt Investors: 45 

days after calendar year-end 

in which beneficial ownership exceeds 5%. Rules 

13d–1(b) and (d).

QIIs & Exempt Investors: Five 

business days after monthend in which beneficial ownership exceeds 5%. Rules 

13d–1(b) and (d). 

Passive Investors: Within 10 

days after acquiring beneficial ownership of more than 

5%. Rule 13d–1(c).

Passive Investors: Within five 

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).

No amendment proposed— 

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).

All Schedule 13G Filers: Material 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. Rules 13d–2(c) 

and (d).

QIIs & Passive Investors: No 

amendment proposed—upon 

exceeding 10% beneficial 

ownership or a 5% increase 

or decrease in beneficial 

ownership. Rules 13d–2(c) 

and (d). 

Amendment Filing Deadline .... Promptly after the triggering 

event. Rule 13d–2(a).

Within one business day 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).

All Schedule 13G Filers: Five 

business days after monthend in which a material 

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).

QIIs: Five days after exceeding 

10% beneficial ownership 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: One business day 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. 

We also are proposing to add new 

paragraph (e) to Rule 13d–3 to deem 

holders of certain cash-settled derivative 

securities as beneficial owners of the 

reference covered class. Holders of 

derivative securities settled exclusively 

in cash do not have enforceable rights 

or any other entitlements with respect to 

the reference security under the terms of 

the agreement governing the derivative. 

Under certain circumstances described 

more fully below, however, holders of 

such derivative securities may have 

both the incentive and ability to 

influence or control the issuer of the 

reference securities. Accordingly, the 

proposed amendment would ‘‘deem’’ 

holders of such derivative securities to 

beneficially own the reference securities 

just as if they held such securities 

directly. 

The new means of determining who is 

a beneficial owner proposed in Rule 

13d–3(e) would be applied separately 

from, and in addition to, Rules 13d–3(a) 

and (b), which provisions may, 

depending upon the facts and 

circumstances, apply independently 

from proposed Rule 13d–3(e) to persons 

who purchase or sell cash-settled 

derivatives. The application of proposed 

Rule 13d–3(e) would be limited to those 

persons who hold cash-settled 

derivatives in the context of changing or 

influencing control of the issuer of the 

reference security. By contrast, securitybased swaps, as defined by Exchange 

Act Section 3(a)(68) and the rules and 

regulations thereunder, would not be 

included among the derivative 

securities covered by proposed Rule 

13d–3(e). 

We are proposing amendments that 

would align the text of Rule 13d–5, as 

applicable to two or more persons who 

act as a group, with the statutory 

language in Sections 13(d)(3) and (g)(3) 

of the Exchange Act.10 By conforming 

the rule text to Sections 13(d)(3) and 

13(g)(3), the proposed amendments to 

Rule 13d–5 are intended to remove the 

potential implication that an express or 

implied agreement among group 

members is a necessary precondition to 

the formation of a group under those 

provisions of the Exchange Act and, by 

extension, Regulation 13D–G.11 In 

connection with those proposed 

amendments, we also are proposing to 

add a new provision in Rule 13d–5 that 

would affirm that if a person, in 

advance of filing a Schedule 13D, 

discloses to any other person that such 

filing will be made and such other 

person acquires securities in the 

covered class for which the Schedule 


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Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 13849 

12 15 U.S.C. 78m(d)(1). 

13 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). 

14Public Law 111–203, 124 Stat. 1900 

929R(a)(1)(A) (2010). 

15Section 13(d)(1) of the Exchange Act was 

enacted by the Ninetieth Congress in 1968 through 

the approval of Senate Bill 510. 

16See, e.g., Leo E. Strine, Jr., Who Bleeds When 

the Wolves Bite? A Flesh-and-Blood Perspective on 

Hedge Fund Activism and Our Strange Corporate 

Governance System, 126 Yale L.J. 1870, 1895, 1960– 

61 (2017) (describing the ‘‘disclosure regime under 

Section 13 of the Securities Exchange Act’’ as 

‘‘antiquated’’ and stating that ‘‘[i]t seems entirely 

clear to me that the idea of Section 13 was that an 

investor should come public as soon as reasonably 

possible after hitting the 5% threshold and that the 

reporting deadline was due to what it took to type 

up, proof, and deliver to Washington the required 

filing in 1968, when word processors and electronic 

filing with a button push did not exist’’); David 

Benoit, Congress Asked to Act on Activist Investor 

Disclosures, The Wall Street Journal (Apr. 15, 2015), 

https://www.wsj.com/articles/congress-asked-to-acton-activist-investor-disclosures-1429107089 (noting 

that Citizens for Responsibility and Ethics in 

Washington, the Government Accountability Project 

and New Rules for Global Finance sent a letter to 

members of Congress requesting that the Schedule 

13D filing deadline be shortened from 10 days to 

one day); 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 

http://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). 

17See, e.g., Lucian A. Bebchuk et al., PreDisclosure Accumulations by Activist Investors: 

Evidence and Policy, 39 J. Corp. L. 1, 14–17 (2013) 

Continued 

13D will be filed, then those persons are 

deemed to have formed a group within 

the meaning of Section 13(d)(3). 

In addition, we are proposing 

amendments that would revise Rule 

13d–6 to set forth additional exemptions 

from Sections 13(d) and (g). 

Specifically, new Rule 13d–6(c) would 

set forth the circumstances under which 

two or more persons may communicate 

and consult with one another and 

engage with an issuer without concern 

that they will be subject to regulation as 

a group with respect to the issuer’s 

equity securities. New Rule 13d–6(d) 

would set forth the circumstances under 

which two or more persons may enter 

into an agreement governing a 

derivative security in the ordinary 

course of business without concern that 

they will become subject to regulation 

as a group with respect to the 

derivative’s reference equity securities. 

These two exemptions are designed to 

provide greater certainty regarding the 

application of Sections 13(d)(3) and 

(g)(3), while ensuring that the proposed 

amendments to Rules 13d–3 and 13d–5 

will not have a chilling effect on 

shareholder communications or 

engagement or impair certain financial 

institutions’ capacity to execute strictly 

commercial transactions in the ordinary 

course of their business. 

In addition, we are proposing 

amendments that would revise 

Schedule 13D to clarify the disclosure 

requirements with respect to derivative 

securities held by a person reporting on 

that schedule. Specifically, we are 

proposing to amend Item 6 to 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 

proposed 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 

derivatives not originating with the 

issuer, such as cash-settled options not 

offered or sold by the issuer and 

security-based swaps. 

Finally, we are proposing to require 

that Schedules 13D and 13G be filed 

using a structured, machine-readable 

data language. Specifically, we are 

proposing to require that all disclosures, 

including quantitative disclosures, 

textual narratives, and identification 

checkboxes, on Schedules 13D and 13G 

to be filed using an XML-based language 

to make it easier for investors and 

markets to access, compile and analyze 

information that is disclosed on 

Schedules 13D and 13G. Only the 

exhibits to Schedules 13D and 13G 

would remain unstructured. 

We invite and encourage interested 

parties to submit comments on any 

aspect of the proposed rule 

amendments. When commenting, please 

include the reasoning in support of your 

position or recommendation and 

provide any supporting documentation 

or data. 

II. Discussion of the Proposed 

Amendments 

A. Proposed 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 proposing a series of 

amendments that would revise the 

deadlines for filing the 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. Specifically, we are 

proposing amendments to the following 

rules: 

• Rule 13d–1(a) to shorten the filing 

deadline for the initial Schedule 13D; 

• Rules 13d–1(e), (f), and (g) to 

shorten the filing deadlines for the 

initial Schedule 13D for certain persons 

who forfeit their eligibility to report on 

Schedule 13G in lieu of Schedule 13D; 

• Rules 13d–1(b), (c), and (d) to 

shorten the filing deadlines for the 

initial Schedule 13G; 

• Rules 13d–2(a) and (b) to revise the 

filing deadline for amendments to 

Schedule 13D and Schedule 13G, 

respectively, and to align the legal 

standard that dictates when 

amendments to Schedule 13G are 

required with the relevant statutory 

provision; 

• Rules 13d–2(c) and (d) to revise the 

filing deadlines for certain other 

amendments to Schedule 13G; and 

• Rules 13(a) and 201(a) of Regulation 

S–T to revise the time by which 

Schedule 13D and 13G filings, including 

amendments thereto, must be submitted 

on a given business day in order to be 

deemed to have been filed on the same 

business day and to make a temporary 

hardship exemption unavailable to 

those filings. 

These proposed amendments are 

discussed in more detail below. 

1. Rule 13d–1(a) 

a. Background 

Section 13(d)(1) of the Exchange Act 

requires a disclosure statement to be 

filed ‘‘within ten days after [an] 

acquisition [of more than 5% of a 

covered class] or within such shorter 

time as the Commission may establish 

by rule.’’ 12 Consistent with this 

provision, Rule 13d–1(a) sets forth the 

10-day filing deadline for the initial 

Schedule 13D.13 Although the DoddFrank Wall Street Reform and Consumer 

Protection Act of 2010 (‘‘Dodd-Frank 

Act’’) amended Section 13(d)(1) to grant 

the Commission the authority to shorten 

the deadline for filing the initial 

Schedule 13D,14 the 10-day deadline 

has not been updated since it was 

enacted more than 50 years ago.15

Technological advances since 1968, 

such as the ability to submit filings 

electronically through the Commission’s 

Electronic Data Gathering, Analysis and 

Retrieval (‘‘EDGAR’’) system and the use 

of modern information technology in 

today’s financial markets, have led to 

calls for a reassessment of the 10-day 

initial filing deadline,16 while others 

disagree that such advances warrant any 

change to the deadline.17 For example, 


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(noting that the authors ‘‘are not familiar . . . with 

any research establishing [the] claim’’ that 

technological developments and changes in the 

capital markets since 1968 have rendered the 10- 

day Schedule 13D filing deadline obsolete); Ronald 

Gilson and Jeffery Gordon, The Agency Costs of 

Agency Capitalism: Activist Investors and the 

Revaluation of Governance Rights, 113 Colum. L. 

Rev. 863, 904 (2013) (explaining that shortening the 

deadline would ‘‘reduce the economic stake that an 

activist shareholder can accumulate before 

mandatory disclosure of its holding drives up the 

price of the target company’s stock’’ which would 

cause the ‘‘activist sector [to] shrink, fewer firms 

[to] be identified as targets for strategic initiatives, 

and the activists [to] reduce costly campaign 

efforts’’); Lucian A. Bebchuk and Robert J. Jackson 

Jr., The Law and Economics of Blockholder 

Disclosure, 2 Harv. Bus. L. Rev. 39, 44–47 (2012) 

(noting that Schedule 13D’s 10-day filing deadline 

‘‘reflects a careful balance that Congress struck, 

after extensive debate, between the need to provide 

information to investors and the importance of 

preserving the governance benefits associated with 

outside blockholders’’). 

18 In mandating that all Schedules 13D and 13G 

be filed electronically, the Commission reasoned 

that such a transition was necessary to facilitate 

‘‘more rapid dissemination of, and easier access to, 

financial and other material information . . . than 

under our current paper filing system’’ while also 

citing to ‘‘increased efficiencies in the filing 

process, which will significantly reduce the filing 

time required under traditional methods of paper 

delivery.’’ See Rulemaking for EDGAR System, 

Release No. 34–35113 (Dec. 19, 1994) [59 FR 67752 

(Dec. 30, 1994)]; Mandated EDGAR Filing for 

Foreign Issuers, Release No. 34–45922 (May 14, 

2002) [67 FR 36678 (May 24, 2002)]. 

19See, e.g., John C. Coffee, Jr. and Darius Palia, 

The Wolf at the Door: The Impact of Hedge Fund 

Activism on Corporate Governance, 41 J. Corp. L. 

545, 597 (2016) (‘‘[T]he gains that activists make in 

trading on asymmetric information—before the 

Schedule 13D’s filing—come at the expense of 

selling shareholders. . . . Disclosure that is 

delayed ten days enables activists to profit from 

trading on asymmetric information over that period 

. . . .’’); Adam O. Emmerich et al., supra note 17, 

at 142–46 (‘‘[N]othing in the words or legislative 

history of the Williams Act suggests that the tenday disclosure window established in 1968 was 

designed to allow activists to accumulate large 

stakes at discounted prices, unbeknownst to and to 

the detriment of counterparties and the market. To 

the contrary, the purpose of the Williams Act was 

to promptly arm market participants with 

information concerning potential changes in 

corporate control in order to allow them to make 

more informed investment decisions. The stealth 

accumulations at below-market prices . . . transfer 

value from public investors to activists . . . .’’); 

Wachtell Petition, supra note 17, at 3 (‘‘[T]he tenday [Schedule 13D] reporting lag leaves a 

substantial gap after the reporting threshold has 

been crossed during which the market is deprived 

of material information and creates incentives for 

abusive tactics on the part of aggressive investor 

prior to making a filing.’’). But see, e.g., Ronald J. 

Gilson and Jeffrey N. Gordon, The Agency Costs of 

Agency Capitalism: Activist Investors and the 

Revaluation of Governance Rights, 113 Colum. L. 

Rev. 863, 907–09 (2013) (‘‘A shareholder’s decision 

to sell results either from liquidity needs or the 

shareholder’s reservation price for the security in 

question. Any asymmetry of information involved 

in the transaction arises from the activist’s private 

information about its own intentions, which may 

include a forecast as to the likely target firm 

response. Why does the selling shareholder have an 

entitlement to share in the value of information 

created by the analysis of other investors?’’); Lucian 

A. Bebchuk et al., supra note 17, at 17–19 

(contending that shortening the Schedule 13D filing 

deadline ‘‘would carry significant costs for publiccompany shareholders’’ because ‘‘requiring activist 

investors to disclose their ownership in public 

companies more quickly will reduce these 

investors’ returns—thereby reducing the incidence 

and magnitude of outside blockholdings in large 

public companies’’); Lucian A. Bebchuk and Robert 

J. Jackson Jr., supra note 17, at 47–51 (describing 

the ‘‘substantial body of empirical evidence that is 

consistent with the view that outside blockholders 

improve corporate governance and benefit public 

investors’’ and noting that shortening the Schedule 

13D filing deadline could ‘‘reduce the returns to 

outside shareholders considering acquiring a block 

and, in turn, . . . result in a reduction in the 

incidence and size of outside blocks’’). 20See, 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. 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.’’); S. Rep. No. 550, at 3 (1968) (same); 

see also infra note 35 and accompanying text. 

21See supra note 14 and accompanying text. 

22At the same time, however, we recognize 

significant state law changes have occurred since 

the enactment of the Williams Act that have 

resulted in legal impediments being imposed upon 

blockholders in the market for corporate control. 

See Lucian A. Bebchuk and Robert J. Jackson Jr. 

supra note 17, at n.54 and accompanying text. 

These state law impediments have decreased the 

incidence of hostile takeover bids and, as a result, 

‘‘active outside blockholders filing a Schedule 13D 

are commonly not expected to seek to acquire 

control, but rather to monitor and engage with 

management and fellow shareholders.’’ Id. at 56. 

23See Reporting of Beneficial Ownership in 

Publicly-Held Companies, Release No. 34–26598 

(Mar. 14, 1989) [54 FR 10552 at text accompanying 

n.20 (Mar. 14, 1989)] (‘‘Section 13(d) was intended 

to provide information to the public and the subject 

company about accumulations of its equity 

securities in the hands of persons who then would 

have the potential to change or influence control of 

the issuer.’’) (citing S. Rep. No. 550, 90th Cong., 1st 

Sess. 7 (1967); H.R. Rep. No. 1711, 90th Cong., 2nd 

Sess. 8 (1968); Hearings on S. 510 before the 

Subcomm. on Securities of the Senate Comm. on 

Banking and Currency, 90th Cong., 1st Sess. (1967)). 

24H.R. Rep. No. 90–1711 (1968) (‘‘The purpose of 

section 13(d) is to require disclosure of information 

by persons who have acquired a substantial interest, 

or increased their interest in the equity securities 

of a company by a substantial amount, within a 

relatively short period of time.’’); see also Filing and 

Disclosure Requirements Relating to Beneficial 

Ownership, Release No. 34–17353 (Dec. 4, 1980) [45 

FR 81556 at text accompanying n.5 (Dec. 11, 1980)] 

(‘‘The legislative history of [Section 13(d)] indicates 

that it was intended to provide information to the 

public and the affected issuer about rapid 

accumulations of its equity securities by persons 

who would then have the potential to change or 

influence control of the issuer.’’) (citing S. Rep. No. 

550, 90th Cong., 1st Sess. 7 (1967); Hearings on 

S.510 before the Subcomm. on Securities of the 

Senate Comm. on Banking and Currency, 90th 

Cong., 1st Sess. (1967)). 

the Commission currently requires all 

Schedule 13D filings to be submitted 

electronically through its EDGAR 

system.18 Mandated electronic 

submissions relieve filers of the need to 

arrange for delivery in-person or 

through the U.S. mails. Furthermore, 

given the advances in the information 

technologies used by market 

professionals today, less time is needed 

to compile the necessary data and 

prepare and transmit the Schedule 13D 

to the Commission than was required in 

1968. 

The 10-day filing deadline raises 

concerns 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. The delay in reporting this 

material information contributes to 

information asymmetries that could 

harm investors.19 In enacting Section 

13(d), including its original mandate of 

a 10-day filing deadline in 1968, 

Congress considered the need to strike 

an appropriate balance between, on the 

one hand, providing adequate 

disclosures to investors and, on the 

other hand, not unduly burdening those 

engaging in change of control 

transactions.20 In 2010, Congress 

reassessed the 10-day deadline 

established in 1968 and subsequently 

amended Section 13(d) to authorize the 

Commission to shorten the 10-day 

deadline.21 This grant of statutory 

authority by Congress to establish a 

shorter deadline clearly indicates that 

the current 10-day deadline is not 

immutable and that the Commission is 

empowered to shorten that deadline to 

address the needs of today’s investors 

and other market participants, 

particularly in light of the technological 

advancements and other developments 

in the financial markets that have 

occurred since 1968.22 In reassessing 

whether or not the current 10-day 

deadline still serves the primary 

purposes of Section 13(d), which are to 

provide information to the public and 

the subject issuer about accumulations 

of a covered class by persons who had 

the potential to change or influence 

control of such issuer 23 and to regulate 

rapid accumulations of beneficial 

ownership that occurred within a short 

period of time,24 we have determined 

that an amendment to Rule 13d–1(a) is 

needed to adequately support those 

regulatory objectives. 


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25For example, the Sarbanes-Oxley Act of 2002 

amended Section 16(a) to require that change of 

beneficial ownership reports under Section 16(a) of 

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 August 27, 2002, the 

Commission adopted amendments to implement 

the accelerated deadline for Form 4 filings. 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 March 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. 

26Acceleration 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. We also 

recognize that the acceleration of these deadlines 

was prompted, in part, by Section 409 of the 

Sarbanes-Oxley Act of 2002, 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 deadline for Section 16 filings in the 

Sarbanes-Oxley Act. See supra note 25. As such, we 

believe that these technological advances also 

support accelerating the initial Schedule 13D filing 

deadline. 

27 Id.; 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.’’). 

28Although the initial Schedule 13D deadline has 

not been changed, the idea of shortening the 

deadline for beneficial ownership reports has been 

previously recommended. For example, thenChairman David S. Ruder recommended to 

Congress that the filing deadline for an initial 

beneficial ownership report be reduced from ten 

days to five business days and that the filing person 

be prohibited from acquiring additional securities 

until the filing was made. See Statement of David 

S. Ruder, Chairman of the Securities and Exchange 

Commission, Before the House Subcommittee on 

Telecommunications and Finance, Sept. 17, 1987; 

Statement of Charles C. Cox, Acting Chairman of 

the Securities and Exchange Commission, Before 

the Senate Committee on Banking, Housing and 

Urban Affairs, June 23, 1987 (‘‘[The] Commission 

could also support legislation to require that a 

Schedule 13D be filed within five business days of 

crossing the 5 percent threshold, and that a 

prohibition on further purchases be imposed until 

the filing requirement is satisfied.’’). 

29See supra note 20 and accompanying text; see 

also 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.). 

30Academic research indicates that large 

blockholders may improve the share price and the 

corporate governance of the companies in which 

they invest, and these benefits are enjoyed by all 

of the company’s shareholders. See infra Section 

III.C.b.i. This research also suggests that if the 

initial Schedule 13D filing deadline is shortened, it 

could reduce the profitability of such investments 

to large blockholders, making them less inclined to 

make those investments or engage with the 

companies in ways that produce such share price 

and corporate governance benefits. Id. 

31See infra notes 203–205 and accompanying text 

(noting that 22.97% of the initial Schedule 13D 

filings in the data set were filed on the 10th day). 

32Failure to comply with this deadline, as well 

as other deadlines for beneficial ownership filings, 

could lead to significant penalties. Under Section 

21 of the Exchange Act, the Commission has the 

authority to investigate and enforce violations of 

Section 13(d)(1) and Rule 13d–1(a), and may seek 

to impose various remedies for late filings, such as 

injunctive relief, cease-and-desist orders or civil 

monetary penalties. The Commission also may 

assert and refer criminal violations for prosecutions 

under Section 32(a) of the Exchange Act. 

Importantly, no state of mind requirement exists for 

violations of Section 13(d)(1) and corresponding 

Rule 13d–1(a). See SEC v. Levy, 706 F. Supp. 61, 

63–69 (D.D.C. 1989) (holding a defendant liable 

notwithstanding the defendant’s assertion that his 

attorney ‘‘misinformed defendant about his 

obligation to disclose’’ information on Schedule 

13D because scienter is not an element of such 

violations). In addition, a Schedule 13D filing 

obligation is not dependent on the investor 

intending to gain control of the company, but 

instead is based on a numerical beneficial 

ownership threshold. See SEC v. Savoy Indus., Inc., 

587 F.2d 1149, 1167 (D.C. Cir. 1978) (‘‘Indeed, the 

plain language of section 13(d)(1) gives no hint that 

intentional conduct need be found, but rather, 

appears to place a simple and affirmative duty of 

reporting on certain persons. The legislative history 

confirms that Congress was concerned with 

providing disclosure to investors, and not merely 

with protecting them from fraudulent conduct.’’); 

see also Oppenheimer & Co., Inc., 47 SEC 286, 1980 

WL 26901, at *1–2 (May 19, 1980) (‘‘We have 

previously held that the failure to make a required 

report, even though inadvertent, constitutes a 

willful violation.’’). 

33See Rule 13 of Regulation S–T, titled ‘‘Date of 

filing; adjustment of filing date.’’ 17 CFR 232.13. 

Continued 

b. Proposed Amendments 

We believe the 10-day filing deadline 

for the initial Schedule 13D filing 

should be revised in light of advances 

in technology and developments in the 

financial markets. Our proposal to 

shorten 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.25 For example, 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.’’ 26

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.’’ 27 Nonetheless, the deadline 

for filing an initial Schedule 13D has 

remained unchanged for over 50 

years.28 We continue to appreciate the 

need for a balance to be struck between 

the requirement that material 

information be timely disseminated and 

the competing interest that undue 

burdens not be imposed in the change 

of control context.29 We recognize the 

chilling effect that a shortening of the 

initial Schedule 13D filing deadline 

could have on a shareholder’s ability 

and incentive to effect changes at 

companies that may benefit all 

shareholders, particularly where the 

shortened deadline may increase the 

costs and reduce the incentives for those 

shareholders attempting such change of 

control efforts.30 We do not believe, 

however, that a shortening of the 

deadline would unduly disrupt that 

balance, as many Schedule 13D filers 

currently do not avail themselves of the 

full 10-day filing period.31 In 

recognition of the need to strike the 

appropriate balance between these 

interests, however, we also solicit 

public comment on this point in Section 

III.F below. 

As noted above, Rule 13d–1(a) 

currently requires the initial Schedule 

13D to be filed within 10 days after the 

date on which a person acquires 

beneficial ownership of more than 5% 

of a covered class.32 We are proposing 

to amend Rule 13d–1(a) to require a 

Schedule 13D to be filed within five 

days after the date of such acquisition. 

For purposes of determining the filing 

deadline under this proposed 

amendment, the Commission must 

receive the filing on the fifth day after 

the date of the acquisition in order for 

the filing to be considered timely. Under 

the current rules, the Commission 

would have to receive that filing on or 

before 5:30 p.m. eastern time on the due 

date.33 As described in Section II.A.6 


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Rule 13(a)(2) provides that ‘‘all filings submitted by 

direct transmission commencing on or before 5:30 

p.m. [eastern time] shall be deemed filed on the 

same business day, and all filings submitted by 

direct transmission commencing after 5:30 p.m. 

[eastern time] shall be deemed filed as of the next 

business day.’’ Id. 

34See infra Section II.A.6. 

35 In discussing the Williams Act, one Senator 

stated that ‘‘the committee has carefully weighed 

both the advantages and disadvantages to the public 

of the cash tender offer. We have taken extreme care 

to avoid tipping the scales either in favor of 

management or in favor of the person making the 

takeover bids. S. 510 is designed solely to require 

full and fair disclosure for the benefit of investors.’’ 

113 Cong. Rec. S12557 (daily ed. Aug. 30, 1967) 

(statement of Sen. Harrison A. Williams, Jr.). The 

Senator further stated that ‘‘[t]he bill will at the 

same time provide the offeror and management 

with equal opportunity to present their case.’’ Id.; 

see also 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) (‘‘But the principal point is that we 

are not concerned with assisting or hurting either 

side. We are concerned with the investor who today 

is just a pawn in a form of industrial warfare.’’). 

36See, e.g., supra note 17. 

37The Commission has long recognized that 

additional purchases made after a filing obligation 

arises under Section 13(d)(1) and corresponding 

Rule 13d–1(a) constitutes 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 . . . .’’ 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); see also supra note 17. 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 Committee on 

Banking, Housing and Urban Affairs—United States 

Senate (Mar. 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. 

38See supra notes 17 and 19. 

39H.R. Rep. 90–1711 (1968) (‘‘But where no 

information is available about persons seeking 

control, or their plans, the shareholder is forced to 

make a decision on the basis of a market price 

which reflects evaluation of the company based on 

the assumption that the present management and its 

policies will continue.’’). 

40See GAF Corp. v. Milstein, 453 F.2d 709, 717 

(2d. Cir. 1971), cert. denied, 406 U.S. 910 (1972) 

(noting that without prompt disclosure, ‘‘investors 

cannot assess the potential for changes in corporate 

control and adequately evaluate the company’s 

worth’’). 

41The materiality of such information is 

supported by academic literature indicating that 

economically significant price changes occur in 

response to news about changes in corporate 

control, including the filing of a Schedule 13D. See 

infra note 215 and accompanying text. 

42See Takeover Bids: Hearing on H.R. 14475 and 

S. 510 Before the H. Subcomm. on Commerce and 

Finance of the H. Comm. on Interstate and Foreign 

Commerce, 90th Cong. 10 (1968) (statement of 

Manuel F. Cohen, Chairman, Securities and 

Exchange Commission) (‘‘Now it is argued by some 

that the basic factor which influences shareholders 

to accept a tender offer is the adequacy of the price. 

But, I might ask, how can an investor evaluate the 

adequacy of the price if he cannot assess the 

possible impact of a change in control? Certainly 

without such information he cannot judge its 

adequacy by the current or recent market price. 

That price presumably reflects the assumption that 

the company’s present business, control and 

management will continue. If that assumption is 

changed, is it not likely that the market price might 

change?’’). The potential gains in market efficiency 

and price discovery that could be achieved with a 

shorter initial reporting deadline, however, could 

be offset by the costs imposed upon shareholders 

who seek to influence or change management. See 

supra note 38 and accompanying text. 

43For 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.). This comparative analysis 

suggests that a shortened deadline is workable 

based on the experience of these foreign 

jurisdictions. We note, however, that this 

comparative analysis may be imperfect given the 

relevant differences in the legal systems in the U.S. 

and these foreign jurisdictions, including antitakeover devices that are legal under certain states’ 

corporate laws (e.g., low-threshold poison pills that 

are permitted under Delaware law) that may not be 

legal in these foreign jurisdictions. 

below, however, we also are proposing 

to extend that cut-off time to 10 p.m. 

eastern time for Schedule 13D and 13G 

filings, including amendments 

thereto.34

In proposing to establish new 

timeframes for filing reports, we are 

mindful of the need to balance the 

market’s demand for timely information 

against the administrative burden 

placed upon a filer to adequately and 

accurately prepare that information. We 

also recognize that when enacting 

Section 13(d)(1), Congress considered 

the interests of both issuers of securities 

and the large shareholders who sought 

to exert influence or control over 

issuers, and took an even-handed 

approach.35 The proposed five-day 

deadline reflects our attempt to 

maintain that balance and similarly 

undertake an even-handed approach, 

especially when compared with 

considerably shorter initial filing 

deadlines some parties have 

recommended.36 However, in light of 

the technological advances and the 

rapid pace with which trading activities 

and large accumulations of beneficial 

ownership can occur in the financial 

markets today as compared to when the 

deadline was enacted in 1968, we are 

concerned that the current delay in 

reporting market-moving information on 

Schedule 13D raises investor protection 

concerns.37 Under current Rule 13d– 

1(a), large shareholders may acquire 

more shares without 

contemporaneously disclosing their 

beneficial ownership during the 10-day 

period that follows the date that a 

Schedule 13D filing obligation arises. 

Although the 10-day period may 

facilitate opportunities for certain 

shareholders to acquire stakes large 

enough to incentivize them to engage in 

corporate activism that could benefit all 

shareholders,38 the informational 

imbalance between a buyer and seller 

during that period may result in 

transactions being consummated based 

on mispriced securities.39

Congress enacted Section 13(d) as a 

means of requiring timely disclosures 

needed for informed investment 

decisions that ultimately could 

contribute to the accurate valuation of 

securities.40 The proposed shortening of 

the initial Schedule 13D filing deadline 

is consistent with those legislative 

objectives while holding the potential to 

benefit investors and improve the 

efficiency of U.S. capital markets. 

Market-moving information, such as the 

accumulation of a significant equity 

stake,41 would be made available more 

quickly, improving opportunities for 

more efficient and more accurate price 

discovery.42 In addition to more closely 

aligning the initial Schedule 13D filing 

deadline with the reporting deadline on 

Form 8–K for issuers and Form 4 for 

officers, directors and beneficial owners 

of more than 10% of a covered class, a 

shorter filing deadline for the initial 

Schedule 13D also would be consistent 

with the filing deadlines for similar 

beneficial ownership reports in foreign 

jurisdictions.43 The increase in 

transparency and corresponding 

assurance given to investors that 

transactions are not being made based 

on mispriced securities caused by a 

prolonged lag in the dissemination of 

market-moving information should 

increase investor confidence. By 

increasing the certainty offered to 

shareholders that their trades are not 

being made on the basis of incomplete 

or outdated information, the proposed 

amendment to Rule 13d–1(a) could in 

turn enhance market efficiency and 

liquidity. 


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44Amendments to Beneficial Ownership 

Reporting Requirements, Release No. 34–39538 

(Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)]. 

45 17 CFR 240.13d–1(b). 

46 17 CFR 240.13d–1(c). 

Request for Comment 

1. Should we amend Rule 13d–1(a) as 

proposed? 

2. How has the market for corporate 

control changed since the enactment of 

the Williams Act? To the extent those 

changes are significant, how should we 

consider them in our analysis of 

shortening the reporting window? 

3. Should we amend Rule 13d–1(a), 

but have the initial Schedule 13D due 

within a different number of days than 

proposed (e.g., five business days rather 

than five days) after the date of 

acquisition? Should we use business 

days instead of days for purposes of the 

Rule 13d–1(a) deadline for the initial 

Schedule 13D filing? 

4. Rather than shorten the deadline 

under Rule 13d–1(a) in all instances, 

should we offer a tiered approach, such 

as maintaining the 10-day deadline for 

acquisitions of greater than 5% but no 

more than 10% while instituting a 

shorter deadline if beneficial ownership 

exceeds 10%? Should a person who 

‘‘stands still’’ (i.e., chooses to make no 

further acquisitions of beneficial 

ownership) after crossing the 5% 

threshold be subject to a longer filing 

deadline than those persons who 

continue to make acquisitions after 

crossing the 5% threshold? If so, how 

much extra time to file should such 

person be given? In addition, if a tiered 

deadline is recommended, should any 

limit be placed upon the amount that 

can be acquired during the day on 

which the 5% threshold is crossed? If 

any acquisition limits should be 

imposed on the day the 5% threshold is 

crossed under a scenario where we 

move to adopt tiered deadlines, what 

should be the maximum amount that a 

person could acquire and still be 

eligible for an extended filing deadline? 

5. Should the deadline for the initial 

Schedule 13D filing vary based on a 

particular characteristic of the issuer 

(such as its market capitalization or 

trading volume)? If so, please explain 

the justification for why the deadline for 

reporting beneficial ownership in 

certain types of issuers should be either 

shorter or longer based on any such 

characteristic. 

6. Would the costs associated with 

preparing and filing an initial Schedule 

13D within the proposed five-day 

deadline substantially differ from 

current costs of filing, and if so, why? 

7. Would the proposed amendments 

improve price discovery of a covered 

class, and, in turn, reinforce investors’ 

confidence in the integrity of the capital 

markets? 

8. Are there costs other than routine 

filing and preparation costs that we 

should consider in setting the initial 

Schedule 13D filing deadline, and if so, 

what are those costs and can they be 

quantified? For example, would 

shortening the deadline necessarily 

limit the amount of a covered class that 

a beneficial owner could acquire before 

the initial Schedule 13D filing is due? 

If so, please identify such limit or 

limitations. To the extent that any limit 

or limitations exist on the amount of 

beneficial ownership in a covered class 

that can be acquired on the same day on 

which the 5% reporting threshold is 

crossed, how would any such limit or 

limitations impose actual or anticipated 

costs upon shareholders in the covered 

class, including those who would be 

acquiring reportable positions for the 

first time? 

9. Other than administrative burden 

or liquidity concerns, what other 

potential drawbacks should be 

considered in setting a new filing 

deadline? For example, would there be 

observable decreases in shareholder 

activism? 

10. As a means of offsetting any 

incremental cost increases associated 

with the proposed change, should we 

amend Schedule 13D, codified at Rule 

13d–101, to include pre-populated 

disclosure fields under each line item 

disclosure requirement that reduce the 

amount of narrative that the filer would 

be required to prepare and review? For 

example, rather than requiring filers to 

describe any plans or proposals that 

would result in the issuer undertaking 

an extraordinary transaction (e.g., a sale 

or transfer of a material amount of assets 

of the issuer or any of its subsidiaries), 

such a transaction type would be listed 

along with a box that could be 

‘‘checked’’ by the filer to indicate the 

existence of any plan or proposal for the 

issuer to engage in such a transaction. 

11. Have any change of control 

transactions followed large 

accumulations of beneficial ownership 

that occurred after the 5% threshold 

was crossed but before the initial 

Schedule 13D was filed, and if so, what 

were those transactions? 

12. Is there evidence of shareholder 

harm that occurred as a result of 

purchases made by a large shareholder 

after the 5% threshold was crossed but 

before the Schedule 13D was filed? If so, 

please describe the impact of such 

accumulations (including any 

quantifiable harms). 

13. Have any corporate actions been 

prevented from occurring, or been 

forced to occur, as a result of the current 

10-day filing deadline for an initial 

Schedule 13D? If so, what were those 

instances and how did the delay in 

reporting interfere with or otherwise 

impact the normal operation of the 

corporation? For example, were any 

issuers coerced or pressured to execute 

a settlement agreement or undertake a 

buyback of their securities as a direct 

consequence of the initially undisclosed 

amount of a covered class acquired once 

the 5% threshold was crossed? Aside 

from transactions that occur based upon 

an imbalance of information, are there 

any other specific difficulties that arise 

from information asymmetries in the 

days leading up to a Schedule 13D 

filing? 

14. Shares purchased during the 10- 

day window in advance of a Schedule 

13D filing are purchased from 

shareholders who already have made 

the decision to exit or reduce their 

investment. It is possible that some or 

all of those shareholders would have 

sold their shares regardless of whether 

a Schedule 13D had been filed earlier. 

Is there evidence that a Schedule 13D 

filing impacts the liquidity of an issuer’s 

shares or otherwise indicates that a 

Schedule 13D filing impacts 

shareholders’ decisions to sell their 

shares? 

2. Rules 13d–1(e), (f), and (g) 

a. Background 

Rules 13d–1(e), (f), and (g) were 

adopted in 1998.44 Those rules are 

designed to ensure that initial Schedule 

13D filing obligations are identical, 

regardless of whether the beneficial 

owners were previously eligible to file 

a Schedule 13G in lieu of the Schedule 

13D. Specifically, Rules 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) 45 or (c).46 Rules 13d–1(b) and 

(c) permit investors to file a 

comparatively abbreviated Schedule 

13G in lieu of the longer-form Schedule 

13D and to have more time to make 

amended filings. 

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). Rules 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 noninstitutional beneficial owners who are 

unable to certify that they do not hold 

beneficial ownership with the intent to 

change or influence control of the issuer 


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47Whether 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 opined 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)]. 

48 Domestic and Foreign Investment Improved 

Disclosure Act of 1977, Public Law 95–214, sec. 

203, 91. Stat. 1494. 

49S. Rep. No. 114, 95th Cong. 1st Sess. 13 (1977). 

50S. Rep. No. 95–114, at 13 (1977), reprinted in 

1977 U.S. Code Cong. & Admin. News. 4098, 4111. 

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.’’ 47 Rule 13d–1(e)(1) currently 

requires that such persons 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. 

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% 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% 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. 

Rules 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) to indefinitely 

suspend application of Rule 13d–1(a) 

and its attendant 10-day initial 

Schedule 13D filing deadline. Under 

Rules 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 Rules 13d–1(b) and (c). Due to the 

importance of Schedule 13D’s 

disclosure requirements and the 

regulatory purposes served by the 

timely dissemination of that material 

information, we have preliminarily 

concluded that no compelling reason 

exists to treat persons who become 

ineligible to file on Schedule 13G 

differently from persons who initially 

have no option other than to file on 

Schedule 13D. 

b. Proposed Amendments 

For largely the same reasons that we 

are proposing to amend Rule 13d–1(a) to 

shorten the initial Schedule 13D filing 

deadline thereunder, we also are 

proposing to amend the initial Schedule 

13D filing deadline under Rules 13d– 

1(e)(1), (f)(1), and (g). Specifically, we 

are proposing to make conforming 

revisions to Rules 13d–1(e), (f), and (g) 

so that the Schedule 13D required to be 

filed by persons who initially elected to 

report beneficial ownership on 

Schedule 13G but subsequently lost 

their eligibility are treated no differently 

from persons who make a Schedule 13D 

their initial filing. Accordingly, we 

propose to amend Rules 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. 

Request for Comment 

15. Given the proposed amendment to 

Rule 13d–1(a), should we make 

conforming changes to Rules 13d–1(e), 

(f), and (g) as proposed? 

16. Should we amend Rules 13d–1(e), 

(f), and (g) but have the initial Schedule 

13D due within a different number of 

days than proposed (e.g., five business 

days rather than five days)? Should we 

use business days instead of days for 

purposes of the deadlines in Rules 13d– 

1(e), (f), and (g)? 

17. Are there any reasons why 

Schedule 13G filers submitting an initial 

Schedule 13D pursuant to Rules 13d– 

1(e), (f), and (g) should be required to 

file on a different timetable from those 

investors who file an initial Schedule 

13D pursuant to the deadline in the 

proposed amendment to Rule 13d–1(a)? 

18. Rather than make conforming 

changes to Rules 13d–1(e), (f), and (g), 

should the Commission rescind 

Schedule 13G and rely on Section 

13(g)(5) of the Exchange Act to 

consolidate beneficial ownership 

reporting on a single form, Schedule 

13D, with different disclosure 

requirements applicable to beneficial 

owners who can certify that they did not 

acquire and do not hold the beneficial 

ownership with a disqualifying purpose 

or effect? 

19. With respect to the proposed 

amendment to Rule 13d–1(g), if a filer 

who is no longer eligible to rely on Rule 

13d–1(b) may instead rely on Rule 13d– 

1(c), should the deadline for filing an 

amended Schedule 13G in this instance 

differ from the deadline for filing an 

initial Schedule 13D pursuant to Rule 

13d–1(g) given that the filer would 

continue to be able to certify that it does 

not hold beneficial ownership with a 

disqualifying purpose or effect? Would 

five business days after the month-end 

in which such change occurred be 

appropriate and consistent with our 

proposed change to Rule 13d–2(b)? 

3. Rules 13d–1(b), (c), and (d) 

a. Background 

Section 13(g) was added to the 

Exchange Act in 1977.48 Congress 

enacted Section 13(g) to address the 

absence of beneficial ownership 

reporting by persons who had 

accumulated large amounts of stock in 

a public issuer but who were not 

required to file a beneficial ownership 

report under Section 13(d).49 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.’’ 50 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 5% of a 


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51Filing and Disclosure Requirements Relating to 

Beneficial Ownership, Release No. 34–14692 (Apr. 

21, 1978) [43 FR 18484 (Apr. 28, 1978)]. 

52 Id. at 18486; see also Senate Report No. 114, 

95th Cong. lst Sess. 14 (1977). 

53First 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 

the newly adopted Schedule 13G had until 45 days 

after the end of the calendar year to report 

beneficial ownership to the extent the amount held 

exceeded 5% at the end of the last day of the 

calendar year. See Filing and Disclosure 

Requirements Relating to Beneficial Ownership, 

Release No. 34–14692 (Apr. 21, 1978) [43 FR 18484 

at 18486 (Apr. 28, 1978)] (explaining that ‘‘the first 

provision 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). 

54 17 CFR 240.13d–1(d). 55The 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 Requirements Relating to 

Beneficial Ownership, Release No. 34–14693 (Apr. 

21, 1978) [43 FR 18501 at 18502 (Apr. 28, 1978)]. 

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. 

56Filing and Disclosure Requirements Relating to 

Beneficial Ownership, Release No. 34–14692 (Apr. 

21, 1978) [43 FR 18484 at 18486 (Apr. 28, 1978)] 

(stating that ‘‘the enactment of [S]ection 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 [S]ection 13(d)(5) is within 

the primary purpose of [S]ection 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. 

57Amendments to Beneficial Ownership 

Reporting Requirements, Release No. 34–39538 

(Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)]. 

covered class. Section 13(g) was 

intended to close this gap. 

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).51

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 5% of a covered class.52

The deadline for the initial Schedule 

13G filing depends on whether the 

person is a QII, Exempt Investor or 

Passive Investor. Rule 13d–1(b) 

currently provides that a QII must file 

an initial Schedule 13G only if such QII 

beneficially owns more than 5% of a 

covered class at the end of a calendar 

year.53 A person relying upon Rule 

13d–1(b) is obligated under current 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. If the QII beneficially owns 

more than 10% 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 5% during the 

calendar year without incurring a filing 

obligation unless the QII beneficially 

owns more than 10% of a covered class 

at the end of any month during the 

calendar year. 

Rule 13d–1(d),54 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.55 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).56

Finally, Rule 13d–1(c) was adopted by 

the Commission on January 12, 1998.57

The rulemaking created a new class of 

investor, commonly referred to as 

‘‘Passive Investors,’’ eligible to report on 

a Schedule 13G in lieu of the Schedule 

13D that is otherwise required to be 

filed given that the person has made an 

acquisition subject to Section 13(d). 

Passive Investors are required under 

current Rule 13d–1(c) to file a Schedule 

13G within 10 days after acquiring 

beneficial ownership of more than 5% 

of a covered class. Passive Investors 

electing to report on Schedule 13G in 

lieu of Schedule 13D are required under 

current Rule 13d–1(c) to file within 10 

days after acquiring beneficial 

ownership of more than 5% of a covered 

class. A person is only eligible to file on 

Schedule 13G under Rule 13d–1(c) if 

such person is not seeking to acquire or 

influence control of an issuer and 

beneficially owns less than 20% 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. 

b. Proposed Amendments 

We believe that the current initial 

Schedule 13G filing deadlines for all 

three types of Schedule 13G filers 

warrant reassessment. 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 Section 13(d) 

and Section 13(g). Investors reporting 

pursuant to current Rules 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%. Amendments 

to the filing deadlines for initial 

Schedule 13G submissions required to 

be made by QIIs and Exempt Investors 

may therefore be needed to improve 

transparency consistent with the intent 

of Congress when enacting Section 13(d) 

and Section 13(g). The existing 

deadlines and manner of applicability 

not only could give rise to a gap in 

reporting for persons who possess the 

potential to change control of an 

issuer—or, in the case of Exempt 

Investors, may already control an 

issuer—but also risk devaluing the 

importance of the disclosures when 


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58See infra note 221 and accompanying text 

(noting the importance to the market of information 

regarding beneficial ownership, regardless whether 

it is disclosed on Schedule 13D or 13G, based on 

evidence that the initial filing of Schedule 13G, like 

that of Schedule 13D, generates a positive stock 

price reaction, albeit smaller in magnitude). 

59See, e.g., Kristin Giglia, A Little Letter, a Big 

Difference: An Empirical Inquiry into Possible 

Misuse of Schedule 13G/13D Filings, 116 Colum. L. 

Rev. 105, 115–16 (2015) (explaining that the 

availability of Schedule 13G may allow investors to 

‘‘intentionally structure their acquisition strategies 

to exploit the gaps created by the current reporting 

regime, to their own short-term benefit and to the 

overall detriment of market transparency and 

investor confidence’’ (internal quotations omitted)); 

In the Matter of Perry Corp., Release No. 34–60351 

(July 21, 2009) (illustrating how an institutional 

investor improperly relied upon Rule 13d–1(b) to 

defer reporting its beneficial ownership of nearly 

10% of a covered class). QIIs in particular may be 

able to amass sizeable amounts of beneficial 

ownership without reporting such positions. Rule 

13d–1(b)(2) provides in relevant part that ‘‘it shall 

not be necessary to file a Schedule 13G unless the 

percentage of [a covered class] beneficially owned 

as of the end of the calendar year is more than five 

percent.’’ As such, a QII may beneficially own in 

excess of 5% of a covered class for the entire year, 

sell down its position to 5% or below on the last 

day of the calendar year and bypass having to report 

at all under the current regulatory framework 

assuming that its beneficial ownership continues to 

be held in the ordinary course of business, without 

a disqualifying purpose or effect, and does not 

exceed 10% of a covered class. 

60Our proposed definition of ‘‘business day’’ 

would be consistent with how that term is defined 

under other rule provisions adopted under the 

Exchange Act, such as 17 CFR 240.14d–1 (‘‘Rule 

14d–1(g)(3)’’), which defines the term ‘‘business 

day’’ to mean ‘‘any day, other than Saturday, 

Sunday or a Federal holiday, and shall consist of 

the time period from 12:01 a.m. through 12:00 

midnight Eastern time.’’ Unlike Rule 14d–1(g), 

which defines the term for purposes of Regulations 

14D and 14E, the proposed amendments to Rules 

13d–1 and 13d–2 that use the term ‘‘business day’’ 

are indifferent as to whether or not the date of the 

event that triggers a Schedule 13D or Schedule 13G 

filing obligation falls on a Saturday, Sunday or 

Federal holiday versus a business day. For example, 

under the proposed amendments to Rules 13d–1(b) 

and (d), the initial Schedule 13G would be due the 

fifth business day after the last day of the month 

in which beneficial ownership exceeds 5% of a 

covered class. In addition, as stated at the outset of 

Regulation 13D–G, Regulation S–T governs the 

preparation and submissions of filings in electronic 

format and should be read in conjunction with the 

rules contained within Regulation 13D–G, 

including Rules 13d–1 and 13d–2. 

61Exempt Investors can jeopardize their 

eligibility to report on Schedule 13G by voluntarily 

or involuntarily making an acquisition, or 

acquisitions, by purchase or otherwise as 

determined under Rule 13d–5(a), that exceed(s) 2% 

of a covered class in a consecutive 12-month period 

and thus render unavailable the Section 13(d)(6)(B) 

exemption. 

62Specifically, current Rule 13d–2(c) would still 

require QIIs to file an amendment to their Schedule 

13G within 10 days after the end of the first month 

in which their beneficial ownership exceeds 10% 

of a covered class, calculated as of the last day of 

the month. If the proposed amendment to Rule 

13d–2(c) is adopted, however, QIIs would be 

required to make such disclosure within five days 

after the date on which the person’s direct or 

indirect beneficial ownership exceeds 10%. 

63Rule 13d–1(j) provides that a beneficial owner 

may rely upon information in an issuer’s most 

recent periodic or current report unless the 

beneficial owner knows or has reason to believe 

that the information contained in the report is 

inaccurate. 17 CFR 240.13d–1(j). 

made, if made at all.58 The very gap in 

reporting that Congress sought to close 

by enacting Section 13(g) may now be 

effectively just as wide given that large, 

undisclosed accumulations could be 

occurring and may be reported 

considerably later than is useful to 

investors and the market, if reported at 

all.59

In addition, at the time Rule 13d–1(c) 

was first adopted, Passive Investors may 

not have had reasonable access to 

advanced technologies to make more 

immediate filings possible. Consistent 

with our justification for proposing to 

shorten the initial Schedule 13D filing 

deadline under Rule 13d–1(a), we 

believe Passive Investors today not only 

have gained valuable experience 

complying with these reporting 

provisions, but also have ready access to 

the necessary filing technology. As 

such, while the 10-day filing deadline in 

Rule 13d–1(c) may have been 

appropriate in 1998, technological 

advancements in the intervening two 

decades, as well as our proposed 

amendment to the analogous filing 

deadline in Rule 13d–1(a), support a 

reconsideration and recalibration of that 

deadline. 

Accordingly, we propose to amend 

Rules 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 60 after 

the end of the month in which 

beneficial ownership exceeds 5% of a 

covered class. The proposed 

acceleration of these deadlines is 

expected to result in more timely 

disclosures while minimizing any 

additional burdens. We believe 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. 

For example, compliance operations at 

QIIs currently need to monitor 

beneficial ownership levels at least on a 

monthly basis in case their holdings 

exceed more than 10% at the end of the 

month and trigger an initial Schedule 

13G filing pursuant to Rule 13d–1(b)(2). 

Similarly, Exempt Investors already 

need to monitor the level of their 

beneficial ownership continuously or 

periodically to ensure that the amount 

of their beneficial ownership does not 

unintentionally exceed 2% in a 12- 

month period and trigger application of 

Section 13(d).61

Given the proposal to shorten the 

initial reporting deadline to five 

business days after the end of the 

month, the current provision of Rule 

13d–1(b)(2) that operates to accelerate 

that initial filing deadline if beneficial 

ownership exceeds 10% at the end of 

any month would be unnecessary in 

light of Rule 13d–2(c)’s overlapping 

Schedule 13G amendment 

requirement.62 Accordingly, we propose 

to further amend Rule 13d–1(b)(2) to 

delete the language that imposes an 

initial reporting obligation on QIIs after 

exceeding 10% of a covered class. 

We also are proposing 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 

and amendment thereto, respectively, 

under those two provisions. We believe 

it is 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 regulatory consistency 

between the deadlines in Rules 13d–1(c) 

and (a) and to facilitate the overall goal 

of increasing transparency in beneficial 

ownership. 

Request for Comment 

20. Should we amend Rules 13d–1(b), 

(c), and (d) as proposed? 

21. Should we amend Rules 13d–1(b) 

and (d) but require a different deadline 

for an initial Schedule 13G filing than 

we proposed? For example, should we 

require a shorter or longer deadline than 

our proposed deadline of within five 

business days after the end of the month 

in which beneficial ownership exceeded 

5% in a covered class? Alternatively, 

should the deadline be expressed in 

days rather than business days to 

conform to the proposed deadlines in 

Rules 13d–1(a), (e), (f), and (g)? 

22. Do costs other than routine filing 

and preparation costs exist that we 

should consider in setting the initial 

Schedule 13G filing deadlines? If any 

such costs exist, please identify and 

quantify to the extent practicable. For 

example, would shorter deadlines 

inhibit beneficial owners’ opportunities 

to verify the number of outstanding 

securities of a covered class for 

purposes of determining whether their 

beneficial ownership exceeds 5%? Such 

verification could include any internal 

processes that a beneficial owner may 

have in place to independently 

corroborate the accuracy of the number 

of shares disclosed in an issuer’s most 

recent annual, quarterly or current 

report notwithstanding the absence of 

such an affirmative obligation under 

Rule 13d–1(j).63


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64Acquisitions, Tender Offers, and Solicitations, 

Release No. 34–8370 (July 30, 1968) [33 FR 11015 

(Aug. 2, 1968)]. 

65 17 CFR 240.13d–2(a). 

66See id. (requiring an amendment ‘‘[i]f any 

material change occurs in the facts set forth in the 

Schedule 13D’’ including ‘‘any material increase or 

decrease in the percentage of the class beneficially 

owned’’). 

67Our proposed amendment also would be 

consistent with the Commission’s existing view 

that, under the current ‘‘promptly’’ standard in Rule 

13d–2(a), ‘‘[a]ny delay beyond the date the filing 

reasonably can be filed may not be prompt’’ and 

that an amendment to a Schedule 13D reasonably 

could be filed in as little as one day following the 

material change. In re Cooper Laboratories, Release 

No. 34–22171 (June 26, 1985). 

68Under Rule 13d–2(a), the Schedule 13D filer 

only has an obligation to ‘‘file or cause to be filed 

with the Commission an amendment disclosing that 

[material] change.’’ See also 17 CFR 240.12b–15, 

titled ‘‘Amendments,’’ which explains that 

‘‘[a]mendments filed pursuant to this section must 

set forth the complete text of each item as 

amended.’’ 

69For a discussion of our proposed definition of 

‘‘business day’’ for purposes of Regulation 13D–G, 

see supra note 5. 

23. Our proposed amendment to Rule 

13d–1(b)(2) would only require QIIs to 

determine the amount of their beneficial 

ownership as of the last day of a month 

for purposes of their initial Schedule 

13G filing obligation under that rule. 

Should QIIs be required to determine 

the amount of their beneficial 

ownership as of any day during a month 

rather than only as of the last day of a 

month, and if so, what practical 

challenges or other burdens are 

associated with monitoring the level of 

beneficial ownership on a daily basis? 

24. Should we treat the initial 

Schedule 13G reporting deadline 

applicable to QIIs differently from the 

deadline applicable to Exempt 

Investors, and if so, why? For example, 

would any ‘‘front running’’ concerns 

exist with the proposed amendments for 

reporting deadlines applicable to QIIs? 

25. Section 13(g)(5) requires the 

Commission to ‘‘achieve centralized 

reporting of information regarding 

ownership’’ and ‘‘avoid unnecessarily 

duplicative reporting.’’ As a means of 

pursuing these goals, should the 

Commission eliminate Schedule 13G 

and consolidate beneficial ownership 

reporting into one form, Schedule 13D? 

Under this alternative, beneficial 

owners that previously would have been 

eligible to report on Schedule 13G 

could, for example, be required to 

satisfy less burdensome disclosure 

requirements on a new, consolidated 

form. 

26. Although Passive Investors certify 

that they did not acquire and do not 

hold beneficial ownership with a 

disqualifying purpose or effect, they are 

currently required to file their initial 

Schedule 13G by the same deadline as 

Schedule 13D filers. If we adopt our 

proposed amendment to the initial 

Schedule 13D filing deadline under 

Rule 13d–1(a), are there any reasons 

why we should not make a 

corresponding change to the initial 

Schedule 13G filing deadline under 

Rule 13d–1(c) given that the same 

technological advancements equally 

enable Passive Investors to make a 

Schedule 13G filing on an accelerated 

basis? 

4. Rules 13d–2(a) and (b) 

a. Background 

Section 13(d)(2) requires that an 

amendment must be filed to the 

statement required under Section 

13(d)(1) if any material change occurs in 

the facts set forth in the statement filed, 

but does not identify a specific deadline 

by which such amendment must be 

filed. Instead, Rule 13d–2(a) provides, 

as its predecessor Rule 13d–2 did when 

first adopted in 1968,64 that such 

amendment must be filed with the 

Commission ‘‘promptly.’’ 65 The initial 

adopting release did not provide an 

explanation as to why ‘‘promptly,’’ as 

opposed to a specified deadline, was 

chosen. As a factual matter, the 

‘‘promptly’’ standard may, under certain 

conditions, allow for more time to 

report a complex disclosure issue or 

material development based on an 

involuntary change in circumstances 

that nevertheless triggers an amendment 

obligation. The obligation to file an 

amendment under current Rule 13d– 

2(a) is not limited to acquisitions. 

Instead, changes in the disclosure 

narrative that are material also have to 

be reported in an amendment, as do 

material changes in the level of 

beneficial ownership caused by an 

involuntary change in circumstances, 

such as a reduction in the amount of 

beneficial ownership caused solely by 

an increase in the number of shares 

outstanding.66

Section 13(g)(2) requires that an 

amendment be filed to the statement 

required under Section 13(g)(1) if any 

material change occurs in the facts set 

forth in the statement filed, but like 

Section 13(d)(2), does not identify a 

deadline by which such amendment 

must be filed. Rule 13d–2(b), however, 

does specify a deadline and provides 

that for all persons who report 

beneficial ownership on Schedule 13G, 

an amendment shall be filed ‘‘within 

forty-five days after the end of each 

calendar year if, as of the end of the 

calendar year, there are any changes in 

the information reported in the previous 

filing on that Schedule [13G].’’ 

b. Proposed Amendments 

We propose to amend Rule 13d–2(a) 

to require that all amendments to 

Schedule 13D be filed within one 

business day after the material change 

that triggers the amendment obligation. 

This change from the current 

‘‘promptly’’ standard would establish a 

specified filing deadline, remove any 

uncertainty as to the date on which an 

amendment is due and help ensure that 

beneficial owners amend their filings in 

a more uniform and consistent manner. 

In light of the technological advances 

discussed in Section II.A.1 above, and 

for many of the same reasons we are 

proposing to shorten the initial 

Schedule 13D filing deadline, we do not 

believe that requiring Schedule 13D 

amendments to be filed within one 

business day after the date on which a 

material change occurs will place those 

filers at a disadvantage.67 Further, 

because an amendment to a Schedule 

13D only requires that the material 

change be reported and not a complete 

set of new narrative responses to each 

of the disclosure form’s individual line 

items,68 those amendments should 

present a lower administrative burden 

than the initial Schedule 13D filing. 

We also are proposing to amend Rule 

13d–2(b) to require a Schedule 13G to 

be amended within five business days of 

the end of the month in which a 

material change occurs in the 

information previously reported. 

Accelerating the deadline for 

amendments from the current standard 

of 45 days after the end of the calendar 

year would help ensure that the 

information reported is timely and 

useful. In addition, this proposed 

deadline would be consistent with the 

proposed five business day deadline 

from the end of the month applicable to 

QIIs’ and Exempt Investors’ initial 

Schedule 13G filing obligations arising 

under Rules 13d–1(b) and (d). To 

partially mitigate the time pressures 

resulting from the reduction of the 

current 45-day deadline and the need to 

meet these new deadlines, if adopted, 

we have proposed a ‘‘business day’’ 

standard in specifying the date on 

which the Schedule 13G filing would be 

due after an event that triggers a 

reporting obligation.69

We further believe the text of Rule 

13d–2(b) regarding the legal standard 

that triggers an amendment obligation 

should be conformed to the statutory 

language. Sections 13(d)(2) and 13(g)(2) 

require such an amendment if a 

‘‘material change’’ occurs to the facts in 

the statement previously filed. Unlike 

Sections 13(d)(2) and 13(g)(2), Rule 


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70Filing and Disclosure Requirements Relating to 

Beneficial Ownership, Release No. 34–14692 (Apr. 

21, 1978) [43 FR 18484 at 18489 (Apr. 28, 1978)] 

(stating the Commission’s belief that because ‘‘the 

information required by Schedule 13G has been 

reduced to the minimum necessary to satisfy the 

statutory purpose, . . . a materiality standard is 

inherent in those requirements’’ and ‘‘it is 

unnecessary to further minimize it by the insertion 

of an express materiality standard’’). 71See supra note 70 and accompanying text. 

72See supra Section II.A.3. 

73See supra Section II.A.4. 

13d–2(b) does not include an express 

materiality qualifier for Schedule 13G 

amendments and simply requires an 

amendment for ‘‘any change.’’ At the 

time Rule 13d–2(b) was adopted, 

however, the Commission stated that 

there is a materiality standard inherent 

in the provisions governing Schedule 

13G filings. This inherent materiality 

standard is based on the fact that any 

disclosure provided by a Schedule 13G 

filer, in light of the infrequency of the 

reports and comparatively minimal 

statements required to be made, is 

effectively material.70 Our proposed 

change would, therefore, merely codify 

this view in the text of Rule 13d–2(b). 

As such, we are proposing to amend 

Rule 13d–2(b) to substitute the term 

‘‘material’’ in place of the term ‘‘any’’ to 

serve as the standard for determining 

the type of change that will trigger an 

amendment obligation under Rule 13d– 

2(b). 

Request for Comment 

27. Should we amend Rules 13d–2(a) 

and (b) as proposed? 

28. Should we amend the filing 

deadlines contained within Rules 13d– 

2(a) and (b) but specify filing deadlines 

other than the ones which have been 

proposed? For example, should we 

specify a filing deadline of two or three 

business days from the date of a 

material change for Schedule 13D 

amendments and 10 or 15 business days 

from the end of the month in which a 

material change occurs for Schedule 

13G amendments? Instead of using 

‘‘business day’’ as the standard for 

calculating these filing deadlines, 

should we instead use a certain number 

of days as we have proposed for 

revisions to Rules 13d–1(a), (c), (e)(1), 

(f)(1), and (g) and 13d–2(c)? Should all 

reporting deadlines for Schedule 13D 

and Schedule 13G filings be uniformly 

expressed in days, the standard in use 

now, or should we express the filing 

deadlines uniformly in terms of 

business days? 

29. Will the costs associated with 

preparing and filing an amended 

Schedule 13D or Schedule 13G within 

the proposed deadlines substantially 

differ from those costs now, and if so, 

why? 

30. Should we amend the filing 

deadline in Rule 13d–2(b) as proposed 

but instead retain the rule text that 

requires a Schedule 13G amendment to 

be filed if ‘‘any change’’ exists in the 

information previously reported, rather 

than a ‘‘material change,’’ as proposed? 

Under this alternative, the changes 

reported would continue to be viewed 

as material disclosures given their 

inherent materiality as the Commission 

described in the release adopting Rule 

13d–2(b).71

5. Rules 13d–2(c) and (d) 

a. Background 

Rule 13d–2(c) governs the amendment 

obligation for QIIs whose beneficial 

ownership exceeds 10% of a covered 

class. Under Rule 13d–2(c), QIIs are 

required to file an amendment to their 

Schedule 13G within 10 days after the 

end of the first month in which their 

beneficial ownership exceeds 10% of a 

covered class, calculated as of the last 

day of the month. Once across the 10% 

threshold, QIIs are further required 

under current Rule 13d–2(c) to file 

additional amendments 10 days after 

the first month in which they increase 

or decrease their beneficial ownership 

by more than 5% of the covered class, 

calculated as of the last day of the 

month. 

Rule 13d–2(d) governs the 

amendment obligation for Passive 

Investors whose beneficial ownership 

exceeds 10% of a covered class. Under 

current Rule 13d–2(d), Passive Investors 

are required to ‘‘promptly’’ file an 

amendment to their Schedule 13G upon 

acquiring greater than 10% of a covered 

class. Once across the 10% threshold, 

Passive Investors are further required 

under current Rule 13d–2(d) to file 

additional amendments ‘‘promptly’’ if 

they increase or decrease their 

beneficial ownership by more than 5% 

of the covered class. 

The amendment obligations arising 

under Rules 13d–2(c) and (d) are in 

addition to the requirement in Rule 

13d–2(b) that a Schedule 13G be 

amended within 45 days after each 

calendar year end if, as of the end of the 

calendar year, any changes occur to the 

information previously reported on the 

Schedule 13G. As such, Rules 13d–2(c) 

and (d) supplement the amendment 

obligation under Rule 13d–2(b), which 

only arises if the person’s beneficial 

ownership exceeds 5% of a covered 

class at the end of a calendar year. To 

comply with Rules 13d–2(c) and (d), 

QIIs and Passive Investors, depending 

on their beneficial ownership levels, 

may have to amend their Schedule 13G 

filings more frequently and do so 

throughout the year. 

b. Proposed Amendments 

In connection with our proposed 

amendment to Rule 13d–2(b), we are 

proposing to amend Rule 13d–2(c) to 

require that QIIs file an amendment to 

their Schedule 13G within five days 

after the date on which their beneficial 

ownership exceeds 10% of a covered 

class, rather than the current 

requirement of 10 days after the end of 

the month. Similarly, once across the 

10% threshold, QIIs would be required 

to file additional amendments five days 

after the date on which they increase or 

decrease their beneficial ownership by 

more than 5% of the covered class, 

rather than the current requirement of 

10 days after the end of the month. 

These amendments, when considered in 

the context of our proposed amendment 

to Rule 13d–2(b), preserve the utility of 

Rule 13d–2(c) as a provision that 

provides the market with earlier notice 

of QIIs’ beneficial ownership exceeding 

10% of a covered class and, thereafter, 

upon their beneficial ownership of the 

covered class increasing or decreasing 

by more than 5%. We believe the 

imposition of such an accelerated 

deadline is appropriate in the context of 

our proposed amendment to Rule 13d– 

2(c) because the high thresholds in that 

rule—10% beneficial ownership of a 

covered class and any subsequent 5% 

increase or decrease in beneficial 

ownership—warrant that the 

amendment be rapidly disseminated to 

the market. Consistent with our 

rationale for proposing to shorten the 

other deadlines, we believe QIIs have 

access to the same technology as other 

Schedule 13D and 13G filers to satisfy 

this deadline, especially given the size 

and sophistication of the persons 

eligible to file as QIIs. 

We also are proposing to amend Rule 

13d–2(d) to change the amendment 

filing deadline from the current 

‘‘promptly’’ standard to one business 

day after the date on which an 

amendment obligation arises. We are 

proposing to amend the ‘‘promptly’’ 

standard used in Rule 13d–2(d) for 

substantially the same reasons we are 

proposing to shorten the filing deadline 

for the initial Schedule 13G 72 and 

change the filing deadline for Schedule 

13D amendments.73

Request for Comment 

31. Should we amend the filing 

deadlines in Rules 13d–2(c) and (d) as 

proposed? 


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74 17 CFR 232.12(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. 

75 17 CFR 232.13(a)(2). 

76 Id. 

77 17 CFR 232.13(a)(4). Rule 13(a)(3) also provides 

the same accommodation for registration statements 

or any post-effective amendment thereto filed 

pursuant to Rule 462(b). See 17 CFR 232.13(a)(3). 

78 17 CFR 232.201(a). 

79 17 CFR 232.13(b). 

80 Id. 

81 Id. 

82Notwithstanding the proposed extension of the 

time period in which accepted Schedule 13D and 

13G filings may be made and still be considered 

timely, filer support hours would not be extended. 

Filer support would continue to remain available 

only until 6 p.m. eastern time as is currently the 

case notwithstanding EDGAR’s availability for the 

submission of Section 16 filings through 10 p.m. 

83Once transmitted, a Schedule 13D or 13G 

submission will be automatically processed by 

EDGAR and, if accepted by EDGAR, immediately 

disseminated to the public. While filings will 

receive an accession number upon transmission, the 

accession number only confirms receipt of the 

submission, not that it was actually accepted by 

EDGAR. Transmission without acceptance does not 

constitute an official filing. Under 17 CFR 232.11, 

an ‘‘official filing’’ means any filing that is received 

and accepted by the Commission. At present, a 

transmission that has commenced on a given 

business day will only receive that business day’s 

filing date if ‘‘accepted’’ at or before 5:30 p.m., 

meaning that it has successfully passed an 

acceptance review. An official filing has not been 

made unless and until the filer receives an 

acceptance message that includes a filing date. 

Accordingly, the filer is responsible for ensuring a 

transmission commences early enough in the 

business day to correct any errors in the transmittal 

process so that time-sensitive filings can be 

accepted by the applicable deadline. 

32. Should we amend the filing 

deadlines in Rules 13d–2(c) and (d) but 

specify filing deadlines other than those 

we have proposed? For example, should 

the deadline in Rule 13d–2(c) be 

expressed in business days rather than 

days (and vice versa for the deadline in 

Rule 13d–2(d))? 

33. If we adopt our proposed 

amendment to Rule 13d–2(b), should we 

retain Rule 13d–2(c)’s amendment 

obligation for QIIs as proposed? Or does 

the proposed shortened filing deadline 

in Rule 13d–2(b) obviate the need for 

Rule 13d–2(c)’s additional amendment 

obligation, even with the proposed 

shorter filing deadline? 

34. Should the amendment filing 

deadline applicable to Passive Investors 

differ from the amendment filing 

deadline applicable to QIIs and Exempt 

Investors, as well as persons who must 

make their initial filing on Schedule 

13D? If so, why? 

6. Rules 13(a)(4) and 201(a) of 

Regulation S–T 

a. Background 

Regulation 13D–G states that 

Schedules 13D and 13G should be 

prepared in accordance with Regulation 

S–T, which governs the preparation and 

submission of documents filed 

electronically on the Commission’s 

EDGAR system. In accordance with 17 

CFR 232.12, EDGAR accepts electronic 

submissions Monday through Friday, 

except Federal holidays, from 6 a.m. to 

10 p.m. eastern time.74 Under Rule 

13(a)(2) of Regulation S–T, however, 

most filings not accepted by 5:30 p.m. 

will not be credited with having been 

received by the Commission on that 

business day.75 Instead, filings accepted 

after 5:30 p.m. but on or before 10 p.m. 

will be reflected on EDGAR as having 

been received on the next business 

day.76 Rule 13(a)(4) of Regulation S–T, 

however, sets forth certain exceptions 

from that 5:30 p.m. ‘‘cut-off’’ time. 

Specifically, it provides that certain 

filings—namely, Forms 3, 4 and 5 and 

Schedule 14N—‘‘submitted by direct 

transmission on or before 10 p.m. 

[eastern time] shall be deemed filed on 

the same business day.’’ 77 Rule 13(a)(4), 

therefore, effectively extends the ‘‘cutoff’’ time for these filings from 5:30 p.m. 

to 10 p.m. 

In addition, Rule 201 of Regulation S– 

T and 17 CFR 232.202 (‘‘Rule 202 of 

Regulation S–T’’) address hardship 

exemptions from EDGAR filing 

requirements, and Rule 13(b) of 

Regulation S–T addresses the related 

issue of filing date adjustments. A filer 

may obtain a temporary hardship 

exemption under Rule 201 of Regulation 

S–T if it experiences unanticipated 

technical difficulties that prevent the 

timely submission of an electronic filing 

by submitting a properly formatted 

paper copy of the filing under cover of 

Form TH.78 Alternatively, instead of 

pursuing a hardship exemption, a filer 

may request a filing date adjustment 

under Rule 13(b) of Regulation S–T. 

This rule addresses circumstances in 

which a filer attempts in good faith to 

file a document with the Commission in 

a timely manner, but the filing is 

delayed due to technical difficulties 

beyond the filer’s control.79 In those 

instances, the filer may request a filing 

date adjustment.80 The staff may grant 

the request if it appears that the 

adjustment is appropriate and 

consistent with the public interest and 

the protection of investors.81

b. Proposed Amendments 

We recognize the administrative 

challenges that could arise if we 

accelerate the Schedules 13D and 13G 

filing deadlines. Specifically, Schedule 

13D and 13G filers would be required to 

prepare their filings in a more 

compressed timeframe while 

maintaining the accuracy and 

completeness of the information set 

forth in those filings. These challenges 

would be more acute for filers located 

in different time zones whose business 

hours do not overlap with the 

Commission’s. In addition, institutional 

filers with more complex business 

organizations, including those with subadvisory relationships common in the 

investment management industry, may 

have difficulty assembling all of the 

required data within the timeframe that 

will be necessary in order to comply 

with the proposed filing deadlines. We 

also recognize that if the proposed 

changes to those reporting deadlines are 

implemented, under the current rules, a 

Schedule 13D or 13G must be filed on 

and accepted by EDGAR by no later 

than 5:30 p.m. on a business day on 

which such a report would be due in 

order to have the submission be 

considered timely. We propose, 

therefore, to amend Rule 13(a)(4) of 

Regulation S–T to provide that any 

Schedule 13D or Schedule 13G, 

including any amendments thereto, 

submitted by direct transmission on or 

before 10 p.m. eastern time on a given 

business day will be deemed filed on 

the same business day.82 Conversely, 

any Schedule 13D or 13G submission 

not accepted by 10 p.m. on its due date 

will be assigned a filing date of the next 

business day, and for purposes of 

compliance with the applicable 

reporting requirements, would be 

considered late.83 Given the accelerated 

filing deadlines we propose for 

Schedule 13D and 13G filings, we 

anticipate the proposed extension in the 

‘‘cut-off’’ time would ease filers’ 

administrative burdens, including those 

located in different time zones, by 

giving them an additional four and a 

half hours during which they could 

timely file their Schedules 13D and 13G. 

We also propose to amend Rule 201(a) 

of Regulation S–T to remove the 

opportunity for a Schedule 13D or 13G 

filer to pursue a temporary hardship 

exemption under that rule. This 

proposed treatment is consistent with 

our treatment of Forms 3, 4, and 5, each 

of which has a 10 p.m. ‘‘cut-off’’ time 

under Rule 13(a)(4) of Regulation S–T 

and is ineligible for a temporary 

hardship exemption under Rule 201(a) 

of Regulation S–T. We are proposing to 

amend Rule 201(a) of Regulation S–T to 

make temporary hardship exemptions 

unavailable to filers of Schedules 13D 

and 13G because of: The relative ease of 

using the EDGAR on-line filing system; 

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84Filing date adjustments, as would have been 

true of temporary hardship exemptions, should be 

few in number given the relative ease with which 

filings are now made through EDGAR and the 

strong public interest in timely and readily 

available disclosures provided by Schedules 13D 

and 13G. As is also the case with other forms 

required to be filed on EDGAR, our filing desk 

would not accept in paper format any Schedule 13D 

or 13G filings except in the highly unlikely event 

that the filing satisfies the requirements for a 

continuing hardship exemption under Rule 202 of 

Regulation S–T. Filing date adjustments may, 

however, be made if a filer is unable to submit its 

Schedule 13D or 13G as a result of an EDGAR 

outage. In such circumstances, if a filer attempts in 

good faith to file its Schedule 13D or 13G in a 

timely manner but is delayed because of an EDGAR 

outage, that filer may request a filing date 

adjustment under Rule 13(b) of Regulation S–T on 

the grounds that such outage constitutes technical 

difficulties beyond the filer’s control. 17 CFR 

232.13(b). Alternatively, the Commission may, 

under 17 CFR 232.15(a)(3), correct the filing date of 

a Schedule 13D or 13G filing if it determines that 

such filing has not been processed by EDGAR or 

was processed incorrectly by EDGAR. 

85Adoption of Beneficial Ownership Disclosure 

Requirements, Release No. 34–13291 (Feb. 24, 1977) 

[42 FR 12342 (Mar. 3, 1977)]. The Commission 

emphasized that ‘‘[a]n analysis of all relevant facts 

and circumstances in a particular situation is 

essential in order to identify each person possessing 

the requisite voting power or investment power.’’ 

Id. at 12344. 

86Acquisitions, Tender Offers, and Solicitations, 

Release No. 34–8392 (Aug. 30, 1968) [33 FR 14109 

(Sept. 18, 1968)]. 

87Commission Guidance on the Application of 

Certain Provisions of the Securities Act of 1933, the 

Securities Exchange Act of 1934, and Rules 

thereunder to Trading in Security Futures Products, 

Release No. 34–46101 (June 21, 2002) [67 FR 43234 

(June 27, 2002)] (stating the interpretive view that 

economic exposure through cash-settled securities 

futures does not confer beneficial ownership); 

Adoption of Beneficial Ownership Disclosure 

Requirements, Release No. 34–13291 (Feb. 24, 1977) 

[42 FR 12342 at 12348 (Mar. 3, 1977)] (indicating 

that amended Rule 13d–3 ‘‘does not expressly 

encompass those proposals relative to economic 

interests—such as the right to receive or the power 

to direct the receipt of dividends from, or the 

proceeds from the sale of securities’’); Filing and 

Disclosure Requirements Relating to Beneficial 

Ownership, Release No. 34–14692 (Apr. 21, 1978) 

[43 FR 18484 at 18493 (Apr. 28, 1978)] (stating that 

‘‘traditional economic benefits—i.e., the right to 

receive dividends or sale proceeds—are not 

included as criteria for defining beneficial 

ownership’’). 

88See, e.g., Maria Lucia Passador, The Woeful 

Inadequacy of Section 13(d): Time for a Paradigm 

Shift, 13 Va. L. & Bus. Rev. 279, 296–99 (2019) 

(‘‘[I]n the recent past, cash-settled equity 

derivatives—mainly call and security-based 

options—were frequently used not only with a 

speculative and hedging purpose, but also with the 

immediate, explicit, and specific aim of silently 

accumulating a leading (or even control) position in 

public companies.’’); Wachtell Petition, supra note 

17, at 8 (‘‘Even in the absence of voting or 

dispositive power, participants in large hedging 

transactions gain influence in a number of 

ways. . . . [V]oting of the shares may be subject to 

counterparty influence or control, either directly or 

because the counterparty is motivated to vote the 

hedged shares in a way that will please the investor 

and induce them to continue to transact with such 

counterparty. . . . Even those derivatives that are 

characterized as ‘cash-settled’ may ultimately be 

settled in kind, creating further market pressure as 

the participants need to acquire shares for such 

settlement.’’). 

time filing deadline; the limited value to 

the public of paper filings; and the 

availability of a filing date adjustment 

under the same circumstances as a 

temporary hardship exemption would 

have been available but for the proposed 

amendment.84

Request for Comment 

35. Should we amend Rule 13(a)(4) of 

Regulation S–T as proposed to extend 

the ‘‘cut-off’’ times for Schedule 13D or 

13G filings, including any amendments 

thereto, to 10 p.m. eastern time? 

36. If we amend Rule 13(a)(4) of 

Regulation S–T as proposed, should we 

also extend EDGAR filer support hours 

beyond 6 p.m. eastern time? 

37. Would the proposed amendment 

to Rule 13(a)(4) of Regulation S–T be 

appropriate in light of the proposed 

accelerated filing deadlines applicable 

to persons who are required to make 

Schedule 13D and 13G filings, or do 

reasons exist to distinguish these filers 

from those who file Section 16 reports 

or Schedule 14N? 

38. Does the importance of the 

information required to be reported 

within a Schedule 13D or 13G justify a 

continuation of the requirement that 

these forms be filed by 5:30 p.m. on the 

due date, the same deadline as almost 

all other Commission filings? 

39. Should we amend Rule 201 of 

Regulation S–T as proposed? 

40. Are there reasons to permit filers 

of Schedules 13D and 13G to continue 

to petition the Commission for a 

temporary hardship exemption under 

Rule 201 of Regulation S–T, especially 

if we were to adopt the proposed 

amendment to Rule 13(a)(4) of 

Regulation S–T to extend the ‘‘cut-off’’ 

times for Schedules 13D and 13G? 

41. If we do not adopt some or all of 

our proposed amendments to the filing 

deadlines applicable to beneficial 

owners who make Schedule 13D and 

Schedule 13G filings, should we still 

adopt the proposed amendments to 

Rules 13 and 201 of Regulation S–T? 

B. Proposed Amendment to Rule 13d–3 

To Regulate the Use of Cash-Settled 

Derivative Securities 

We are proposing to amend Rule 13d– 

3 to deem holders of certain cash-settled 

derivative securities to be the beneficial 

owners of the reference covered class. 

Specifically, we are proposing to add 

new paragraph (e) to Rule 13d–3. As 

discussed in more detail below, in 

addition to setting forth the 

circumstances under which a holder of 

a cash-settled derivative security will be 

deemed the beneficial owner of the 

reference equity securities, proposed 

Rule 13d–3(e) also includes provisions 

describing how to calculate the number 

of reference equity securities that a 

holder of a cash-settled derivative will 

be deemed to beneficially own. 

1. Background 

Neither Section 3(a) nor Section 13(d) 

of the Exchange Act define the term 

‘‘beneficial owner’’ or ‘‘beneficial 

ownership.’’ Regulation 13D–G 

similarly does not expressly define 

those terms. To provide clarity, the 

Commission adopted Rule 13d–3, which 

provides standards for the purpose of 

determining whether a person is a 

beneficial owner subject to Section 

13(d).85 For example, Rule 13d–3(a) 

provides that a person who directly or 

indirectly has or shares voting or 

investment power is a beneficial owner. 

The Commission also recognized the 

importance of accounting for contingent 

interests in equity securities arising 

from investor use of derivatives, such as 

options, warrants or rights. The 

Commission therefore chose to include 

holders of certain derivatives as 

beneficial owners under Rule 13d–3: 

Those derivatives that would be settled 

‘‘in-kind’’ or otherwise convey a right to 

acquire a covered class.86 Specifically, 

under Rule 13d–3(d)(1), a person is 

‘‘deemed’’ a beneficial owner of a 

covered class if that person holds a right 

to acquire the covered class—for 

example, through the exercise of an 

option or warrant or conversion of a 

security—that is exercisable or 

convertible within 60 days. Similarly, 

under Rule 13d–3(d)(1), if a right has 

been acquired for the purpose or with 

the effect of changing or influencing 

control of the issuer of securities, that 

person is treated as a beneficial owner 

of the underlying class of equity 

securities regardless of when that right 

may be exercisable, exchangeable or 

convertible. At the same time, however, 

holding derivatives that, by their terms, 

entitle the holder to nothing more than 

economic exposure to a covered class 

historically has not been considered 

sufficient to constitute beneficial 

ownership.87

Over the years, commenters have 

raised concerns about the fact that 

current Rule 13d–3 fails to explicitly 

address the circumstances in which an 

investor in a cash-settled derivative may 

influence or control an issuer by 

pressuring a counterparty to make 

certain decisions regarding the voting 

and disposition of substantial blocks of 

securities.88 An investor in a cashsettled derivative may be positioned, by 

virtue of its commercial relationship 

with a counterparty, to acquire any 

reference securities that the 


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89See infra Section III.C.2.a. 

90Rule 13d–3(b) deems persons to be the 

beneficial owners of a covered class if they have 

used an arrangement that otherwise prevented the 

vesting of beneficial ownership as part of a plan or 

scheme to evade Section 13(d) or 13(g). 17 CFR 

240.13d–3(b). 

91The Commission has pursued beneficial 

ownership reporting violations at least twice based 

on the unreported ‘‘parking’’ of equity securities 

with another party where such securities are 

essentially held in reserve for the benefit of the 

party with the intention to control or ultimately 

acquire them. See SEC v. First City Financial Corp., 

890 F.2d 1215 (D.C. Cir. 1989). In that case, the 

Commission charged First City Financial Corp. with 

using a parking arrangement with Bear, Stearns Cos. 

to avoid filing a Schedule 13D. After First City had 

acquired 4.9 percent of the stock of Ashland Oil, 

Inc., Bear Stearns agreed to acquire stock on behalf 

of First City and to sell the stock to First City once 

a sizable position was obtained. The district court 

concluded that First City deliberately attempted to 

circumvent the law. See SEC v. First City Fin. Corp., 

688 F. Supp. 705 (D.D.C. 1988); see also SEC v. 

Boyd L. Jefferies, Lit. Rel. No. 11370 (Mar. 19, 1987). 

92Filing and Disclosure Requirements Relating to 

Beneficial Ownership, Release No. 34–14692 (Apr. 

21, 1978) [43 FR 18484 at 18486 (Apr. 28, 1978)] 

(explaining that the need for disclosure had been 

recently underscored by the pivotal role played by 

investment managers holding large blocks of stock 

in surprise tender offers). 

93See Reporting of Beneficial Ownership in 

Publicly-Held Companies, Release No. 34–26598 

(Mar. 6, 1989) [54 FR 10552 (Mar. 6, 1989)]. 

94See supra note 88; see also Theodore N. Mirvis 

et al., Beneficial Ownership of Equity Derivatives 

and Short Positions—A Modest Proposal to Bring 

the 13D Reporting System into the 21st Century, 

Wachtell, Lipton, Rosen & Katz (Mar. 3, 2008) at 2– 

3, available at http://www.wlrk.com/webdocs/ 

wlrknew/WLRKMemos/WLRK/WLRK.15395.08.pdf 

(noting that derivative securities ‘‘often have 

substantial effects on the securities and issuers 

involved’’ and that ‘‘[t]he counterparties to these 

arrangements will often hedge their positions by 

buying or selling the underlying securities, which 

may have material effects in the trading of the 

relevant security’’). 

95Section 13(d) was intended to ‘‘alert the market 

place to every large, rapid aggregation or 

accumulation of securities, regardless of technique 

employed, which might represent a potential shift 

in corporate control.’’ GAF Corp. v. Milstein, 453 

F.2d 709, 717 (2d. Cir. 1971), cert denied, 406 U.S. 

910 (1972). 

96See supra note 88. 

97 It is possible under our current regulatory 

framework that a holder of a cash-settled derivative 

security could be deemed the beneficial owner of 

the reference securities under Rule 13d–3(b) by 

virtue of their counterparty relationships if such 

relationships constitute ‘‘a plan or scheme to evade 

the reporting requirements of section 13(d) or (g).’’ 

17 CFR 240.13d–3(b). Application of that rule, 

however, would require an examination of the facts 

and circumstances surrounding the relationship 

between the holder of a cash-settled derivative 

security and its counterparty, the intentions of the 

parties with respect to such relationship and the 

effect of such relationship on the holder’s beneficial 

ownership of the reference securities. Id. By 

contrast, proposed Rule 13d–3(e) would require a 

comparatively less extensive and more streamlined 

inquiry in order for a holder of a cash-settled 

derivative security to be deemed the beneficial 

Continued 

counterparty may acquire to hedge the 

economic risk of that transaction, 

including any obligations that may arise 

in connection with settlement.89 Entry 

into the agreement governing the 

derivative may, therefore, result in a 

rapid accumulation of a covered class 

by a counterparty similar to the types of 

accumulations that prompted Congress 

to enact Section 13(d). In addition, if 

institutional counterparties hold sizable 

positions of reference securities with a 

view toward future sales to holders of 

cash-settled derivative securities, a 

regulatory concern arises under Rule 

13d–3(b).90 For example, if an 

arrangement or understanding exists 

outside of the terms of a derivative 

instrument that enables an investor to 

acquire the reference securities from a 

counterparty, the reference securities 

could be viewed as having been 

impermissibly ‘‘parked’’ with the 

counterparty on behalf of the derivative 

holder.91

The use of cash-settled derivative 

securities in the change of control 

context also may serve as a catalyst for 

related acquisitions of beneficial 

ownership by institutional 

counterparties that ultimately could 

contribute to a shift in corporate 

control.92 The Commission previously 

determined that the ‘‘concentration of 

voting power in a single block and its 

transferability are material information 

to the market.’’ 93 Holders of cash-settled 

derivatives also may have incentives to 

influence or control outcomes at the 

issuer of the reference security just as 

they would if they directly owned the 

reference security outright. Although 

holders of derivatives settled 

exclusively in cash ordinarily would 

lack the express legal power under the 

terms of such instruments to direct the 

voting or disposition of a covered class, 

such holders may possess economic 

power that can be used to produce 

desired outcomes through engagement 

with a counterparty or the issuer of the 

reference security and potentially could 

impact the stock price.94 An unwinding 

of agreements governing cash-settled 

derivatives also could adversely impact 

the stock price of an issuer, just as if the 

holder of the cash-settled derivative 

held the stock directly, instead of the 

counterparty, and sold sizable blocks of 

such shares. Consequently, counterparty 

dispositions of reference securities at 

the conclusion of a cash-settled 

derivative agreement, should they occur 

all together or involve high 

concentrations of beneficial ownership, 

may impair the orderly operation and 

efficiency of our capital markets. In the 

event of a default, these derivative 

positions could not only adversely 

impact counterparties, but also issuers 

of reference securities, the markets and 

other market participants. At a 

minimum, greater transparency could 

influence counterparties’ risk 

management decisions. Proposed Rule 

13d–3(e) is thus designed to make 

information available about any large 

positions in cash-settled derivative 

securities and, by implication, the 

related reference securities. Under 

specified conditions, if holders of cashsettled derivatives were deemed 

beneficial owners of the reference 

securities in combination with the other 

amendments proposed in this release, 

the resulting disclosures could alert 

issuers and the market to the possibility 

of rapid accumulations of, and high 

concentrations in, a covered class.95

By extending Rule 13d–3 to include 

certain persons who purchase cashsettled equity-based derivatives, 

investors, issuers and other market 

participants should have greater 

transparency regarding persons with 

significant interests in an issuer’s equity 

securities and potential control intent. 

In particular, the proposed amendment 

to Rule 13d–3 could address concerns 

that financial product innovation has 

outpaced the reach of a rule provision 

first adopted by the Commission in 

1968. Cash-settled derivatives imitate 

the economic performance of a direct 

investment in an issuer’s equity 

securities and, in turn, may 

economically empower the holders of 

such derivatives to influence the issuer 

or the price of its securities.96 Under 

current Rule 13d–3, however, the holder 

of the cash-settled derivative generally 

is not subject to beneficial ownership 

reporting obligations. Given such 

person’s potential to influence or 

change control of the issuer, we are 

proposing an amendment that would, in 

specified circumstances, deem the 

holder of a cash-settled derivative 

security to be the beneficial owner of 

the reference security. For the reasons 

set forth above and as explained more 

fully below, we believe such an 

amendment is necessary for the 

protection of investors and appropriate 

in order to achieve the purpose of 

Section 13(d). We also believe that 

requiring reporting based wholly or 

partly upon the holding of such 

positions would be in the public 

interest. 

2. Proposed Amendment 

As noted above, we are proposing to 

amend Rule 13d–3 to add new 

paragraph (e). Like Rules 13d–3(b) and 

(d)(1), proposed Rule 13d–3(e) would 

provide that holders of certain cashsettled derivative securities will be 

‘‘deemed’’ a beneficial owner of the 

reference securities in a covered class.97


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owner of the reference securities, focusing 

predominantly on whether the derivative security is 

held with the purpose or effect of changing or 

influencing the control of the issuer of the reference 

securities. 

98For purposes of proposed Rule 13d–3(e), the 

term ‘‘derivative security’’ would have 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). As discussed infra notes 110–114 and the 

accompanying text, however, for purposes of 

proposed Rule 13d–3(e), the term ‘‘derivative 

security’’ does not include security-based swaps, as 

defined in Section 3(a)(68) of the Exchange Act and 

the rules and regulations thereunder. 

99The provision at 17 CFR 240.12b-2 (‘‘Rule 12b2 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.’’ 

100See, e.g., 17 CFR 240.13d–102. Under Item 10 

of Schedule 13G, QIIs and Passive Investors must 

certify that the ‘‘securities . . . were not acquired 

and are not held for the purpose of or with the effect 

of changing or influencing the control of the 

issuer.’’ Id. 

101See 17 CFR 240.13d–3(d)(1)(i) (providing that 

‘‘any person who acquires a security or power 

specified in paragraph[ ] (d)(1)(i) . . . with the 

purpose or effect of changing or influencing the 

control of the issuer, or in connection with or as 

a participant in any transaction having such 

purpose or effect’’ shall be deemed a beneficial 

owner immediately upon such acquisition). 

102See 17 CFR 240.13d–1(b)(1)(i), (c)(1) and 

(e)(1)(i). In addition to these provisions, Rules 13d– 

3(b) and 13d–5(b)(2)(ii) also incorporate a ‘‘purpose 

or effect’’ standard. 

103See infra note 263 and accompanying text. 104See Filing and Disclosure Requirements 

Relating to Beneficial Ownership, Release No. 34– 

14692 (Apr. 21, 1978) [43 FR 18484 at 18484 (Apr. 

28, 1978)] (noting that Section 13(d)’s legislative 

history indicates that the purpose of that section is 

‘‘to provide information to the public and the 

affected issuer about rapid accumulations of its 

equity securities’’ by ‘‘persons who would then 

have the potential to change or influence control of 

the issuer’’). 

105 Id. at 18490 (stating that ‘‘the acquisition of 

[such a right] offers a distinct possibility for actions 

which are for the purpose or with the effect of 

changing or influencing control’’ including, for 

example, ‘‘obtaining an interest in a block of 

securities large enough to influence control, or in 

coupling an option with an agreement concerning 

the composition of the board of directors’’). 

Specifically, proposed Rule 13d–3(e)(1) 

would provide that a holder of a cashsettled derivative security 98 shall be 

deemed the beneficial owner of equity 

securities in the covered class 

referenced by the derivative security if 

such person holds the derivative 

security with the purpose or effect of 

changing or influencing the control of 

the issuer of such class of equity 

securities, or in connection with or as a 

participant in any transaction having 

such purpose or effect.99 As discussed 

in more detail below, the concept 

‘‘purpose or effect of changing or 

influencing the control of the issuer’’ is 

a familiar one under Regulation 13D– 

G,100 both in the context of determining 

whether a person is a beneficial owner 

under Rule 13d–3 101 and for purposes 

of determining whether a beneficial 

owner is eligible to report on Schedule 

13G in lieu of Schedule 13D under Rule 

13d–1.102 As such, we believe that use 

of this phrase in proposed Rule 13d–3(e) 

would ease the administrative burdens 

associated with application of this 

proposed provision. 

Persons who acquire and hold cashsettled derivative securities with the 

purpose or effect of changing or 

influencing control of the issuer may 

seek to use their position to influence 

the voting, acquisition or disposition of 

any shares the counterparty may have 

acquired in a hedge, proprietary 

investment or otherwise. Moreover, the 

economic realities of the counterparty 

relationship mean that, even absent an 

express right to direct the voting, 

acquisition or disposition of such 

shares, the holders of cash-settled 

derivative securities could be wellpositioned to pursue a change in 

control. The derivative holder’s 

counterparty may have a business 

relationship to develop and protect, and 

thus may ultimately cast votes in 

accordance with the preference of the 

derivative holder. Even if any 

counterparty shares are not voted, the 

derivative holder’s probability of 

success in exerting influence or control 

over the issuer of the reference security 

may increase given that any voting 

power the derivative holder held would 

be magnified by minimizing the number 

of shares that potentially could be voted 

against its plans or proposals. Similarly, 

while the terms of the derivative 

instrument may only provide for 

settlement in cash, these types of 

derivative holders could remain in a 

position to acquire any reference 

securities that the counterparty may 

acquire to hedge the economic risk of 

that transaction. In recognition that an 

investment in a cash-settled derivative 

instrument could be converted into 

direct holdings of the reference security 

via an amendment to the instrument or 

otherwise, persons who use cash-settled 

derivatives also may present these 

economic positions to an issuer or its 

shareholders as a basis on which they 

should engage with them.103 These 

persons, therefore, hold their cashsettled derivative securities in a manner 

that implicates the policies underlying 

Section 13(d).104

Proposing that application of Rule 

13d–3(e) be conditioned on a person 

holding the derivative security with the 

purpose or effect of changing or 

influencing the control of the issuer of 

such class of equity securities, or in 

connection with or as a participant in 

any transaction having such purpose or 

effect is consistent with other provisions 

of our beneficial ownership rules. Rule 

13d–3(d)(1) contains this same 

condition. Specifically, Rule 13d– 

3(d)(1) provides that if a right has been 

acquired for the purpose or with the 

effect of changing or influencing control 

of the issuer of securities, the holder of 

that right is immediately treated as a 

beneficial owner of the underlying class 

of equity securities regardless of when 

that right may be exercisable, 

exchangeable or convertible. In such 

instances, the holder of such a right 

would not be entitled to voting or 

investment power over the underlying 

security for a substantial period of time 

that may extend far beyond 60 days. 

Nonetheless, the Commission believed 

it appropriate to immediately deem 

these persons to be the beneficial 

owners of such underlying securities 

because it recognized that such a right, 

when acquired for the purpose or with 

the effect of changing or influencing 

control, can be used to influence the 

control of the issuer even before the 

right is exercisable.105 We recognize that 

cash-settled derivative securities differ 

from the rights covered under Rule 13d– 

3(d)(1) in that they ordinarily do not 

entitle their holders to acquire the 

reference securities. To the extent such 

derivative security is held with the 

purpose or effect of changing or 

influencing the control of the issuer, 

however, we believe that the potential 

for a holder of a cash-settled derivative 

security to exert influence on a 

counterparty that may directly hold the 

reference securities implicates the same 

concerns that the Commission 

articulated in adopting Rule 13d– 

3(d)(1). Thus, we believe that deeming 

such holders to be beneficial owners of 

the reference securities would be 

consistent with the Commission’s 

longstanding view of the right to acquire 

beneficial ownership as described in 

Rule 13d–3(d)(1). 

In addition, as with the treatment of 

in-kind-settled derivative securities 

under Rule 13d–3(d)(1)(i), proposed 

paragraph (e)(1) also would include a 

provision stating that any securities that 

are not outstanding but are referenced 

by the relevant cash-settled derivative 

security will be deemed to be 


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106As an illustration of the application of this 

proposed rule, a holder of a derivative security with 

a delta equal to one that references 100 shares of 

a covered class of common stock would be deemed 

to beneficially own 100 shares of such covered 

class. If, however, that derivative security had a 

delta equal to two, then such holder would be 

deemed to beneficially own 200 shares of such 

covered class, calculated as (x) the 100 shares of 

common stock referenced by the derivative security 

multiplied by (y) the derivative security’s delta of 

two. 

107As an illustration of the application of this 

proposed rule, if a person holds a derivative 

security with a notional amount of $100 and a delta 

equal to one that references a covered class of 

common stock with a most recent closing market 

price of $10 per share, then that person would be 

deemed to beneficially own 10 shares of such 

covered class. If, however, that same derivative 

security had a delta equal to two, then such person 

would be deemed to beneficially own 20 shares of 

such covered class, calculated as (x) the quotient 

obtained by dividing the $100 notional amount of 

the derivative security by the $10 per share most 

recent closing market price, (y) multiplied by the 

derivative security’s delta of two. 

108 ‘‘Short positions,’’ such as those within the 

meaning of the term as defined in 17 CFR 240. 14e– 

4(a)(1)(ii) (‘‘Rule 14e–4(a)(1)(ii)’’), are not treated as 

beneficial ownership under current Rule 13d–3. In 

addition, Section 13(d)(1) applies to persons who 

‘‘acquire’’ beneficial ownership, and the aggregate 

amount of beneficial ownership held, as determined 

under Rule 13d–3(c), including certain contingent 

interests in a covered class, is required to be 

reported. As such, a beneficial owner subject to 

Section 13(d) or 13(g) reports its capacity to vote or 

dispose of a covered class whether through power 

it directly or indirectly holds or is deemed to hold 

under Rule 13d–3(d) by virtue of its contingent 

interest. The regulatory framework, therefore, only 

applies to persons who hold the equivalent of a 

‘‘long position’’ within the meaning of the term as 

defined in Rule 14e–4(a)(1)(i). Persons who hold 

‘‘short positions’’ have no such capacity to vote or 

dispose of a covered class and thus are beyond the 

scope of Sections 13(d) and 13(g) and Regulation 

13D–G with the exception that a beneficial owner 

that otherwise must report on Schedule 13D may 

incur disclosure obligations with respect to any 

short sale activity, such as those arising under Item 

6 of Schedule 13D. See 17 CFR 240.13d–101 

(requiring disclosure of ‘‘any contracts . . . with 

respect to . . . any securities of the issuer’’). A 

beneficial owner is not required to report its ‘‘net 

long position’’ within the meaning of such term as 

defined in Rule 14e–4(a)(1), and we are not 

currently proposing any changes in this regard. 

outstanding for the purpose of 

calculating the percentage of the 

relevant covered class beneficially 

owned by the holder of the derivative 

security. Those reference securities, 

however, will not be deemed to be 

outstanding for the purpose of any other 

person’s calculation of the percentage of 

the covered class it beneficially owns. 

The disclosures that would be made 

in a Schedule 13D as a result of treating 

holders of cash-settled derivative 

securities as beneficial owners would 

provide needed transparency regarding 

the potential to influence or control the 

issuer of the reference security. If cashsettled derivative holders with an intent 

to influence or control the issuer 

become Schedule 13D filers based on 

their economic exposure to the 

reference security as a result of the 

proposed amendment to Rule 13d–3, 

then their plans or proposals would 

become publicly available. At present, 

such intentions remain undisclosed 

unless the person is determined to be a 

beneficial owner under Rule 13d–3 on 

other grounds. 

Proposed paragraph (e)(2) of Rule 

13d–3 would set forth the formula for 

calculating the number of equity 

securities that a holder of a cash-settled 

derivative will be deemed to 

beneficially own pursuant to paragraph 

(e)(1). This provision is necessary 

because derivatives may not always 

have a perfect ‘‘one-to-one’’ relationship 

to the reference security. Instead, the 

value of the derivative security, 

although based on the value of a 

reference security, may change at a 

multiple or fraction to any change in 

value of the reference security, 

particularly in the case of a security 

option. This difference in the amount by 

which the value of a derivative security 

changes as compared to the amount by 

which the value of the reference 

security changes is referred to as the 

‘‘delta.’’ For example, a $1 change in the 

value of the reference security may 

result in a $2 change in the value of the 

derivative security. In that case, the 

delta of the derivative security would be 

equal to two. If the delta of a derivative 

security is equal to one, then the value 

of the derivative security perfectly 

tracks the changes in value of the 

reference security. Calculation of 

beneficial ownership pursuant to a 

derivative security is easier in these 

circumstances because of the perfect 

one-to-one relationship between the 

derivative security and the reference 

security. 

Proposed paragraph (e)(2) applies 

these concepts for purposes of 

determining the number of securities 

that a holder of a cash-settled derivative 

will be deemed to beneficially own 

pursuant to paragraph (e)(1). Proposed 

paragraph (e)(2)(ii) of Rule 13d–3 

defines ‘‘delta’’ to mean, with respect to 

a derivative security, the ratio that that 

is obtained by comparing (x) the change 

in the value of the derivative security to 

(y) the change in the value of the 

reference equity security. Proposed 

paragraph (e)(2)(i) provides that the 

number of securities that a holder of 

such derivative security will be deemed 

to beneficially own pursuant to 

paragraph (e)(1) will be the larger of two 

calculations, set forth in proposed 

paragraphs (e)(2)(i)(A) and (B), in each 

case as applicable. If applicable, 

proposed paragraph (e)(2)(i)(A) would 

calculate the number of securities as the 

product of (x) the number of securities 

by reference to which the amount 

payable under the derivative security is 

determined multiplied by (y) the delta 

of the derivative security.106 Proposed 

paragraph (e)(2)(i)(B), if applicable, 

would calculate the number of 

securities by (x) dividing the notional 

amount of the derivative security by the 

most recent closing market price of the 

reference equity security, and then (y) 

multiplying such quotient by the delta 

of the derivative security.107

Proposed paragraph (e)(2)(i)(A) would 

be applicable if the agreement governing 

the terms of the derivative security 

provides a way to calculate the number 

of reference securities on which the 

amount payable pursuant to that 

security is based. Proposed paragraph 

(e)(2)(i)(B) would be applicable if the 

agreement governing the terms of the 

derivative security does not provide 

such a methodology for determining the 

applicable number of reference 

securities. Thus, there will be some 

derivative securities to which proposed 

paragraph (e)(2)(i)(A) will be 

inapplicable (i.e., those derivative 

securities for which the agreement does 

not provide a way to calculate the 

number of reference securities on which 

the amount payable pursuant to that 

security is based). On the other hand, 

proposed paragraph (e)(2)(i)(B) will be 

applicable to all derivative securities 

(i.e., because the calculation set forth in 

that paragraph can be performed 

regardless of whether the agreement 

governing the terms of the derivative 

security provides a methodology for 

determining the applicable number of 

reference securities). As such, to address 

those scenarios in which both 

paragraphs (e)(2)(i)(A) and (B) apply, 

paragraph (e)(2)(i) provides that the 

number of securities that a holder of a 

derivative security will be deemed to 

beneficially own pursuant to paragraph 

(e)(1) will be the larger of the two 

amounts yielded by those paragraphs. 

The proposed amendment to Rule 

13d–3 also includes three notes to 

paragraph (e)(2). The first note provides 

that, for purposes of determining the 

number of equity securities that a holder 

of a cash-settled derivative security will 

be deemed to beneficially own, only 

long positions in derivative securities 

should be counted. Short positions, 

whether held directly against a covered 

class or synthetically through a cashsettled derivative security, should not 

be netted against long positions or 

otherwise taken into account.108 The 

second note provides that, when 

calculating the number of securities that 

a holder of such derivative security will 

be deemed to beneficially own pursuant 


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109See DTR 5.3.3C, Recital 7 (Jan. 1, 2021), 

available at https://www.handbook.fca.org.uk/ 

handbook/DTR/5/?view=chapter (‘‘In order to 

ensure that information about the total number of 

voting rights accessible to the investor is as accurate 

as possible, delta should be calculated daily taking 

into account the last closing price of the underlying 

share.’’). 

110Proposed Rule 13d–3(e) is not subject to 

Exchange Act Section 13(o). Section 13(o) provides 

that a person shall be ‘‘deemed’’ a beneficial owner 

of an equity security based on the purchase or sale 

of a security-based swap ‘‘only to the extent that the 

Commission determines after consultation with the 

prudential regulators and the Secretary of the 

Treasury, that the purchase or sale of the securitybased swap, or class of security-based swap, 

provides incidents of ownership comparable to 

direct ownership of the equity security, and that it 

is necessary to achieve the purposes of this section 

that the purchase or sale of the security-based 

swaps, or class of security-based swap, be deemed 

the acquisition of beneficial ownership of the equity 

security.’’ Section 13(o) applies to security-based 

swaps and does not apply to other types of 

derivative securities. Because proposed Rule 13d– 

3(e) does not cover security-based swaps, Section 

13(o) is inapplicable to the proposed requirement. 

111Prohibition Against Fraud, Manipulation, or 

Deception in Connection with Security-Based 

Swaps; Prohibition against Undue Influence over 

Chief Compliance Officers; Position Reporting of 

Large Security-Based Swap Positions, Release No. 

34–93784 (Dec. 15, 2021) [87 FR 6652 (Feb. 4, 

2022)]. 

112 Id. at 6657. 

113 Id. For example, a person would be required 

to file a Schedule 10B once the ‘‘Security-Based 

Swap Equivalent Position’’ (as described in the 

proposing release for Rule 10B–1 [87 FR 6652 (Feb. 

4, 2022)]) represents more than 5% of a class of 

equity securities. Id. at n.138 and accompanying 

text. 

114But see Beneficial Ownership Reporting 

Requirements and Security-Based Swaps, Release 

No. 34–64628 (June 8, 2011) [76 FR 34579 (June 14, 

2011)] (readopting without change the relevant 

portions of Rules 13d–3 and 16a–1 to preserve the 

application of those rules to persons who purchased 

or sold security-based swaps after the effective date 

of Section 13(o) by making the determinations 

required by Section 13(o) after consultation with 

prudential regulators and the Secretary of the 

Treasury). 

to paragraph (e)(1), the calculation in 

paragraph (e)(2)(i)(B) should be 

performed on a daily basis. Similarly, 

the third note provides that if a 

derivative security does not have a fixed 

delta (i.e., if the delta is variable and 

changes over the term of the derivative 

security), then a person who holds such 

derivative security should calculate the 

delta on a daily basis, for purposes of 

determining the number of equity 

securities that such person will be 

deemed to beneficially own, based on 

the closing market price of the reference 

equity security on that day. Although 

we recognize that such daily 

calculations may impose administrative 

burdens on holders of derivative 

securities, this approach will help to 

ensure the accuracy of beneficial 

ownership reporting and is consistent 

with the approach taken by at least one 

foreign jurisdiction.109

Finally, proposed Rule 13d–3(e) 

would exclude from its purview 

security-based swaps, as defined in 

Section 3(a)(68) of the Exchange Act and 

the rules and regulations thereunder.110

In a separate rulemaking, the 

Commission has proposed to require 

disclosure of security-based swap 

positions.111 Specifically, proposed 17 

CFR 240.10B–1 (‘‘Rule 10B–1’’) would 

require public reporting on Schedule 

10B of, among other things: (1) Certain 

large positions in security-based swaps; 

(2) positions in any security or loan 

underlying the security-based swap 

position; and (3) any other instrument 

relating to the underlying security or 

loan or group or index of securities or 

loans.112 As described in more detail in 

the related proposing release, proposed 

Rule 10B–1 would include specific 

quantitative thresholds for when public 

reporting is required and include a 

schedule of all of the information that 

must be reported.113 We believe that the 

position disclosures with respect to 

cash-settled security-based swaps 

required under our proposed Rule 10B– 

1, if adopted, would provide sufficient 

information regarding holdings of 

security-based swaps such that 

additional regulation under Regulation 

13D–G at this time would be 

unnecessarily duplicative.114 Further, to 

the extent that investors seek to use 

cash-settled derivatives other than 

security-based swaps in order to bypass 

the disclosures that Rule 10B–1 would 

require, Rule 13d–3(e), if adopted, 

would help prevent the exploitation of 

any regulatory gap between Schedule 

10B and Schedule 13D that might 

otherwise exist. 

Request for Comment 

42. Should we amend Rule 13d–3 as 

proposed to deem persons who acquire 

or hold cash-settled derivative securities 

with the purpose or effect of changing 

or influencing the control of the issuer, 

or in connection with or as a participant 

in any transaction having such purpose 

or effect, as beneficial owners? Would 

the proposed rule sufficiently reduce 

the opportunities for persons to utilize 

cash-settled derivative securities to 

evade reporting under Section 13(d)? 

43. Would the circumstances in 

which a holder acquires or holds a cashsettled derivative security with the 

purpose or effect of changing or 

influencing the control of the issuer be 

reasonably determinable? Should we 

provide further guidance on this point? 

Rather than amending Rule 13d–3 to 

deem as beneficial owners persons who 

acquire or hold cash-settled derivative 

securities with the purpose or effect of 

changing or influencing the control of 

the issuer, should we incorporate 

standards for establishing when a 

person becomes a beneficial owner that 

are more objectively determinable? For 

example, should we identify more 

specific indicia such as any of the plans 

described in Item 4 of Schedule 13D? 

44. Can a cash-settled derivative be 

used to influence or change the control 

of an issuer? If so, please explain how 

the terms of the derivative security or 

the derivative investor’s relationship 

with a counterparty can effectuate that 

influence or change in control. For 

example, are cash-settled derivative 

contracts executed on a scale large 

enough to impact the voting by 

counterparties and thus the margins of 

victory on proposals put forth by the 

issuer of a covered class for shareholder 

approval? 

45. Instead of treating holders of cashsettled derivative securities as beneficial 

owners, should we instead amend 

Schedule 13D and Schedule 13G to 

expressly include more comprehensive 

line item disclosure requirements 

concerning the use of cash-settled 

derivative securities? For example, 

should Item 6 of Schedule 13D be 

further revised to ask for a full 

description of any cash-settled 

derivative’s material terms, and Item 7 

of Schedule 13D be revised to explicitly 

require the filing of cash-settled 

derivative instruments as an exhibit? 

46. Regardless of whether proposed 

Rule 13d–3(e) is adopted, should the 

Commission increase the 60-day time 

period specified in Rule 13d–3(d)(1) so 

that persons who hold contingent 

interests in a covered class will be 

deemed beneficial owners earlier? If so, 

would 90, 120, 180 or some greater 

number of days serve as the optimal 

date by which to deem persons who 

hold such interests, such as derivative 

holders, as beneficial owners? 

47. For purposes of proposed Rule 

13d–3(e), the term ‘‘derivative security’’ 

would have the meaning set forth in 

Rule 16a–1(c), excluding security-based 

swaps. Are there other types of 

derivatives (other than security-based 

swaps) that should be included within 

the purview of proposed Rule 13d–3(e) 

that are not included in the scope of the 

term ‘‘derivative securities,’’ as defined 

in Rule 16a–1(c)? For purposes of Rule 

13d–3(e), should rights with an exercise 

or conversion privilege at a price that is 

not fixed, which Rule 16a–1(c)(6) 

excludes from the term ‘‘derivative 

securities’’ in Rule 16a–1(c), be 

included? 

48. Is our proposed inclusion of the 

concept of ‘‘delta’’ in Rule 13d–3(e) 

appropriate? If so, are the proposed 


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115Section 13(d)(3) was enacted to prevent ‘‘easy 

avoidance of section 13(d)’s disclosure 

requirements by a group of investors acting together 

in their acquisition or holding of securities.’’ Senate 

Report No. 550, 90th Congress, 1st Session 8 (1967); 

House Report No. 1711, 90th Congress, 2d Session 

8–9 (1968); see also 113 Cong. Record Proceedings 

and Debates of the 90th Congress; Bill–S. 510 (Jan. 

18, 1967) (noting that the specific provision 

applicable to groups was added to ‘‘close the 

loophole that now exists which allows a syndicate, 

where no member owns more than 10 percent, to 

escape the reporting requirements of the Securities 

Exchange Act’’). 

application and definition of ‘‘delta’’ in 

Rules 13d–3(e)(2)(i) and (ii), 

respectively, appropriate for purposes of 

determining the number of equity 

securities that a holder of a cash-settled 

derivative security is deemed to 

beneficially own? 

49. For securities where the ‘‘delta,’’ 

as we propose to define it, is not equal 

to 1, is our proposed calculation of the 

number of securities beneficially owned 

appropriate? Should the calculation be 

performed in another way? For example, 

should the calculation be limited to the 

number of reference securities 

contemplated by the instrument? 

50. Should we include the three 

proposed notes to Rule 13d–3(e)(2)? 

Should only long positions in derivative 

securities be counted for purposes of 

determining the number of equity 

securities that a holder of a cash-settled 

derivative security will be deemed to 

beneficially own, as proposed? As an 

alternative to proposed Note 1 to Rule 

13d–3(e)(2), should short positions in 

cash-settled derivative securities be 

netted against long positions or 

otherwise taken into account for 

purposes of determining the number of 

equity securities that a holder of a cashsettled derivative security will be 

deemed to beneficially own? If not, how 

should they be taken into account? For 

purposes of Notes 2 and 3 to Rule 13d– 

3(e)(2), is ‘‘daily,’’ as proposed, the 

appropriate frequency, or should those 

calculations be performed with a 

different frequency (e.g., on a weekly or 

monthly basis)? Is the proposed daily 

frequency of these calculations unduly 

burdensome on holders of cash-settled 

derivative securities? Other than the 

frequency with which the calculation 

must be performed, are there other 

difficulties associated with these 

calculations that would also make them 

burdensome? 

51. For purposes of the calculations in 

Rule 13d–3(e)(2)(i)(B) and Note 3 to 

Rule 13d–3(e)(2), is the closing market 

price of the reference equity security, as 

proposed, the appropriate basis for 

those calculations, or is there a different 

basis that is more appropriate (e.g., the 

volume-weighted average trading price 

of the reference equity security 

throughout a given day)? 

52. Could the daily calculation 

requirements in proposed Notes 2 and 3 

to Rule 13d–3(e)(2) result in situations 

in which a person’s beneficial 

ownership does not exceed 5% of a 

covered class at the time that person 

acquires a derivative security, but then 

exceeds 5% at a later time solely by 

virtue of the fact that the closing market 

price of the reference equity security or 

the delta of the derivative security, as 

applicable, has changed (i.e., not as a 

result of any further acquisitions)? If so, 

would it be appropriate to subject that 

person to the obligations of the 

beneficial ownership reporting regime 

under such circumstances? 

53. Would proposed Rule 10B–1 

provide sufficient information regarding 

holdings of cash-settled security-based 

swaps such that beneficial ownership 

reporting of cash-settled security-based 

swaps under Regulation 13D–G is 

unnecessary, or should beneficial 

ownership derived from cash-settled 

security-based swaps be included under 

Regulation 13D–G? If the information 

regarding holdings of cash-settled 

security-based swaps that would be 

required pursuant to proposed Rule 

10B–1 were not available, would there 

be a need for the beneficial ownership 

derived from cash-settled security-based 

swaps to be included under Regulation 

13D–G? 

C. Proposed Amendments to Rule 13d– 

5 to Affirm Its Application and 

Operation 

We are proposing a series of 

amendments to Rule 13d–5 to clarify 

and affirm its application to two or more 

persons who ‘‘act as’’ a group under 

Sections 13(d)(3) and (g)(3) of the 

Exchange Act. Specifically, we are 

proposing to amend Rule 13d–5 to: 

• Change the title of the rule from 

‘‘Acquisition of securities’’ to 

‘‘Acquisition of beneficial ownership’’ 

to more accurately reflect the purpose, 

application and operation of the rule 

and ensure its consistency with Section 

13(d)(1); 

• Revise Rule 13d–5(a) to conform the 

text to the new title and Section 13(d); 

• Redesignate paragraph (b)(1) as 

paragraph (b)(1)(i) and revise it to 

remove the potential implication that it 

sets forth the exclusive legal standard 

for group formation under Section 

13(d)(3) or 13(g)(3); 

• Add new paragraph (b)(1)(ii) to 

specify that if a person, in advance of 

filing a Schedule 13D, discloses to any 

other person that such filing will be 

made and such other person acquires 

securities in the covered class for which 

the Schedule 13D will be filed, those 

persons shall be deemed to have formed 

a group within the meaning of Section 

13(d)(3); 

• Add new paragraph (b)(1)(iii) to 

specify that a group subject to reporting 

obligations under Section 13(d) shall be 

deemed to acquire any additional equity 

securities acquired by a member of the 

group after the date of the group’s 

formation; 

• Add new paragraph (b)(1)(iv) to 

carve out from paragraph (b)(1)(iii) any 

intra-group transfers of equity securities; 

• Add new paragraph (b)(2)(i) to 

specify that when two or more persons 

‘‘act as’’ a group under Section 13(g)(3) 

of the Act, the group shall be deemed 

to have become the beneficial owner, for 

purposes of Sections 13(g)(1) and (2) of 

the Act, of the beneficial ownership 

held by its members; 

• Add new paragraph (b)(2)(ii) to 

specify that a group regulated under 

Section 13(g) shall be deemed to acquire 

any additional equity securities 

acquired by a member of the group after 

the date of the group’s formation; and 

• Add new paragraph (b)(2)(iii) to 

carve out from paragraph (b)(2)(ii) any 

intra-group transfers of equity securities. 

In addition, the proposed 

amendments would redesignate current 

Rule 13d–5(b)(2) as new Rule 13d–6(b). 

This change is discussed both in this 

section and in Section II.D, which 

describes our proposed amendments to 

Rule 13d–6. 

1. Background 

Sections 13(d)(3) and 13(g)(3) are 

identical, and each of these two 

provisions provides that ‘‘[w]hen two or 

more persons act as a . . . group for the 

purpose of acquiring, holding, or 

disposing of securities of an issuer, such 

syndicate or group shall be deemed a 

‘person.’ ’’ Neither of these two 

provisions defines the term ‘‘group.’’ 

The determination of whether 

coordinated efforts among two or more 

persons constitutes a group subject to 

regulation as a single ‘‘person’’ under 

these two statutory provisions is a 

question of fact. Congress enacted these 

provisions based on two practical 

considerations. First, Sections 13(d)(1) 

and 13(g)(1), by their terms, apply to, 

and impose filing obligations upon, a 

single ‘‘person.’’ Second, Congress 

recognized the need to protect against 

the evasion of disclosure requirements 

by persons who collectively sought to 

change or influence control of an issuer 

yet who each acquired and held an 

amount of beneficial ownership at or 

just below the reporting threshold.115


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116The operative term ‘‘after acquiring’’ in 

Section 13(d)(1) makes the application of Section 

13(d) contingent upon the existence of an 

acquisition. Determining that an acquisition has 

occurred is thus necessary to establish the 

application of Section 13(d). 

117The predecessor rule, Rule 13d–6, was 

redesignated Rule 13d–5 in 1978. Filing and 

Disclosure Requirements Relating to Beneficial 

Ownership, Release No. 34–14692 (Apr. 21, 1978) 

[43 FR 18484 (Apr. 28, 1978)]. Unless otherwise 

noted, references to Rule 13d–5 in this section of 

the release also refer to the predecessor Rule 13d– 

6. 

118 Various Proposals Relating to Beneficial 

Owners and Holders of Record of Voting Securities, 

Release No. 34–11616 (Aug. 25, 1975) [40 FR 42212 

(Sept. 11, 1975)]; see also Adoption of Beneficial 

Ownership Disclosure Requirements, Release No. 

34–13291 (Feb. 24, 1977) [42 FR 12342 at 12345 

(Mar. 3, 1977)] (explaining that ‘‘[d]onees, 

executors, trustees and legatees who become 

beneficial owners will be ‘deemed’ to have acquired 

such securities, even though such persons had not 

so intended and had taken no action to become 

beneficial owners’’). 

119See Adoption of Beneficial Ownership 

Disclosure Requirements, Release No. 34–13291 

(Feb. 24, 1977) [42 FR 12342 (Mar. 3, 1977)] 

(adopting Rule 13d–6(b), the predecessor to current 

Rule 13d–5(b)); Filing and Disclosure Requirements 

Relating to Beneficial Ownership, Release No. 34– 

14692 (Apr. 21, 1978) [43 FR 18484 (Apr. 28, 1978)] 

(redesignating Rule 13d–6(b) as current Rule 13d– 

5(b)). In proposing Rule 13d–6(b), the Commission 

was acting partly in response to an appellate court 

ruling issued in connection with private litigation. 

The appellate court found that it was unnecessary 

‘‘for a group to acquire additional securities if their 

combined holdings, upon formation of the group, 

were more than five percent of the class’’ for 

purpose of Section 13(d). See GAF Corp. v. Milstein, 

453 F. 2d 709 (2d Cir. 1971), cert. denied 400 U.S. 

910 (1972). The Milstein group was an informal 

arrangement in which the individual members were 

not bound to vote their shares as would be the case 

if participating in a stock pool. The alleged group 

also never had an enforceable right to vote. GAF 

Corporation asserted that certain acts should be 

considered evidence of a conspiracy, but the 

evidence did not show any additional purchases. 

The Second Circuit Court of Appeals held that 

formation of a group of shareholders alone, where 

their aggregate holdings exceed 10% of a particular 

class of securities, and where no further 

acquisitions are intended by the membership of the 

group, still required compliance with Section 13(d). 

In so holding, the Second Circuit refused to follow 

the ruling in Bath Industries, Inc. v. Blot, 427 F.2d 

97 (7th Cir. 1970) where the Seventh Circuit held 

that a group owning in excess of 10% of a class of 

securities must file only when further acquisitions 

were contemplated. Recognizing that informal 

associations could be subjected to reporting 

obligations upon mere formation, the Seventh 

Circuit adopted an ‘‘additional purchase’’ rule. 

Even identification of the precise date of the alleged 

group formation as the Second Circuit instructed 

the district court to find upon remand, however, 

would not then have determined whether an 

acquisition occurred that subjected the group to 

regulation under Section 13(d) or the latest date by 

which the Schedule 13D could have been timely 

filed. 

120Adoption of Beneficial Ownership Reporting 

Requirements, Release No. 34–13291 (Feb. 24, 1977) 

[42 FR 12342 (Mar. 3, 1977)]. 

121While the adopting release for Rule 13d–6(b) 

acknowledges the Commission was providing 

‘‘more objective standards’’ to help determine the 

reporting obligation of groups under Section 13(d), 

it qualified such statement by indicating that the 

standards were being provided only for ‘‘certain 

purposes’’ rather than in every instance. Adoption 

of Beneficial Ownership Reporting Requirements, 

Release No. 34–13291 (Feb. 24, 1977) [42 FR 12342 

at 12342 (Mar. 3, 1977)]. The Commission’s 

regulatory objective should be read in the context 

of the overall impetus for the initial 1975 rule 

proposal, which did not propose to define the term 

‘‘group.’’ The Commission further explained at 

adoption of Rule 13d–6(b) in 1977 that it had 

previously published, on August 25, 1975, its 

‘‘Proposals Relating to Disclosure of Beneficial 

Owners and Holders of Record of Voting 

Securities.’’ As set forth therein, the Commission’s 

1975 ownership proposals, if adopted, would have 

‘‘deemed certain persons, including members of a 

group, who become beneficial owners of securities 

through non-purchase transactions to have 

‘acquired’ such securities.’’ Id. at 12343. 

122 In Sections 13(d)(3) and 13(g)(3), Congress 

identified, but did not define, four associations 

through which collective action may be taken by 

two or more persons that potentially could subject 

them to regulation under Sections 13(d) and 13(g) 

as a single person. In specifying ‘‘partnership, 

limited partnership, syndicate,’’ Congress expressly 

referenced three types of groupings of persons that, 

like the term ‘‘group,’’ are similarly undefined. To 

the extent two or more persons could not be found 

to have ‘‘act[ed] as a partnership, limited 

Congress sought to address this 

problem of coordinated circumvention 

by ‘‘deeming’’ two or more persons to be 

one person for purposes of Sections 

13(d) and 13(g). Based on the statutory 

treatment of two or more persons as if 

they were one person when they ‘‘act 

as’’ a group for at least one of the three 

purposes specified in the statutory 

provisions (i.e., acquiring, holding or 

disposing of securities of an issuer), the 

beneficial ownership collectively held 

by the group members is imputed to the 

group. To the extent the aggregate 

amount of beneficial ownership exceeds 

5% of a covered class, the group may be 

required to file a beneficial ownership 

report. 

In these situations, a fundamental 

question arises as to whether the group 

is subject to Section 13(d) or Section 

13(g). The determination of which 

statutory provision applies to a group 

depends on whether a non-exempt 

acquisition of beneficial ownership has 

been made that can be imputed to the 

group, and, when on its own or added 

to any other beneficial ownership held 

by the group, results in beneficial 

ownership exceeding 5% of the covered 

class. If such an acquisition occurs, the 

group is subject to regulation under 

Section 13(d).116 To the extent no such 

acquisition attributable to the group has 

occurred, but the collective amount of 

beneficial ownership held by the group 

members exceeds 5% of a covered class 

at the end of a calendar year, the group 

is subject to Section 13(g). 

Congress did not define the term 

‘‘acquisition.’’ When the Commission 

proposed the predecessor to the current 

Rule 13d–5(a),117 it made clear that 

purchases would not be the exclusive 

means of making an acquisition and 

deemed ‘‘certain persons who become 

beneficial owners of securities to have 

acquired such securities,’’ even if such 

person ‘‘had not intended, and had 

taken no action, to become a beneficial 

owner.’’ 118 The Commission also 

adopted Rule 13d–5(b) to address 

situations in which the factual record 

does not establish the existence of an 

acquisition attributable to a group. 

Following Rule 13d–5(b)’s adoption, an 

acquisition by a group could thus be 

‘‘deemed’’ to occur even in the absence 

of an associated market-based purchase 

or other transaction, as could be the case 

when a group is formed for the 

exclusive purpose of voting.119 Given 

that the acquisition which triggers the 

reporting obligation must be made by a 

single person, acquisitions occurring 

before the date of group formation are 

not considered ‘‘acquisitions’’ of 

beneficial ownership that could trigger 

a filing obligation. The requisite 

acquisition needed to satisfy the 

statutory element ‘‘after acquiring,’’ 

therefore, must occur 

contemporaneously with, or subsequent 

to, group formation. Without evidence 

that an acquisition attributable to the 

group has occurred, the filing deadline 

for a Schedule 13D also cannot be 

established under Section 13(d)(1) and 

corresponding Rule 13d–1(a). To 

address this concern, the Commission 

proposed that an acquisition was 

‘‘deemed’’ to occur if two or more 

persons agreed to act together for 

purposes of acquiring, holding or 

disposing of any securities of the issuer. 

In adopting Rule 13d–5, the 

Commission explained it was ‘‘defining 

acquisition’’ and that the new provision 

‘‘deems the formation of certain groups 

of persons for the purpose of acquiring, 

holding or disposing of securities to be 

an acquisition which may trigger the 

reporting requirements of section 13(d), 

even though the group has not made any 

purchase or other acquisition 

subsequent to its formation.’’ 120 The 

new rule therefore provided the 

Commission with a mechanism by 

which it could attribute an acquisition 

to the group for purposes of not only 

satisfying the ‘‘after acquiring’’ element 

of Section 13(d)(1), but also designating 

a date of ‘‘acquisition’’ needed to 

commence the 10-day filing deadline for 

the initial Schedule 13D.121

Given that the term ‘‘group’’ is not 

defined under Sections 13(d)(3) and 

13(g)(3), investors, issuers and courts 

historically have considered the 

circumstances under which two or more 

persons must operate in order to be 

found to have formed agroup.122


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partnership [or] syndicate,’’ such persons still could 

be found under the statutes to be jointly operating 

as any ‘‘other group.’’ The reference to ‘‘group,’’ 

therefore, is simply designed to serve as a general 

classification inclusive of the three specific, named 

types of associations, and when combined with the 

term ‘‘other,’’ renders the term ‘‘other group’’ but 

one of four types of associations identified by 

Congress which are susceptible to being regulated 

as a single person under Section 13(d) or 13(g). 

123For example, in CSX Corporation v. Children’s 

Inv. Fund Mgmt. (UK) LLP, 562 F. Supp. 2d 511 

(S.D.N.Y. 2008), the district court referred to a 

‘‘requisite agreement’’ when offering an analytical 

framework to be applied in assessing whether or not 

a group had been formed, and cited to Hallwood 

Realty Partners, L.P. v. Gotham Partners, L.P., 95 F. 

Supp. 2d 169, 176 (S.D.N.Y 2000), aff’d, 286 F.3d 

613 in support of this proposition. 

124One early court decision that predates the 

adoption of Rule 13d–5(b) found that a group had 

been formed earlier than reported and opined that 

‘‘absent an agreement between [the defendants] a 

‘group’ would not exist.’’ Corenco Corp. v. 

Schiavone & Sons, Inc., 488 F.2d 207, 217 (2d Cir. 

1973). Similarly, another court decision cited the 

necessity of ‘‘sift[ing] through the record to 

determine whether there [was] sufficient direct or 

circumstantial evidence to support the inference of 

a formal or informal understanding.’’ Wellman v. 

Dickinson, 682 F.2d 355, 363 (2d Cir. 1979), cert. 

denied sub. nom. Dickinson v. SEC, 460 U.S. 1069 

(1983). The court ultimately determined that ‘‘direct 

and circumstantial evidence supports [its] finding 

of an agreement between’’ the alleged group 

members. Id. In another decision, the court 

reasoned that it was ‘‘not compelled to play ostrich 

in the face of the strong circumstantial evidence 

demonstrating the existence of an agreement among 

[the defendants] . . . . It would require a degree of 

naivete unbecoming to this Court to believe that the 

various activities of defendants were not the 

product of an agreement among the group but, 

rather, were merely coincidences.’’ Champion Parts 

Rebuilders, Inc. v. Cormier Corp., 661 F. Supp. 825, 

850 (N.D.Ill. 1987) (citations omitted). The court 

based its factual finding that an agreement existed 

on evidence indicating: (a) A common plan and 

goal; (b) a pattern of parallel and continued 

purchases over a relatively short and essentially 

concurrent time period; (c) correlation of 

defendants’ activities and intercommunications, 

largely through their common agent; and (d) claims 

of shareholder support at the meeting with the 

corporation. Id. 

125For example, the Second Circuit, finding that 

the district court in the above mentioned CSX 

Corporation matter did not make sufficient findings 

to permit appellate review of a group violation of 

Section 13(d), stated: ‘‘on remand the District Court 

will have to make findings as to whether the 

Defendants formed a group for the purpose of 

‘acquiring, holding, voting or disposing,’ 17 CFR 

240.13d–5(b)(1) of [an issuer’s] shares owned 

outright.’’ CSX Corp. v. Children’s Inv. Fund Mgmt., 

2011 WL 2750913, at *4 (2d Cir. July 18, 2011). An 

earlier Second Circuit opinion stated, ‘‘the key 

inquiry in the present case is whether [the 

defendants] ‘agreed to act together for the purpose 

of acquiring, holding, voting or disposing of’ [an 

issuer’s] common stock. 17 CFR 240.13d–5(b)(1).’’ 

Morales v. Quintel Ent., Inc., 249 F.3d I 15 (2d Cir. 

2001). In a ruling that concluded the evidence did 

not establish the existence of a group, a district 

court, which acknowledged Rule 13d–5(b) when 

outlining the applicable regulatory framework, 

found that the plaintiff’s complaint ‘‘d[id] not 

sufficiently allege an agreed-upon common 

purpose.’’ Roth v. Jennings, 2006 U.S. Dist. LEXIS 

4266, 2006 WL 278135 at *5 (S.D.N.Y. Feb. 2, 2006). 

On appeal, however, the Second Circuit criticized 

the district court for ascribing undue weight to the 

defendants’ use of a disclaimer in public filings that 

they were not a group and found that the district 

court consequently ‘‘gave no recognition to the 

terms of § 13(d)(3) and Rule 13d–5(b)(1).’’ Roth v. 

Jennings, 489 F.3d 499, 512 (2d Cir. 2007). 

126For example, if the Commission were to 

construe Rule 13d–5(b)(1) as the exclusive 

definition of the term ‘‘group,’’ and thus make an 

‘‘agreement’’ a necessary element, that would 

directly conflict with the statutory language and 

narrow the circumstances in which Sections 13(d) 

and 13(g) could apply. 

127When proposing Rule 13d–5(b), the 

Commission neither framed the rule as a proposed 

definition of ‘‘group’’ nor solicited comment on the 

sufficiency or any limitations of any such 

definition. Moreover, the proposed rule text was 

devoid of any reference to the term ‘‘group.’’ See 

Disclosure of Corporate Ownership, Release No. 34– 

11616 (Aug. 25, 1975) [40 FR 42212 (Sept. 11, 

1975)]. 

128According to the legislative history, members 

of Congress contemplated that the beneficial 

ownership reporting threshold—which was first 

enacted as more than 10% of a covered class, but 

currently is 5% of a covered class—could be 

bypassed by two or more persons acting in concert 

in furtherance of a common purpose or goal with 

each person individually holding an unreportable 

level of beneficial ownership. Both the House and 

Senate Reports accompanying the bill reflect an 

effort to prevent circumvention of the reporting 

Continued 

Notwithstanding that the regulatory 

framework does not require proof of an 

agreement between two or more persons 

as a prerequisite to establishing the 

existence of a group, some courts, in 

assessing group formation, consider an 

agreement among group members to be 

a necessary element.123

In rendering opinions regarding group 

formation, some courts have suggested 

that a group can only be formed if an 

agreement exists among its purported 

members.124 These cases appear to 

reflect such courts’ attempts to find a 

workable means of administering the 

Section 13(d) regulatory framework and 

making related determinations about 

when a group may be found to exist 

under the statute. In addition, some 

courts have construed the language of 

Rule 13d–5(b)(1), which provides that a 

group is formed if an agreement to act 

together has been reached for one of 

four purposes, as governing group 

formation in every instance as opposed 

to discrete instances.125 These decisions 

suggest that a plaintiff must prove, and 

by extension, a court must affirm, the 

presence of an agreement for purposes 

of satisfying the legal standards in Rule 

13d–5(b)(1). 

2. The Commission’s View of Group 

Formation 

Under a plain reading of Sections 

13(d)(3) and 13(g)(3), an agreement is 

not a necessary element of group 

formation. The text of Rule 13d–5(b), 

along with the title of Rule 13d–5, also 

does not indicate that Rule 13d–5(b) 

was intended to serve as the exclusive 

definition of the term ‘‘group.’’ Rule 

13d–5(b) provides a standard applicable 

only for purposes of deeming an 

acquisition to have occurred where 

none otherwise exists. Therefore, the 

Commission is not required to invoke 

Rule 13d–5, and by extension, first 

establish that group members have an 

agreement to act together as a 

precondition to asserting that a group 

exists. Accordingly, the Commission is 

not precluded from imputing 

acquisitions to the group through other 

means, such as physical evidence or 

reliance upon Rule 13d–5(a), which 

provides that a person (including a 

group) is deemed to have acquired 

beneficial ownership when it becomes a 

beneficial owner by purchase or 

otherwise. The existence of an 

agreement between two or more persons 

to act together for at least one of the four 

purposes specified in the rule text is 

thus a sufficient, but not a necessary, 

condition for group formation. 

Interpreting Rule 13d–5(b) as the 

exclusive definition of a group also 

would run counter to the purpose and 

otherwise impede application of 

Sections 13(d) and 13(g).126 Rule 13d– 

5(b) applies only when the aggregate 

amount of beneficial ownership held by 

group members exceeds 5% of a covered 

class on the date on which the group 

members enter into an agreement. If the 

beneficial ownership is 5% or less of a 

covered class on that date, or the 

ownership held is not in a covered class 

because Section 12 registration is not 

yet effective or otherwise, no statutory 

coverage exists and Regulation 13D–G 

does not apply. Consequently, if Rule 

13d–5(b) were administered as the 

exclusive definition of group, there 

would be no requirement for such 

groups to report their holdings after 

their beneficial ownership exceeded 5% 

of a covered class, even if such groups 

were to make considerable postformation acquisitions and ultimately 

take control of an issuer. Such a reading 

of Rule 13d–5(b) would produce the 

equivalent of an exemption from 

Section 13(d) for a person (i.e., the 

group) that otherwise may make future 

non-exempt acquisitions that would 

result in the beneficial ownership 

attributable to the group exceeding 5% 

of a covered class. There is no 

indication that this was the 

Commission’s intention when it 

adopted Rule 13d–5(b).127

Furthermore, there is no indication 

that Congress intended for the analysis 

of whether or not a group had formed 

to be dependent upon the existence of 

an express or implied agreement among 

two or more persons.128 Sections 


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threshold in this situation with the inclusion of the 

provision that became Section 13(d)(3). Those 

reports stated that Section 13(d)(3) ‘‘would prevent 

a group of persons [w]ho seek to pool their voting 

or other interests in the securities of an issuer from 

evading the provisions of the statute because no one 

individual owns more than 10 percent of the 

securities.’’ S. Rep. No. 550, 90th Cong., 1st Sess. 

8 (1967); H.R. Rep. No. 1711, 90th Cong. 2d Sess. 

8–9 (1968), Reprinted in (1968) U.S. Code Cong. & 

Admin. News. 2811, 2818. The reports further 

stated that ‘‘[t]he group would be deemed to have 

become the beneficial owner, directly or indirectly, 

of more than 10 percent of a class of securities at 

the time [t]hey agreed to act in concert.’’ Id. As 

such, the reports noted that Section 13(d)(3) ‘‘is 

designed to obtain full disclosure of the identity of 

any person or group obtaining the benefits of 

ownership [b]y reason of any contract, 

understanding, relationship, agreement or other 

arrangement.’’ Id. 

129Congress sought to make visible surreptitious 

purchases executed by persons or entities that were 

not only not incorporated, but also operating 

without a formal alliance. The legislation was thus 

drafted to capture ‘‘informal associations’’ that 

otherwise were not subject to having their joint 

activities disclosed. 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). 

Because a group is deemed a single ‘‘person’’ once 

the standards of Section 13(d)(3) or 13(g)(3) have 

been met, that ‘‘person’’ may be considered a 

beneficial owner under Rule 13d–3(a) regardless of 

the absence of any contract or agreement. 

130Section 13(d)(3) was ‘‘designed to obtain full 

disclosure of the identity of any . . . group 

obtaining the benefits of ownership of securities by 

reason of any contract, understanding, relationship, 

agreement or other arrangement.’’ S. Rep. No. 550, 

90th Cong., 1st Sess. 8 (1967); H.R. Rep. No. 1711, 

90th Cong. 2d Sess. 8–9 (1968), Reprinted in (1968) 

U.S. Code Cong. & Admin. News. 2811, 2818. 

During a hearing, an individual testifying before the 

Senate (who was a member of a corporation’s 

management) observed that in the then-unregulated 

market of takeovers for corporate control, ‘‘it [was] 

possible . . . for a group of people who [were] 

informally associated to each acquire less than 10 

percent of the stock without having to report their 

acquisitions even though they have more than 10 

percent as a group.’’ 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 Herbert 

F. Kahler, Secretary and General Counsel, 

International Silver Co.). 

131Some courts and the Commission have not 

superimposed the term ‘‘agreement’’ into the legal 

standards governing the reporting of beneficial 

ownership by groups. See SEC v. Levy, 706 F. Supp. 

61 (D.D.C. 1989) (‘‘In order to find that a ‘group’ 

exists under Section 13(d)(3), a court must find that 

two or more people have formed a combination in 

support of a common objective.’’); see also In the 

Matter of John A. Carley, Release No. 34–50695 

(Nov. 18, 2004) (‘‘A group need not be formally 

organized, nor memorialize its intentions in 

writing. . . . All that is required is that its 

members combine in furtherance of a common 

objective.’’). 

132 Group activity may be demonstrated by 

circumstantial evidence, SEC v. Savoy, 587 F.2d 

1149 at 1162, such as: (1) The presence of a 

common plan or goal, Fin. Gen. Bankshares, Inc. v. 

Lance, 1978 WL 1082, at *9 (D.D.C. 1978); (2) 

‘‘considerable dissatisfaction’’ with certain officers 

and a ‘‘desire to reduce’’ those officers’ role in 

company management, Id. at *10; (3) strategy 

meetings with, among others, attorneys, Levy, 706 

F. Supp. at 70; (4) a pattern of coordinated stock 

purchases, Hallwood Realty Partners, LP v. Gotham 

Partners, LP, 286 F.3d 613, 618 (2d Cir. 2002); (5) 

the solicitation of others to join the group, Wellman, 

682 F.2d at 363–364; and (6) the existence of 

communications between and among group 

members. Gen. Aircraft Corp. v. Lampert, 556 F.2d 

90, 95 (1st Cir. 1977). 

133SEC v. Levy, 706 F. Supp. 61, 69 (D.D.C. 1989); 

see also In the Matter of John Joslyn, Joseph Marsh, 

P. David Lucas, Steven Sybesma, Stanley Thomas 

and Jon Thompson, Release No. 34–50588 (Oct. 26, 

2004). 

134See Bath Industries, Inc. v. Blot, 427 F.2d 97, 

110 (7th Cir. 1970). 

13(d)(3) and 13(g)(3) are devoid of any 

reference to the term ‘‘agree’’ or 

‘‘agreement.’’ The use of ‘‘any,’’ 

‘‘understanding,’’ ‘‘relationship’’ and 

‘‘arrangement’’ in the associated 

regulatory text of Rule 13d–3(a) also 

points to a recognition that concerted 

action need not be formalized in an 

agreement or otherwise expressed.129

Section 13(d)(3), given the operative 

‘‘act as’’ standard, encompasses not only 

agreements in the classic contractual 

‘‘offer’’ and ‘‘acceptance’’ sense of the 

term 130 but also pooling arrangements, 

whether formal or informal, written or 

unwritten.131 Congress neither added a 

state of mind element into Sections 

13(d)(3) and 13(g)(3) nor specified that 

two or more persons must ‘‘act as’’ a 

group pursuant to an agreement. If the 

term ‘‘agreement’’ were read into 

Sections 13(d)(3) and 13(g)(3) as if it 

were an unintentionally omitted term, 

application of Section 13(d) or 13(g) also 

would be limited to only a subset of 

persons who otherwise ‘‘act as a group’’ 

within the meaning of Sections 13(d)(3) 

and 13(g)(3) instead of all persons who 

act as a group as expressly mandated. 

Whether or not a group exists is 

dependent upon the facts and 

circumstances.132 Recognizing that two 

or more persons may take concerted 

action informally and without 

memorializing their intentions in 

writing, the Commission has relied 

upon circumstantial evidence instead of 

an agreement to establish that two or 

more persons combined in furtherance 

of a common objective.133 A contrary 

approach or interpretation would 

elevate form over substance and make 

the regulation of groups in the beneficial 

ownership context wholly dependent 

upon evidence proving the existence of 

an agreement. The purpose of the statute 

would be frustrated, and a burden not 

intended by Congress would be placed 

upon any party alleging the existence of 

a group, including the Commission.134

The absence of a need to prove that 

a group made an acquisition for 

purposes of reporting under Section 

13(g), in itself, supports our view that 

the existence of a group is not 

dependent upon application of Rule 

13d–5(b), and by extension, whether 

such persons had an agreement. The 

absence of the ‘‘after acquiring’’ element 

in Section 13(g)(1) supports the view 

that groups may be subject to reporting 

obligations under Section 13(d), just as 

they are under Section 13(g), without 

reference to Rule 13d–5(b). No 

regulatory purpose would be served by 

concluding that an agreement among 

members is a prerequisite to the 

imposition of a reporting obligation 

under Section 13(d)(1) but not Section 

13(g)(1). Under the current regulatory 

framework, if an agreement does not 

exist or cannot be proven, and no 

acquisitions can otherwise be imputed 

to the group, Section 13(g) will still 

apply to require reporting by the group 

if the collective amount of beneficial 

ownership held by the group members 

exceeds 5% at the end of the calendar 

year. 

3. Proposed Amendments 

a. Proposed Rules 13d–5(b)(1)(i) and 

(b)(2)(i) 

Our proposal would amend Rule 13d– 

5 to track the statutory text of Sections 

13(d)(3) and (g)(3) and specify that two 

or more persons who ‘‘act as’’ a group 

for purposes of acquiring, holding or 

disposing securities are treated as a 

group. Specifically, Rule 13d–5(b)(1) 

would be redesignated as Rule 13d– 

5(b)(1)(i) and would be revised to, 

among other things, remove the 

reference to an agreement between two 

or more persons and instead indicate 

that when two or more persons act as a 

group under Section 13(d)(3), the group 

will be deemed to have acquired 

beneficial ownership of all of the equity 

securities of a covered class beneficially 

owned by each of the group’s members 

as of the date on which the group is 

formed. In addition, proposed new Rule 

13d–5(b)(2)(i) would contain nearly 

identical language, with conforming 

changes to address circumstances in 

which two or more persons act as a 

group under Section 13(g)(3) and the 

group is deemed to become the 

beneficial owner of all of the equity 

securities of a covered class beneficially 

owned by each of the group’s members 

as of the date on which the group is 

formed. 

These amendments would make clear 

that the determination as to whether 

two or more persons are acting as a 

group does not depend solely on the 

presence of an express agreement and 

that, depending on the particular facts 

and circumstances, concerted actions by 

two or more persons for the purpose of 

acquiring, holding or disposing of 

securities of an issuer are sufficient to 


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135The Commission, in adopting Rule 13d– 

5(b)(1), indicated that it viewed the term ‘‘holding’’ 

as subsuming the term ‘‘voting,’’ but nevertheless 

expressly referenced the term ‘‘voting’’ for the 

avoidance of doubt. See Filing and Disclosure 

Requirements Relating to Beneficial Ownership, 

Release No. 34–14692 (Apr. 21, 1978) [43 FR 18484 

at 18492 (Apr. 28, 1978)]. 

136See Alon Brav, Wei Jiang, Frank Partnoy and 

Randall S. Thomas, Hedge Fund Activism, 

Corporate Governance and Firm Performance, 61 J. 

Fin. 1729 (2008) (finding on average an abnormal 

short-term return of 7% over the window 

surrounding a Schedule 13D filing); Marco Brecht, 

Julian Franks, Jeremy Grant and Hammes F. 

Wagner, The Returns to Hedge Fund Activism: An 

International Study, Center for Economic Policy 

Research Discussion Paper No. 10507 (Mar. 15, 

2015). 

137See, e.g., Susan Pulliam, Juliet Chung, David 

Benoit and Rob Barry, Activist Investors Often Leak 

Their Plans to a Favored Few, The Wall Street 

Journal (Mar. 26, 2014), https://www.wsj.com/ 

articles/SB10001424052702304888404579381250

791474792 (‘‘Activists, who push for broad changes 

at companies or try to move prices with their 

arguments, sometimes provide word of their 

campaigns to a favored few fellow investors days 

or weeks before they announce a big trade, which 

typically jolts the stock higher or lower.’’). 

138The Commission expresses no opinion as to 

whether or not such a blockholder owes a fiduciary 

duty to other shareholders in the covered class. 

139This question arises regardless of whether 

such other investors would be independently 

subject to, and thus incur a stand-alone reporting 

obligation under, Section 13(d)(1). Under Section 

13(d)(3), however, two or more persons may be 

treated as a single person only if the beneficial 

ownership collectively held exceeds 5% of the 

covered class. 

140See infra Sections III.A and III.C.3. 

141See Lucian Bebchuk, Alon Brav, and Wei 

Jiang, The Long-Term Effects of Hedge Fund 

Activism, 115 Colum. L. Rev. 1085 (2015). The 

authors find an approximately 6% average 

abnormal return during the 20-day window before 

and after a Schedule 13D filing. 

142Proposed Rule 13d–5(b)(1)(ii), if adopted, 

would provide that the conduct specified in the 

rule is sufficient to find that a group had been 

formed under Section 13(d)(3) and, at the same 

time, deem that group to have made the acquisition 

necessary to trigger application of Section 13(d)(1). 

The proposed rule would serve as an additional, not 

exclusive, means of establishing that the tipper and 

tippee formed a group that made an acquisition 

subject to Section 13(d). The proposed rule would 

not supersede or replace the existing regulatory 

provisions under which the tipper-tippee could 

become subject to Section 13(d). Thus, the 

Commission would not need to invoke Rule 13d– 

5(b)(1)(ii) when seeking to enforce violations in the 

context of every tipper-tippee relationship, but 

instead could assert other bases for finding that two 

or more such persons acted as a group for the 

purpose of acquiring a covered class. 

constitute the formation of a group.135

By revising Rule 13d–5(b) as we 

propose, we intend to eliminate any 

potential for the rule to be misconstrued 

and consequently used as a basis to 

narrow the application of Sections 

13(d)(3) and 13(g)(3) to: (1) Two or more 

persons who first ‘‘agree’’ to act as a 

group, instead of two or more persons 

who ‘‘act as’’ a group as expressly 

codified in these statutory provisions; 

and then (2) only an additional subset 

of those such groups whose beneficial 

ownership exceeds 5% on the date of an 

agreement. 

b. Proposed Rule 13d–5(b)(1)(ii) 

In addition, given that a Schedule 13D 

filing may affect the market for an 

issuer’s securities, information that a 

person will make a Schedule 13D filing 

in the near future can be material.136

Under certain circumstances, the person 

that incurs or will incur such a filing 

obligation may be incentivized to share 

that information with other investors. 

For example, a large blockholder may be 

planning to commence a future 

campaign to challenge or unseat 

directors serving on the board of the 

issuer of the covered class and seek 

support of its still undisclosed plan.137

By privately sharing this material 

information (i.e., the fact that the 

blockholder is or will be required to 

make a Schedule 13D filing) in advance 

of the public filing deadline with a goal 

of inducing a change in the voting 

electorate or strengthening a 

relationship, the blockholder may 

engender support of, and improve the 

likelihood of success regarding, any 

future changes proposed to the issuer. 

Similarly, by sharing such material 

information with other investors 

positioned to act on the information, the 

blockholder may incentivize those 

investors to acquire shares in the 

covered class before such filing is 

made.138 Such incentive would be based 

on the other investors’ expectation of an 

increase in the price of the covered class 

once the market reacts to the Schedule 

13D filing. 

These activities raise a question as to 

whether those investors ‘‘act as’’ a 

‘‘group for the purpose of acquiring’’ the 

covered class within the meaning of 

Section 13(d)(3).139 They also raise 

investor protection concerns. For 

example, any near-term gains made by 

these other investors attributable to this 

asymmetric information may come at 

the expense of uninformed shareholders 

who sell at prices reflective of the status 

quo.140 Even though the demand to 

acquire shares in the covered class may 

increase as a direct result of the 

blockholder’s communications, and in 

turn increase the prices at which such 

selling shareholders exit, such prices 

may be discounted in comparison to the 

price selling shareholders would have 

achieved had the information about the 

impending Schedule 13D filing been 

public. Consequently, this informational 

imbalance may result in opportunistic 

purchases benefitting a favored few.141

To provide clarity on this issue, 

enhance investor confidence and 

promote accurate price discovery in the 

capital markets, we are proposing to 

amend Rule 13d–5 to include a 

provision, which would be codified in 

paragraph (b)(1)(ii), that states that a 

person who shares information about an 

upcoming Schedule 13D filing that such 

person will be required to make, to the 

extent this information is not yet public 

and communicated with the purpose of 

causing others to make purchases, and 

a person who subsequently purchases 

the issuer’s securities based on this 

information will be deemed to have a 

formed a group within the meaning of 

Section 13(d)(3). Proposed Rule 13d– 

5(b)(1)(ii) further provides that the 

group formed on the basis of such 

concerted action will be deemed to 

acquire beneficial ownership in the 

covered class. This acquisition by the 

group, which occurs by operation of 

Rule 13d–5(b)(1)(ii), would trigger 

application of Section 13(d)(1), and in 

turn, establish the filing deadline for the 

group’s disclosure statement on 

Schedule 13D. The proposed 

amendment would thus help ensure that 

appropriate disclosures under Section 

13(d) are made in these and similar 

circumstances.142

We believe this proposed rule change 

is consistent with the purpose of 

Section 13(d). Section 13(d)(3) was 

designed to prevent circumvention of 

Section 13(d). As noted above, under 

Section 13(d)(3), a group may become 

subject to regulation even in the absence 

of any express or implied agreement to 

act together for the purpose of acquiring 

a covered class. For example, if a large 

blockholder shares non-public 

information about its anticipated 

obligation to file a Schedule 13D, as 

would be the case if a tipper were to 

share its intention to accumulate a stake 

that would trigger such a filing 

obligation, and the person who receives 

such information subsequently makes a 

purchase based on that information, 

such information-sharing and 

purchasing activity is sufficient to 

satisfy the statutory standards within 

Section 13(d)(3) to the extent the 

information was shared with the 

purpose of causing such additional 

purchases to be made. While the final 

determination as to whether two or 

more persons ‘‘act as’’ a group for this 

purpose ultimately will depend upon 

the specific facts and circumstances, the 

advantages inherent to this mutually 

beneficial relationship between the 

tipper and the tippee are self-evident. 

The large blockholder would have 

shared non-public, potentially marketmoving information concerning an 

impending Schedule 13D filing 


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143See John C. Coffee, Jr. and Darius Palia, supra 

note 19, at 596 and n.173 (explaining that ‘‘norms 

of reciprocity characterize many areas of 

commercial life’’ and ‘‘[f]or prudential reasons, 

hedge funds may prefer to share the gains among 

themselves by using an organizational structure that 

unites a number of funds into a loosely knit 

organization (i.e., the ‘wolf pack’) that may acquire 

25% or more of the target’’ and noting that 

‘‘[a]lthough the lead hedge fund does not fully 

capture all the gains obtainable in the transaction 

it leads, it reduces its risk and may receive 

reciprocal treatment from other hedge funds that 

later invite it to join it to their ‘wolf packs’ ’’). 

144The term ‘‘market participant’’ is used in this 

release to refer to any investor in or trader of a 

covered class, as determined in this release. The 

term has been used in order to account for the 

foreseeable possibility that a large blockholder may 

need to consult with persons who are not investors 

or traders, such as outside counsel, broker dealers, 

filing agents and others in connection with having 

to make its initial Schedule 13D filing. 

145Section 13(d)(6)(B) takes into account all 

acquisitions that occurred during the preceding 

twelve months. 146The Commission has indicated that the 2% 

exemption operates on ‘‘a rolling twelve-month 

basis.’’ Filing and Disclosure Requirements Relating 

to Beneficial Ownership, Release No. 34–17353 

(Dec. 4, 1980) [45 FR 81556 at 81557 (Dec. 11, 

1980)]. In other words, for an acquisition to be 

exempt under Section 13(d)(6)(B), ‘‘it must, when 

taken together with all other acquisitions of 

beneficial ownership by the same person of 

securities of the same class during the preceding 

twelve months, not exceed two percent of the 

class.’’ Id. 

obligation. The blockholder benefits by 

virtue of the subsequent acquisition of 

shares by the other investors, which 

may support or contribute to an increase 

in the value of the blockholder’s 

investment in the covered class. In 

addition, the blockholder meaningfully 

contributes to a relationship, and creates 

the potential for reciprocal behavior. 

Such reciprocity could, in turn, prompt 

additional concerted action that will 

further implicate the statute.143 Those 

investors, acting on the information 

shared by the blockholder, also benefit 

by capitalizing on an opportunity to 

acquire the covered class at a 

comparative ‘‘discount’’ relative to the 

price they presumably would have paid 

had more timely public disclosure of the 

sensitive information in their possession 

been made. Consequently, in our view, 

the tipping arrangement described 

above falls within the scope of activity 

Congress sought to regulate when it 

enacted Section 13(d)(3). 

Under proposed Rule 13d–5(b)(1)(ii), 

the group will be deemed to have 

acquired beneficial ownership of the 

securities of any market participant with 

whom the large blockholder has 

communicated material information 

regarding its impending filing obligation 

on the earliest date on which the 

acquisition by the recipient (or 

recipients, as the case may be) of the 

material information occurs.144 The 

existence of this acquisition will not 

alter the blockholder’s initial filing 

obligation in respect of its acquisition of 

beneficial ownership in excess of 5% of 

the covered class. Rather, that person 

will now be obligated to acknowledge 

the existence of the group under Item 2 

of the cover page of Schedule 13D, and 

provide any other required disclosures 

as a group member. If other group 

members make purchases later than the 

first date on which the blockholder is 

deemed to have formed a group with 

another person, proposed Rule 13d– 

5(b)(1)(iii), discussed below, would 

operate to deem the group to have 

acquired any additional shares acquired 

by any such persons who are considered 

group members after the date of group 

formation. Under Rule 13d–1(k), group 

members have the option of jointly 

filing a single Schedule 13D or, 

alternatively, independently filing a 

Schedule 13D that identifies all 

members of the group. 

No term within proposed Rule 13d– 

5(b)(1)(ii) prohibits the blockholder 

from making additional purchases in the 

covered class or communicating the 

existence of the filing obligation to other 

shareholders. As such, the large 

blockholder and the other investors are 

free to acquire a larger position in the 

covered class during the period that 

remains before the required beneficial 

ownership report discloses the existence 

of the group. While the impact of the 

proposed rule may reduce the number 

of members within, and beneficial 

ownership initially held by, a group 

formed under the described tipping 

arrangement, or eliminate the practice 

altogether, we believe the proposed rule 

is appropriate in light of the possibility 

for coordinated acquisitions without 

compliance with Section 13(d). We 

believe that adding a provision directly 

addressing the tipping arrangement 

described above would advance the 

policy purposes of Section 13(d). 

c. Proposed Rules 13d–5(b)(1)(iii) and 

(b)(2)(ii) 

Groups may form at a time when a 

class of equity securities is not yet 

registered under Section 12 or the 

aggregate beneficial ownership held by 

the membership in the group on the 

date of its formation is 5% or below of 

a covered class. Expressly capturing 

post-formation acquisitions of beneficial 

ownership by group members therefore 

can become important for purposes of: 

Assessing whether a group intentionally 

tried to evade the reporting process; 

determining whether an amendment 

was due for a pre-existing Schedule 13D 

filing; and evaluating the availability of 

the Section 13(d)(6)(B) exemption. For 

example, imputing post-formation 

acquisitions to a group by rule would 

make clear that acquisitions by group 

members that collectively exceed the 

2% exemptive threshold over a 12- 

month period are attributable to the 

group, thereby resulting in the group 

becoming ineligible to report pursuant 

to Section 13(g) and triggering a filing 

obligation under Section 13(d).145 The 

12-month measurement period therefore 

extends into the time period where a 

beneficial owner, including a group, 

held an amount of beneficial ownership 

below the statutory threshold or where 

the group formed on a date when the 

class of equity was not registered under 

Section 12.146

Absent an express provision that 

would treat post-formation acquisitions 

of beneficial ownership by group 

members as acquisitions by the group, 

the Commission or other affected parties 

must prove the acquisition is 

attributable to the group. For example, 

if the Commission invoked Rule 13d– 

5(a), it would have to establish that the 

group ‘‘became’’ a beneficial owner of 

more shares and thus made an 

acquisition within the meaning of that 

rule. To help ensure that acquisitions 

made by a group member after the date 

of group formation are attributed to the 

group once the collective beneficial 

ownership among group members 

exceeds 5% of a covered class, and 

reduce the Commission’s evidentiary 

burden, we propose to amend Rule 13d– 

5 to expressly impute such acquisitions 

to the group. Proposed new Rule 13d– 

5(b)(1)(iii) would provide that a group 

under Section 13(d)(3) will be deemed 

to have acquired beneficial ownership 

of equity securities of a covered class if 

any member of the group becomes the 

beneficial owner of additional equity 

securities of such covered class after the 

date of the group’s formation. Proposed 

new Rule 13d–5(b)(2)(ii) would contain 

nearly identical language, with 

conforming changes to address 

circumstances in which a member of a 

group under Section 13(g)(3) becomes 

the beneficial owner of additional 

equity securities of a covered class after 

the date of the group’s formation. 

d. Proposed Rules 13d–5(b)(1)(iv) and 

(b)(2)(iii) 

We also are proposing amendments to 

Rule 13d–5 to carve out from the 

purview of proposed Rules 13d– 

5(b)(1)(iii) and (b)(2)(ii) intra-group 

transfers of equity securities of a 

covered class. Specifically, proposed 


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147See supra note 142. 

148See supra note 144. 

Rule 13d–5(b)(1)(iv) would provide that 

a group under Section 13(d)(3) will not 

be deemed to have acquired beneficial 

ownership in a covered class if a 

member of the group becomes the 

beneficial owner of additional equity 

securities in such covered class through 

a sale by, or transfer from, another 

member of the group. Proposed new 

Rule 13d–5(b)(2)(iii) would contain 

nearly identical language, with 

conforming changes to address 

circumstances in which a member of a 

group under Section 13(g)(3) becomes 

the beneficial owner of additional 

equity securities in a covered class 

through a sale by, or transfer from, 

another member of the group. 

e. Proposed Amendment to the Title of 

Rule 13d–5 

To further align Rule 13d–5 with 

Section 13(d)(1), we also propose to 

amend the title of the rule to 

‘‘Acquisitions of beneficial ownership’’ 

to remove the potential implication that 

Section 13(d) and Rule 13d–1(a) could 

only apply if a person made an actual 

acquisition of securities. Under Section 

13(d)(1), a person becomes subject to a 

reporting obligation ‘‘after acquiring’’ 

beneficial ownership, which 

determination may or may not include 

an actual acquisition of securities based 

on whether a person is a beneficial 

owner under Rule 13d–3. We also are 

proposing conforming amendments to 

Rule 13d–5(a) to replace the references 

to an ‘‘acqui[sition] of securities’’ with 

references to an ‘‘acqui[sition] of 

beneficial ownership.’’ 

f. Proposed Redesignation of Current 

Rule 13d–5(b)(2) 

Finally, for the avoidance of doubt or 

confusion as to the regulatory purpose 

Rule 13d–5 is intended to serve, and to 

reinforce its operation as a provision 

that governs acquisitions of beneficial 

ownership, we propose to relocate Rule 

13d–5(b)(2) to neighboring Rule 13d–6, 

titled ‘‘Exemption of certain 

acquisitions,’’ and redesignate it as new 

Rule 13d–6(b). No substantive changes 

would be made to the text of the rule. 

That amendment is discussed in more 

detail in Section II.D below. 

Request for Comment 

54. Should we amend Rule 13d–5 to 

add new Rules 13d–5(b)(1)(i) and 

(b)(2)(i), as proposed? Rather than 

amending the rule as proposed to affirm 

that an express or implied agreement is 

not needed to subject a group to 

reporting under Section 13(d) or 13(g), 

should we instead issue a Commission 

interpretation that reiterates this point? 

55. Should we amend Rule 13d–5 to 

add new Rule 13d–5(b)(1)(ii), as 

proposed? Does the current regulatory 

framework sufficiently address such 

activity? Would the possible imposition 

of a Schedule 13D filing obligation 

adequately remediate the behavior we 

are seeking to address? Are there any 

changes to proposed Rule 13d–5(b)(1)(ii) 

that we should consider, such as further 

clarification to address situations where 

the non-public information about the 

Schedule 13D filing is shared by an 

employee who is not authorized to do 

so? 

56. Should we amend Rule 13d–5 to 

add new Rules 13d–5(b)(1)(iii) and 

(b)(2)(ii), as proposed? Alternatively, 

should additional acquisitions made by 

group members after the date of group 

formation under Section 13(d) be 

exempted, or should additional persons 

under Section 13(g) be exempted from 

regulation as a group, and if so, what 

would be the grounds upon which such 

exemptions could be granted? 

57. Should we amend Rule 13d–5 to 

add new Rules 13d–5(b)(1)(iv) and 

(b)(2)(iii), as proposed? 

58. Instead of amending Rule 13d–5 

as proposed, should we propose a 

definition of the term ‘‘group’’ and, if so, 

how should the term be defined? 

59. Should we propose a rule or 

amendments to existing rules that 

would require groups to report 

exclusively on Schedule 13D, and if so, 

why should groups not be able to avail 

themselves of reporting on Schedule 

13G in lieu of Schedule 13D as they do 

today? For example, Rule 13d– 

1(b)(1)(ii)(K) identifies a group as being 

among the qualified institutions eligible 

to report on Schedule 13G in lieu of 

Schedule 13D provided that every 

member of the group is a qualified 

institution. Should this provision be 

rescinded and other revisions be made 

to ensure that groups would be 

ineligible to qualify as QIIs or Passive 

Investors that report beneficial 

ownership on Schedule 13G? 

60. Have shareholders suffered 

quantifiable harm as a result of any 

weakness in the current regulatory 

framework as applied to groups, and if 

so, would new rules or amendments 

beyond what we have already proposed 

prevent such harm caused by 

undisclosed group activity from 

recurring? 

61. Is certain group activity going 

unreported under the current regulatory 

framework because it does not involve 

acquiring, holding or disposing of a 

covered class, and if so, what additional 

rule proposals or modifications could be 

made to address such activity? 

62. Do instances exist in which 

shareholders in a covered class were 

harmed as a result of the tipping 

arrangements described above, and if so, 

could such harm be quantified? To the 

extent any such shareholder harm has 

occurred, please explain how such harm 

occurred. 

63. Would Rule 13d–5(b)(1)(ii) unduly 

chill communications between 

shareholders and market participants, 

such as investment advisers? If so, what 

modifications to the proposed rule 

should we consider? For example, 

should application of the rule be 

conditioned on the recipient of the tip 

intending to coordinate with the tipper 

or making its purchases in reliance on 

the non-public information that the 

tipper provided so as to avoid a scenario 

in which such recipient is unwittingly 

deemed a member of a group simply by 

virtue of the tipper’s independent 

communications or actions? 

64. Given that Rule 13d–5(b)(1)(ii) 

would operate and apply in addition to, 

and not to the exclusion of, Section 

13(d)(3),147 should the Commission 

issue guidance about the facts and 

circumstances under which it would 

find that two or more persons ‘‘act as a 

group’’ under Section 13(d)(3) in the 

context of a tipper-tippee relationship or 

otherwise? 

65. Should the scope of proposed 

Rule 13d–5(b)(1)(ii) be expanded to 

include the group formation standards 

under Section 13(g)(3) as well, and if so, 

why? Would other investors be 

incentivized to take a position in a 

covered class upon learning that a 

Schedule 13G filing was expected to be 

made by an Exempt Investor? For 

example, have any individual investors 

or groups filed a Schedule 13G as an 

Exempt Investor while also advocating 

for change without disclosure given the 

absence of an analogue to Item 4 of 

Schedule 13D or requirement under 

Item 10 of Schedule 13G for an Exempt 

Investor to certify as to its passivity? 

Similarly, should the scope of proposed 

Rule 13d–5(b)(1)(ii) be expanded to 

cover Schedule 13G filings made by a 

group of QIIs or Passive Investors given 

that such groups—like Schedule 13D 

filers—still will have made an 

acquisition subject to Section 13(d)? 

66. For purposes of this release, 

‘‘market participant’’ means any 

investor in or trader of a covered 

class.148 Should any modifications be 

made to our interpretation of the term 

‘‘market participant’’? Alternatively, 

should we adopt a definition of the term 

‘‘market participant’’ in Regulation 


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149The Commission has previously articulated 

policy concerns similar to those that underlie this 

proposed exemption. For example, in a rulemaking 

effort in the late 1990s, the Commission took steps 

to ensure that ‘‘the Section 13(d) reporting 

obligations [do not] restrict a shareholder’s ability 

to engage in proxy related activities,’’ including 

their ‘‘ability to use the proxy rule exemptions that 

were adopted in 1992 to facilitate communications 

among shareholders.’’ Amendments to Beneficial 

Ownership Reporting Requirements, Release No. 

34–39538 (Jan. 12, 1998) [63 FR 2854 at 2858 (Jan. 

16, 1998)]. In adopting those proxy rule 

exemptions, the Commission noted that ‘‘[t]he 

purposes of the proxy rules themselves are better 

served by promoting free discussion, debate and 

learning among shareholders and interested 

persons.’’ Regulation of Communications Among 

Shareholders, Release No. 34–31326 (Oct. 16, 1992) 

[57 FR 48276 at 48279 (Oct. 22, 1992)]. Finally, as 

discussed supra note 47, our proposal, if adopted, 

would not change the existing standards for 

determining whether a person is engaging in an 

activity that would have the purpose or effect of 

changing or influencing the control of the issuer. 

For example, our proposal would not change the 

Commission’s existing view that most proxy 

solicitations in support of a proposal specifically 

calling for a change of control of an issuer (e.g., a 

13D–G? If so, should Regulation 13D–G 

be amended to include a provision 

dedicated to providing defined terms 

used throughout the regulation? 

D. Proposed Amendments to Rule 13d– 

6 To Create Certain Exemptions 

We are proposing a series of 

amendments to Rule 13d–6 to 

reorganize the rule and exempt certain 

circumstances from resulting in a 

person being deemed to have acquired 

beneficial ownership of, or otherwise to 

beneficially own, equity securities of a 

covered class for purposes of Sections 

13(d) and 13(g). Specifically, we are 

proposing to amend Rule 13d–6 to: 

• Redesignate the current text of Rule 

13d–6 as Rule 13d–6(a); 

• Redesignate the current text of Rule 

13d–5(b)(2) as Rule 13d–6(b); 

• Add new paragraph (c) to create an 

exemption from Sections 13(d)(3) and 

13(g)(3) for certain circumstances in 

which two or more persons take 

concerted actions with respect to an 

issuer or a covered class; and 

• Add new paragraph (d) to create an 

exemption from Sections 13(d)(3) and 

13(g)(3) for certain circumstances in 

which two or more persons enter into an 

agreement setting forth the terms of a 

derivative security. 

These proposed amendments are 

discussed in further detail below. 

1. Background 

Congress granted the Commission the 

authority to issue exemptions from the 

application of Sections 13(d) and 13(g). 

The Commission can, under Section 

13(d)(6)(D), exempt, by rule, 

acquisitions ‘‘as not entered into for the 

purpose of, and not having the effect of, 

changing or influencing the control of 

the issuer or otherwise as not 

comprehended within the purposes of 

[Section 13(d)].’’ Congress similarly 

granted the Commission authority under 

Section 13(g)(6) to exempt any person or 

class of persons from Section 13(g) ‘‘as 

it deems necessary or appropriate in the 

public interest or for the protection of 

investors.’’ The Commission exercised 

this authority when it adopted Rule 

13d–6, which exempts certain 

acquisitions. Currently, it sets forth one 

exemption from Section 13(d) for the 

acquisition of securities of an issuer by 

a person who, prior to such acquisition, 

was a beneficial owner of more than 5% 

of the outstanding securities of the same 

class as those acquired, provided that 

certain conditions are met. 

We recognize that our proposal to 

amend Rule 13d–5, as discussed above, 

may raise concerns among investors as 

to whether their communications and 

other activities with other investors 

would constitute the formation of a 

group. We also recognize the possibility 

that additional exemptions may be 

warranted to address situations in 

which beneficial ownership reporting 

under Section 13(d) or 13(g) by a group 

would be unnecessary from an investor 

protection standpoint or even contrary 

to the public interest. Specifically, we 

are aware that activity exists among 

shareholders, investors, holders of 

derivatives and other market 

participants that may, absent an 

exemption, implicate Sections 13(d)(3) 

and 13(g)(3). For example, institutional 

investors or shareholder proponents 

may wish to communicate and consult 

with one another regarding an issuer’s 

performance or certain corporate policy 

matters involving one or more issuers. 

Subsequently, those investors and 

proponents may take similar action with 

respect to the issuer or its securities, 

such as engaging directly with the 

issuer’s management or coordinating 

their voting of shares at the issuer’s 

annual meeting with respect to one or 

more company or shareholder 

proposals. 

The beneficial ownership reporting 

system is not intended to impede 

communications among shareholders or 

between proponents and issuers that are 

not undertaken with the purpose or 

effect of changing or influencing control 

of an issuer. Accordingly, the regulatory 

purposes of Sections 13(d) and 13(g) 

would not be served by treating 

investors and proponents under those 

circumstances as a single person that 

‘‘act[s] as’’ a group by virtue of its 

‘‘holding’’ of a covered class within the 

meaning of Sections 13(d)(3) and 

13(g)(3). 

Similarly, investors in an equitybased derivative security may need to, 

in order to acquire the derivative 

security, enter into an agreement 

governing the terms of such instrument 

with a financial institution that, in the 

ordinary course of its business, acts as 

a counterparty to such investors. To 

offset any risk exposure to that 

derivative security, including any 

obligations that may arise at settlement, 

the financial institution may accumulate 

the reference equity security in a 

covered class and hold such reference 

security for the duration of the 

agreement. But for the joint actions of 

the parties in entering into the 

agreement, that specific acquisition of 

beneficial ownership in the covered 

class by the financial institution would 

not have occurred. As such, entry into 

such an agreement may implicate 

Sections 13(d)(3) and (g)(3) because two 

persons may be viewed as ‘‘act[ing] as’’ 

a group given the financial institution’s 

foreseeable acquisition of a covered 

class. Assuming that the investor and 

the financial institution did not enter 

into the agreement with the purpose or 

effect of changing or influencing control 

of the issuer, the regulatory purposes of 

Sections 13(d) and 13(g) would not be 

furthered by treating the investor and 

the financial institution as members of 

a group under Sections 13(d)(3) and 

13(g)(3) solely by virtue of their 

entrance—for strictly commercial 

purposes and not for purposes of 

acquiring, holding or disposing of a 

covered class—into that agreement. 

2. Proposed Amendments 

We are proposing amendments to 

Rule 13d–6 to exempt certain actions 

taken by two or more persons from the 

scope of Sections 13(d)(3) and 13(g)(3) 

if those actions do not have the purpose 

or effect of changing or influencing the 

control of an issuer and thus are not 

within the purpose of Section 13(d). 

As an initial matter, we are proposing 

to redesignate current Rule 13d–6 as 

Rule 13d–6(a) to allow for new 

exemptions to be added as subsequent 

paragraphs of Rule 13d–6. The text of 

current Rule 13d–6 would not be 

changed in any way. 

In light of our proposed amendments 

to Rule 13d–5, we also are proposing to 

add new paragraph (c) to Rule 13d–6 to 

avoid chilling communications among 

shareholders or impeding shareholders’ 

engagement with issuers where those 

activities are undertaken without the 

purpose or 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).149 Proposed 


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contested election of directors, a sale of the issuer 

or the restructuring of the issuer) would clearly 

have the purpose and effect of changing or 

influencing control. See Amendments to Beneficial 

Ownership Reporting Requirements, Release No. 

34–39538 (Jan. 12, 1998) [63 FR 2854 at 2859 (Jan. 

16, 1998)]. See also supra note 99 for the definition 

of ‘‘control’’ under Rule 12b–2 of Regulation 12B. 

150Current Rule 13d–5(b), by its terms, 

acknowledges that the joint, concerted action by 

institutional investors specified in Rule 13d–1(b) to 

purchase an issuer’s equity securities pursuant to 

an agreement among QIIs would constitute an 

acquisition by a group subject to Section 13(d) 

absent a regulatory accommodation. The 

Commission therefore adopted the equivalent of an 

exemption by codifying its view within Rule 13d– 

5(b)(2) that the ‘‘group shall be deemed not to have 

acquired any equity securities beneficially owned 

by the other members of the group.’’ 151 15 U.S.C. 78m(d)(1). 

Rule 13d–6(c) would provide that two 

or more persons will not be deemed to 

have acquired beneficial ownership of, 

or otherwise beneficially own, an 

issuer’s equity securities as a group 

solely because of their concerted actions 

related to an issuer or its equity 

securities, including engagement with 

one another or the issuer, provided they 

meet certain conditions. Such 

interactions, depending upon the level 

of coordination and degree to which the 

persons advocate in furtherance of a 

common purpose or goal, could be 

found to satisfy the ‘‘act as’’ a group 

standard under Section 13(d)(3) or 

13(g)(3) for the purpose of ‘‘holding’’ a 

covered class. To help ensure that the 

exemption is available only where such 

persons independently determine to 

take concerted actions, the proposed 

exemption would be available only if 

such persons are not directly or 

indirectly obligated to take such actions 

(e.g., pursuant to the terms of a 

cooperation agreement or joint voting 

agreement). 

In addition, we are proposing to add 

new paragraph (d) to Rule 13d–6, in 

light of proposed new Rule 13d–3(e), to 

avoid impediments to certain financial 

institutions’ ability to conduct their 

business in the ordinary course. 

Proposed Rule 13d–6(d) would provide 

that two or more persons will not be 

deemed to have formed a group under 

Section 13(d)(3) or 13(g)(3) solely by 

virtue of their entrance into an 

agreement governing the terms of a 

derivative security. This exemption 

would only be available if the agreement 

is a bona fide purchase and sale 

agreement entered into in the ordinary 

course of business. Further, the 

exemption would only be available if 

such persons do not enter into the 

agreement with the purpose or effect of 

changing or influencing control of the 

issuer, or in connection with or as a 

participant in any transaction having 

such purpose or effect. 

Finally, as noted above, we are 

proposing to redesignate current Rule 

13d–5(b)(2) as new Rule 13d–6(b). 

Current Rule 13d–5(b)(2) was first 

adopted in 1978 as a means to 

effectively exempt acquisitions from 

being attributed to a group within the 

meaning of Section 13(d)(3) solely by 

virtue of concerted actions by QIIs 

relating to the purchase of equity 

securities in a private offering.150 As 

such, our proposed placement of this 

provision, which operates to exempt an 

actual purchase transaction by a group 

from otherwise being treated as an 

acquisition under Rule 13d–5(b)(1), into 

Rule 13d–6, should add to 

administrative convenience as the 

provision would appear alongside 

another acquisition transaction already 

so exempted. 

Request for Comment 

67. Should we amend Rule 13d–6 as 

proposed? 

68. Should we add new Rule 13d– 

6(c), as proposed, to exempt certain 

concerted actions by two or more 

persons from serving as the basis for 

group formation? Are the proposed 

conditions for reliance on this 

exemption appropriate? For example, is 

there another way that we can ensure 

that persons seeking to rely upon the 

exemption would independently reach 

decisions that result in concerted action 

being taken other than by requiring that 

such persons not be directly or 

indirectly obligated to take concerted 

actions, as proposed in Rule 13d– 

6(c)(2)? Alternatively, if we adopt 

proposed Rule 13d–6(c), should we omit 

proposed paragraph (c)(2) and, 

therefore, only condition availability of 

the exemption on the requirement set 

forth in proposed paragraph (c)(1)? 

69. Is the proposed Rule 13d–6(c) 

exemption broad enough to exempt 

activity by shareholders who coordinate 

to make non-binding proposals under 17 

CFR 240.14a–8 or otherwise, or is an 

express exemption needed for 

shareholders who act together in 

introducing such proposals? 

70. Should we add new Rule 13d– 

6(d), as proposed, to exempt the 

entrance by two or more persons into an 

agreement governing the terms of a 

derivative security from serving as the 

basis for group formation? Are the 

proposed conditions for reliance on this 

exemption appropriate? For example, 

does the condition that the agreement 

must be a bona fide purchase and sale 

agreement entered into in the ordinary 

course of business mitigate the concerns 

underlying Sections 13(d)(3) and 

13(g)(3)? 

71. Will the proposed new 

exemptions in Rule 13d–6 facilitate any 

actions that would be contrary to the 

intent of Sections 13(d) and 13(g)? 

72. Congress broadly determined that 

when two or more persons ‘‘act as’’ a 

group for the purpose of acquiring, 

holding or disposing of a covered class, 

the persons would be treated as a single 

person for purposes of reporting 

beneficial ownership. Are there actions 

taken among shareholders other than 

the ones that we have proposed to 

exempt that the Commission should 

consider exempting? 

73. To the extent that a group would 

qualify to report on Schedule 13G 

pursuant to Rule 13d–1(b), (c), or (d), do 

the costs of such a group complying 

with the beneficial ownership reporting 

requirements outweigh the benefits? For 

example, how would a Schedule 13G 

filed by a group contribute to price 

discovery? Should the Commission 

wholly exempt any group that qualifies 

to file a Schedule 13G from having to 

report at all, and if so, under what other 

conditions, if any, should such an 

exemption be available? 

74. Should we redesignate current 

Rule 13d–5(b)(2) as new Rule 13d–6(b), 

as proposed? Would the relocation of 

that exemption, without altering the 

substance of that exemption, alter its 

availability or use or have any other 

collateral effects? 

E. Proposed Amendments to Schedule 

13D To Clarify Disclosure Requirements 

Regarding Derivative Securities 

We are proposing to amend Schedule 

13D, codified at Rule 13d–101, to clarify 

the disclosure requirements with 

respect to derivative securities held by 

a person reporting on that schedule. 

Specifically, we are proposing to amend 

Item 6 to Schedule 13D 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. 

1. Background 

In enacting Sections 13(d)(1)(A) 

through (E),151 Congress specified 

certain information that beneficial 

owners must report once they incur a 

filing obligation. Under Section 

13(d)(1)(E), Congress provided that a 

beneficial owner must report 

‘‘information as to any contracts, 

arrangements, or understandings with 

any person with respect to any 

securities of the issuer, including [the] 

transfer of any of the securities, joint 

ventures, loan or option arrangements, 

puts or calls, guaranties of loans, 


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152 17 CFR 240.13d–101. This rule codifies 

Schedule 13D, and Instruction A thereto provides, 

in relevant part, that a filer must ‘‘[a]nswer every 

item. If an item is inapplicable or the answer is in 

the negative, so state.’’ Id. To the extent the initial 

disclosure provided indicates that the item was 

inapplicable or that there were no contracts, 

arrangements, understandings or relationships to 

report, the filer remains obligated under Section 

13(d)(2) and corresponding Rule 13d–2(a) to report 

material changes to such a response. 

153As used in this release and the proposed 

revision to Item 6 of Schedule 13D, the term 

‘‘reference security’’ means the class of securities 

into which a derivative security is convertible, 

exchangeable or exercisable for, or, alternatively, if 

not convertible into or exchangeable or exercisable 

for, the class of securities from which the derivative 

security has economic exposure and has its value 

determined according to the terms of the 

derivative’s governing instrument. 

154This would be consistent with the approach 

used for other XML-based structured data languages 

created by the Commission for certain EDGAR 

Forms, including the data languages used for 

reports on each of Form 13F, Form D and the 

Section 16 beneficial ownership reports (Forms 3, 

4 and 5). 

155See supra Section II.A.6.a; EDGAR Filer 

Manual (Volume II) version 59 (Sept. 2021) 

(‘‘EDGAR Filer Manual’’), at 5–1 (requiring EDGAR 

filers generally to use ASCII or HTML for their 

document submissions, subject to certain 

exceptions). Schedule 13D and 13G filers are 

required, by rule, to comply with the requirements 

of the EDGAR Filer Manual. See 17 CFR 232.301 

(‘‘Filers must prepare electronic filings in the 

manner prescribed by the EDGAR Filer Manual, 

promulgated by the Commission, which sets forth 

the technical formatting requirements for electronic 

submissions.’’). 

guaranties against loss or guaranties of 

profits, division of losses or profits, or 

the giving or with holding of proxies 

. . . .’’ Consistent with the mandate of 

Section 13(d)(1)(E), this baseline 

disclosure requirement has existed 

within Schedule 13D since 1968. 

Schedule 13D sets forth the 

information that beneficial owners 

reporting pursuant to Rule 13d–1(a) or 

13d–2(a) must disclose. In addition to 

the information specified by Sections 

13(d)(1)(A) through (E), Congress also 

authorized the Commission to require 

disclosure of ‘‘such additional 

information’’ it prescribes as ‘‘necessary 

or appropriate in the public interest or 

for the protection of investors.’’ 

Item 6 of Schedule 13D requires 

beneficial owners to ‘‘[d]escribe any 

contracts, arrangements, understandings 

or relationships (legal or otherwise) 

among the persons named in Item 2 [of 

Schedule 13D] and between such 

persons and any person with respect to 

any securities of the issuer’’ and sets 

forth a non-exclusive list of examples of 

such contracts, arrangements, 

understandings or relationships.152

Because cash-settled derivative 

securities were not expressly included 

among these examples, questions may 

arise as to whether beneficial owners 

should report contracts, arrangements, 

understandings or relationships ‘‘with 

respect to’’ an issuer’s securities given 

that (1) only a purely economic, but no 

legal, interest is held through such 

derivatives in any class of an issuer’s 

securities and (2) the issuer’s securities 

are only used as a reference security.153

Further, the current requirement could 

be interpreted as excluding the use of 

cash-settled options not offered or sold 

by the issuer, or other derivatives not 

originating with the issuer, including 

other cash-settled derivatives such as 

security-based swaps. 

2. Proposed Amendments 

We are proposing to amend to Item 6 

of Schedule 13D to clarify that a person 

is required to disclose interests in all 

derivative securities that use the issuer’s 

equity security as a reference security. 

The proposed amendment would 

expressly state that such derivative 

contracts, arrangements, understandings 

and relationships with respect to an 

issuer’s securities, including cashsettled security-based swaps and other 

derivatives which are settled 

exclusively in cash, would need to be 

disclosed under Item 6 of Schedule 13D 

in order to comply with Rules 13d–1(a) 

and 13d–101. 

The proposed amendment also would 

clarify that the derivative security need 

not have originated with the issuer or 

otherwise be part of its capital structure 

in order for a disclosure obligation to 

arise. At present, the formulation ‘‘with 

respect to securities of the issuer’’ in 

Item 6 might be read to suggest that 

contracts, arrangements, understandings 

or relationships that only create 

economic exposure to the issuer’s equity 

securities or are otherwise considered 

synthetic could be excluded. 

Accordingly, to remove any ambiguity 

as to the scope of the required 

disclosures, we propose to revise Item 6 

to expressly state that the use of 

derivative instruments, including cashsettled security-based swaps and other 

derivatives settled exclusively in cash, 

which use the issuer’s securities as a 

reference security are included among 

the types of contracts, arrangements, 

understandings and relationships which 

must be disclosed. To further minimize 

any potential ambiguity regarding what 

interests need to be disclosed, we also 

propose to eliminate the ‘‘including but 

not limited to’’ regulatory text that 

precedes the itemization of the 

instruments or arrangements covered. 

Request for Comment 

75. Should we amend Item 6 of 

Schedule 13D as proposed? 

76. Are there any reasons not to 

expressly require disclosure of 

contracts, arrangements, understandings 

or relationships involving cash-settled 

derivative securities, including securitybased swaps, under Item 6? To the 

extent that any such derivative 

instruments should not be subject to 

disclosure, why would excluding such 

instruments be appropriate given the 

statutory mandate in Section 

13(d)(1)(E)? 

77. Do any other modifications need 

to be made to Item 6 in order to clarify 

the types of instruments or 

arrangements that are required to be 

disclosed, and, if so, what clarifications 

should we make and why? For example, 

should we include a general ‘‘catch-all’’ 

provision that requires disclosure of any 

contracts, arrangements, understandings 

or relationships substantially similar to 

the ones listed? 

78. Should the ‘‘including but not 

limited to language’’ under Item 6 be 

eliminated, as proposed? Would this 

serve to remove ambiguity about what is 

required by the Item? Should the 

language be retained, and if so, why? Do 

any interests in a class of an issuer’s 

securities exist that derive from sources 

not considered to be contracts, 

arrangements, understandings or 

relationships that should be subject to 

disclosure under Item 6, and if so, what 

are those sources? Conversely, are there 

reasons to exclude any particular 

instrument or class of instrument from 

Item 6 of Schedule 13D? 

F. Proposed Structured Data 

Requirement for Schedules 13D and 13G 

We are proposing to require that 

beneficial ownership reports on 

Schedules 13D and 13G be filed using 

a structured, machine-readable data 

language. In particular, we are 

proposing to require that Schedules 13D 

and 13G be filed in part using an XMLbased language specific to Schedules 

13D and 13G (‘‘13D/G-specific 

XML’’).154 For both Schedules, all 

disclosures, including quantitative 

disclosures, textual narratives, and 

identification checkboxes, would be 

structured in 13D/G-specific XML under 

the proposal, with the exception of the 

exhibits to the Schedules, which would 

remain unstructured. 

1. Background 

Currently, the EDGAR Filer Manual 

requires Schedules 13D and 13G to be 

filed electronically on the Commission’s 

EDGAR system in HTML or ASCII.155

HTML and ASCII are both unstructured 

data languages; thus, the disclosures 

reported on Schedules 13D and 13G are 


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156The term ‘‘machine-readable’’ is defined in 44 

U.S.C. 3502 as ‘‘data in a format that can be easily 

processed by a computer without human 

intervention while ensuring no semantic meaning is 

lost.’’ 

157See Current and Draft Technical 

Specifications, available at https://www.sec.gov/ 

edgar/filer-information/current-edgar-technicalspecifications. 

158Examples include the Section 16 beneficial 

ownership reports (Form 3, 4 and 5) and Form 13F. 

See id. 

159 In addition, the Commission would develop 

electronic ‘‘style sheets’’ that, when applied to the 

reported XML data, would represent that data in 

human-readable form on EDGAR. 

160Section 13(g)(5) of the Exchange Act provides, 

in part, that ‘‘the Commission shall take such steps 

as it deems necessary or appropriate in the public 

interest or for the protection of investors . . . to 

tabulate and promptly make available the 

information contained in any report filed pursuant 

to this subsection in a manner which will, in the 

view of the Commission, maximize the usefulness 

of the information to . . . the public.’’ 15 U.S.C. 

78m(g)(5). The requirements proposed in this 

section would be consistent with this mandate. 

Although this statutory language applies only to 

beneficial ownership reports filed pursuant to 

Section 13(g)—i.e., a Schedule 13G filed by an 

Exempt Investor—we believe these public benefits 

would be furthered by applying the requirements 

proposed in this section to all Schedule 13D and 

13G filers. 

161 15 U.S.C. 78l. 

162 15 U.S.C. 78p(a). 

163 Insiders file these reports on Form 3. 17 CFR 

249.103. 

164 Insiders file transaction reports on Forms 4 

and 5. 17 CFR 249.104 and 249.105. 

165 15 U.S.C. 78p(b). 

166 In addition, insiders are subject to the short 

sale prohibitions of Section 16(c). 

167See S. Rep. No. 1455, at 55, 68 (1934); see also 

S. Rep. No. 792, at 20–1 (1934); S. Rep. No. 379, 

at 21–2 (1963). 

168Ownership Reports and Trading By Officers, 

Directors and Principal Security Holders, Release 

No. 34–28869 (Feb. 21, 1991) [56 FR 7242 (Feb. 21, 

1991)] (stating that as applied to 10% holders, 

Section 16 ‘‘is intended to reach those persons who 

can be presumed to have access to inside 

information because they can influence or control 

the issuer as a result of their equity ownership’’ and 

noting that Section 13(d) of the Exchange Act 

‘‘specifically addresses such relationships’’). 

169 17 CFR 240.13d–3(d). 

170For example, the Commission applied an 

analysis derived from Rule 13d–3(d)(1) in 

publishing its views regarding when equity 

securities underlying a security future that requires 

physical settlement should be counted for purposes 

of determining whether the purchaser of the 

security future is subject to Section 16 as a 10% 

holder by operation of Rule 16a–1(a)(1). 

Commission Guidance on the Application of 

Certain Provisions of the Securities Act of 1933, the 

Securities Exchange Act of 1934, and Rules 

thereunder to Trading in Security Futures Products, 

Release No. 34–46101 (June 21, 2002) [67 FR 43234 

at Q 7 (June 27, 2002)]. 

not currently machine-readable.156 As a 

result, information disclosed on 

Schedules 13D and 13G is more difficult 

for investors and markets to access, 

compile and analyze as compared to 

information that is submitted in a 

machine-readable data language. 

While the majority of EDGAR filings 

are submitted in HTML or ASCII, 

certain EDGAR filings are submitted 

using machine-readable, XML-based 

languages that are each specific to the 

particular EDGAR document type being 

submitted.157 This includes filings that, 

like Schedules 13D and 13G, are 

submitted by individuals and entities 

other than the registrant.158 For these 

EDGAR XML filings, filers are typically 

provided the option to either submit the 

filing directly to EDGAR in XML, or 

manually input their disclosures in an 

online web application and/or web form 

developed by the Commission that 

converts the completed form into an 

EDGAR-specific XML document. 

2. Proposed Amendments

We are proposing to replace the

current HTML or ASCII requirement for 

Schedules 13D and 13G in the EDGAR 

Filer Manual with a structured data 

language requirement—specifically, 

with a requirement to use Schedule 

13D/G-specific XML—for the 

disclosures reported on those 

Schedules. As is the case with other 

EDGAR Form-specific XML filings, 

reporting persons would be able to, at 

their option, submit filings directly to 

EDGAR in Schedule 13D/G-specific 

XML or use a web-based reporting 

application developed by the 

Commission that would generate the 

Schedule in 13D/G-specific XML.159 We 

believe that a structured data 

requirement for the disclosures reported 

on Schedules 13D and 13G would 

greatly improve the accessibility and 

usability of the disclosures, allowing 

investors to access, aggregate and 

analyze the reported information in a 

much more timely and efficient 

manner.160

Request for Comment 

79. Should we replace the current

HTML or ASCII requirement for 

Schedules 13D and 13G with a 

structured data requirement for the 

disclosures reported on those 

Schedules, as proposed? 

80. Rather than adding a structured

data requirement for all disclosures 

(other than exhibits) reported on 

Schedules 13D and 13G, should we 

narrow the requirement to cover only a 

subset of the disclosures, such as the 

quantitative disclosures? 

81. Should we require the disclosures

on Schedules 13D and 13G to be 

submitted using a different structured 

data language than 13D/G-specific 

XML? Why or why not? If another 

structured data language would be more 

appropriate, please identify which one, 

and explain why. 

82. Would this proposed requirement

yield reported data that is more useful 

to investors, compared with maintaining 

the current HTML or ASCII requirement 

for Schedules 13D and 13G, or requiring 

Schedules 13D and 13G to be filed in a 

structured data language other than a 

13D/G-specific XML? 

G. Implications of the Proposed

Amendments on Section 16

Section 16 of the Exchange Act was 

designed both to provide the public 

with information about securities 

transactions and holdings of every 

person who is the beneficial owner of 

more than 10% of a class of equity 

security registered under Exchange Act 

Section 12 161 (‘‘10% holder’’), and each 

officer and director (collectively, 

‘‘insiders’’) of the issuer of such a 

security, and to deter such insiders from 

profiting from short-term trading in 

issuer securities while in possession of 

material, non-public information. Upon 

becoming an insider, or upon Section 12 

registration of the class of equity 

security, Section 16(a) 162 requires an 

insider to file an initial report with the 

Commission disclosing his or her 

beneficial ownership of all equity 

securities of the issuer.163 Section 16(a) 

also requires insiders to report 

subsequent changes in such 

ownership.164 To prevent misuse of 

inside information by insiders, Section 

16(b) 165 provides the issuer (or 

shareholders suing on the issuer’s 

behalf) a private right of action to 

recover any profit realized by an insider 

from any purchase and sale (or sale and 

purchase) of any equity security of the 

issuer within a period of less than six 

months.166

As applied to 10% holders, Congress 

intended Section 16 to reach persons 

presumed to have access to information 

because they can influence or control 

the issuer as a result of their equity 

ownership.167 Because Section 13(d) 

addresses these types of relationships, 

the Commission adopted Rule 16a– 

1(a)(1) to define 10% holders under 

Section 16 as persons deemed 10% 

beneficial owners under Section 13(d) 

and the rules thereunder.168 The Section 

13(d) analysis, such as counting 

beneficial ownership of the equity 

securities underlying derivative 

securities exercisable or convertible 

within 60 days,169 is therefore imported 

into the 10% holder determination for 

Section 16 purposes. The application of 

Rule 16a–1(a)(1) is straightforward; if a 

person is a 10% beneficial owner as 

determined pursuant to Section 13(d) 

and the rules thereunder, the person is 

deemed a 10% holder under Section 

16.170


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171See supra notes 163–164 and accompanying 

text. 

172See supra note 165 and accompanying text. 

173See supra note 166. 

174Ownership Reports and Trading By Officers, 

Directors and Principal Security Holders, Release 

No. 34–28869 (Feb. 21, 1991) [56 FR 7242 at n.54 

(Feb. 21, 1991)] (noting that ‘‘[i]n contrast to Section 

13(d), which requires a group filing, the group itself 

would not be a separate person for Section 16 

purposes’’ and that, instead, ‘‘for purposes of 

determining status as a ten percent holder under 

Section 16, the securities beneficially owned by the 

group must be included in the calculation by each 

individual member of the group’’). 

Thus, the proposed amendments to 

Rules 13d–3, 13d–5 and 13d–6 would 

directly impact the analysis under Rule 

16a–1(a)(1) as to whether a person is a 

10% holder. For example, because 

proposed Rule 13d–3(e) would provide 

that holders of cash-settled derivative 

securities in specified circumstances 

will be ‘‘deemed’’ beneficial owners of 

the reference securities in a covered 

class for purposes of Sections 13(d) and 

(g), those holders also would be deemed 

beneficial owners of such reference 

securities for purposes of determining 

whether that person is a 10% holder 

under Section 16. By expanding the 

meaning of ‘‘beneficial owner’’ under 

Rule 16a–1(a)(1) to include persons who 

hold cash-settled derivatives in 

specified circumstances, proposed Rule 

13d–3(e) could increase the number of 

10% holders and, in turn, the number 

of persons subject to Section 16(a)’s 

disclosure obligations,171 Section 16(b)’s 

short-swing profit liability 172 and 

Section 16(c)’s short sale 

prohibitions.173 Similarly, two or more 

persons may be deemed to have formed 

a group that beneficially owns more 

than 10% of a covered class as a result 

of the application of our proposed 

amendments to Rule 13d–5, particularly 

with respect to the tipper-tippee 

relationships that are the subject of 

proposed Rule 13d–5(b)(1)(ii). Under 

this circumstance, each group member 

would be considered a 10% holder 

subject to Sections 16(a), (b), and (c).174

By contrast, the proposed amendments 

to Rule 13d–6 would create new 

exemptions under which two or more 

persons will not be deemed to have 

acquired beneficial ownership of an 

issuer’s equity securities as a group. To 

the extent beneficial owners qualify for 

and rely on the proposed exemptions in 

Rule 13d–6, those exemptions may 

offset any potential increase in the 

number of persons who become 10% 

holders as a result of our proposed 

amendments to Rule 13d–5. 

Given that Rule 16a–1(a)(1) has the 

same purpose as Regulation 13D–G— 

i.e., to identify persons who can 

influence or control the issuer as the 

result of equity ownership—it appears 

appropriate to continue to apply the 

standards of Regulation 13D–G, as 

proposed to be amended, to identify 

10% holders subject to Section 16. 

Accordingly, we believe it is not 

necessary to propose any amendments 

to Rule 16a–1(a)(1) in this release, but 

solicit public comment on the Section 

16 implications resulting from our 

proposed amendments to Rules 13d–3, 

13d–5, and 13d–6. 

Request for Comment 

83. Should Rule 16a–1(a)(1) import 

the beneficial ownership determinations 

of proposed Rule 13d–3(e) to determine 

who is a 10% holder for purposes of 

Section 16? 

84. Conversely, should we exclude 

holdings of cash-settled derivative 

securities with the purpose or effect of 

changing or influencing control of the 

issuer that would be included for the 

purposes of proposed Rule 13d–3(e) 

from 10% holder identification for 

purposes of Section 16? If so, should all 

types of such derivative holdings be 

excluded or only certain types of 

instruments? For example, under 

proposed Rule 13d–3(e), only long 

positions in such securities would be 

counted, and short positions would not 

be netted against long positions or 

otherwise taken into account. Similarly, 

as proposed, if a derivative security 

does not have a fixed delta (i.e., if the 

delta is variable and changes over the 

term of the derivative security), then a 

person who holds such derivative 

security would calculate the delta on a 

daily basis based on the closing market 

price of the reference equity security on 

that day for purposes of determining 

whether such person is a 10% holder. 

Are these criteria appropriate to apply 

to 10% holder determinations under 

Section 16? 

85. Would including ownership of 

cash-settled derivative securities held 

with the purpose or effect of changing 

or influencing the control of the issuer 

for purposes of 10% holder 

determinations be consistent with the 

purposes of Section 16? Should 

inclusion of these securities result in 

persons becoming 10% holders subject 

to Section 16(b)’s short-swing profit 

liability and Section 16(c)’s short sale 

prohibitions, as well as Section 16(a)’s 

disclosure obligations? If not, please 

explain why. 

86. Would the inclusion of such 

securities for purposes of Section 16 

10% holder determinations cause 

practical issues for any type of business? 

For example, would this potentially 

impair the capability of financial 

institutions to execute transactions 

using derivative securities, including as 

counterparties to clients, in the ordinary 

course of their business? If so, please 

explain why. 

87. Are there reasons why a holder of 

the cash-settled derivative securities 

covered by proposed Rule 13d–3(e) 

should be deemed the beneficial owner 

of the reference securities in a covered 

class for purposes of Sections 13(d) and 

(g) but not the beneficial owner of those 

reference securities for purposes of 

determining whether that person is a 

10% holder under Section 16? If so, 

should we amend Rule 16a–1(a)(1) to 

avoid the application of proposed Rule 

13d–3(e) to the determination as to 

whether a person is a 10% holder under 

Section 16? For example, should we 

amend Rule 16a–1(a)(1) such that it 

defines 10% holders under Section 16 

as persons deemed 10% beneficial 

owners under Section 13(d) and the 

rules thereunder other than Rule 13d– 

3(e)? 

88. Could the requirement in 

proposed Note 2 to Rule 13d–3(e)(2) 

(i.e., that the holder of a derivative 

security without a fixed delta calculate 

the delta on a daily basis) result in 

situations in which a person’s beneficial 

ownership does not exceed 10% of a 

covered class at the time that person 

acquires a derivative security, but then 

exceeds 10% at a later time solely by 

virtue of the fact that the delta of the 

derivative security changed (i.e., not as 

a result of any further acquisitions)? If 

so, would it be appropriate to subject 

that person to the requirements of 

Section 16 under such circumstances? 

89. Should Rule 16a–1(a)(1) import 

the group formation and beneficial 

ownership acquisition standards of Rule 

13d–5, as altered by our proposed 

amendments, for purposes of 

determining who is a 10% holder for 

purposes of Section 16? 

90. Should Rule 16a–1(a)(1) import 

the acquisition exemptions set forth in 

Rule 13d–6, as altered by our proposed 

amendments, for purposes of 

determining who is a 10% holder for 

purposes of Section 16? 

91. Would importing the proposed 

amendments to Rules 13d–5 and 13d–6, 

as would be the case under Rule 16a– 

1(a)(1), be inconsistent with the 

purposes of Section 16? If so, please 

explain. 

III. Economic Analysis 

A. Introduction 

Section 13(d) was enacted in 1968 

with the intent to alert the marketplace 

to rapid accumulations of equity 

securities which might represent a shift 


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175See H.R. Rep. No. 90–1711 (1968), supra note 

24; see also supra note 95. 

176The Commission adopted Regulation 13D, the 

predecessor to Regulation 13D–G, in 1968. See 33 

FR 11015 (Aug. 2, 1968), supra note 64. 

177See supra Section II.A.1. 

178See supra Section II.B. 

179We note that while the reporting obligations 

under Exchange Act Section 16 and the Hart-ScottRodino Antitrust Improvements Act of 1976 could 

reduce incentives for large shareholders to 

accumulate substantial stakes that exceed the 

Section 13(d) and (g) reporting threshold, they do 

not eliminate those incentives or the need for more 

timely beneficial ownership reporting, as proposed. 

See infra Section III.B.1. 

180See Kahan and Rock (2019), infra note 260 at 

922–23 (‘‘In effect, the poison pill moved the 

decision on the success of a hostile bid from 

shareholders voting with their feet (by tendering 

their shares in a tender offer) to shareholders voting 

by ballot (by replacing a majority of the 

board). . . . To get a rough sense of the current 

prevalence of toeholds, we collected data from 

Thompson Reuters on proposed takeovers that were 

classified as hostile. There were twenty-four such 

proposals between 2010 and 2015.’’); see also supra 

note 22. 

181See Brav, Jiang and Li (2021), infra note 215 

(noting that ‘‘[a]ctivist hedge funds also differ from 

corporate raiders that operated in the 1980s, as they 

tend to accumulate strict minority equity stakes and 

do not seek direct control,’’ and ‘‘[a]ctivists are both 

outsiders and insiders, in that they do not seek full 

control but operate by influencing control’’). We 

also note that today’s market for corporate control 

has seen an increasing use of low-threshold poison 

pills (threshold of 10%–15%) along with evolving 

governance practice. Legal scholars have warned 

that too restrictive pills could negatively affect 

activist investors’ profits and incentives and 

thereby activism. See Kahan and Rock (2019), infra 

note 260 (recommending that ‘‘[w]hether pills with 

a threshold of 10% or 15% (low-threshold pills) 

should be permitted against activists [should] 

depend[ ] on the context,’’ and ‘‘pills with a 

threshold of less than 10% and pills with a ‘wolfpack’ trigger [should be regarded as] presumptively 

invalid’’ because ‘‘[s]uch pills are not a reasonable 

response to any cognizable threat and impose 

excessive restrictions on the ability of an activist to 

conduct a credible contest and communicate with 

other shareholders’’); see also infra Section 

III.C.1.b.i. 

182Section 3(f) of the Exchange Act [15 U.S.C. 

78c(f)] requires the Commission, when engaging in 

rulemaking where it is required to consider or 

determine whether an action is necessary or 

appropriate in the public interest, to consider, in 

addition to the protection of investors, whether the 

action will promote efficiency, competition and 

capital formation. Further, Section 23(a)(2) of the 

Exchange Act [15 U.S.C. 78w(a)(2)] requires the 

Commission, when making rules under the 

Exchange Act, to consider the impact that the rules 

would have on competition and prohibits the 

Commission from adopting any rule that would 

impose a burden on competition not necessary or 

appropriate in furtherance of the Exchange Act. 

in corporate control.175 Together with 

Regulation 13D–G,176 these regulatory 

provisions have existed for more than 

50 years. As discussed above, 

technological advances since 1968, such 

as the ability to submit filings 

electronically through the Commission’s 

EDGAR system and the use of modern 

information technology in today’s 

financial markets, have reduced the 

time needed to prepare and file 

Schedules 13D and 13G.177 Financial 

product innovation over the past halfcentury, such as the use of cash-settled 

derivative securities and the advent of 

electronic trading, have outpaced the 

reach of the regulation when first 

adopted.178 These developments can 

provide large investors with 

opportunities to acquire substantial 

stakes in companies that exceed the 

Section 13(d) and (g) reporting 

threshold that may not have existed 

previously.179 In addition, the legal 

landscape has evolved since the passage 

of the Williams Act. Hostile tender 

offers, once a prominent hallmark of the 

takeover wave in the 1980s, have 

become comparatively rare since the 

development and widespread adoption 

of the ‘‘poison pill’’ shareholder rights 

plan in the 1980s as an anti-takeover 

device.180 Today’s market for corporate 

control features activist investors, 

particularly activist hedge funds, who 

seek to influence governance through 

accumulation of strict minority equity 

stakes instead of full control.181 As a 

result, less share accumulation is 

needed for large investors to exert 

influence. To modernize the beneficial 

ownership reporting requirements and 

improve their operation and efficacy, 

and to provide investors and market 

participants with more timely 

disclosure of information related to 

corporate control, we are proposing 

amendments to Regulation 13D–G and 

related technical changes to Regulation 

S–T. Specifically, we are proposing to 

(1) revise the current deadlines for 

Schedule 13D and Schedule 13G filings; 

(2) amend Rule 13d–3 to deem holders 

of certain cash-settled derivative 

securities as beneficial owners of the 

reference covered class; (3) align the text 

of Rule 13d–5, as applicable to two or 

more persons who act as a group, with 

the statutory language in Sections 

13(d)(3) and (g)(3) of the Exchange Act; 

and (4) set forth the circumstances 

under which two or more persons may 

communicate and consult with one 

another and engage with an issuer 

without concern that they will be 

subject to regulation as a group with 

respect to the issuer’s equity securities. 

We also are proposing certain related 

technical changes to Regulation S–T in 

connection with these proposed 

amendments and requirements that 

Schedules 13D and 13G be filed using 

a structured, machine-readable data 

language. 

Overall, we believe the proposed 

amendments would benefit investors 

and market participants by providing 

more timely information relating to 

significant stockholders as well as 

potential changes in corporate control, 

facilitating investor decision-making 

and reducing information asymmetry in 

the market. We also recognize that these 

amendments could increase costs for 

investors and issuers. For example, the 

amendments could increase costs for 

blockholders seeking to influence or 

control an issuer, and therefore 

potentially inhibit shareholder activism 

and the improvement of corporate 

efficiency. 

We are mindful of the costs and 

benefits of the proposed amendments. 

The discussion below discusses in 

detail the potential economic effects of 

the proposed amendments, including 

the likely benefits and costs, as well as 

the likely effects on efficiency, 

competition and capital formation.182 At 

the outset, we note that, where possible, 

we have attempted to quantify the 

benefits, costs and effects on efficiency, 

competition and capital formation 

expected to result from the proposed 

amendments. However, we are unable to 

quantify all potential economic effects 

because we lack information necessary 

to provide reasonable estimates for 

those effects. For example, the 

Commission is unable to reasonably 

quantify the potential harm to investors 

as a result of mispricing under the 

current rules, or the reduction in trading 

costs due to improvements to liquidity 

or capital formation that may arise from 

more efficient pricing under the 

proposed amendments. We also are 

unable to quantify, with precision, the 

increased costs for blockholders to 

initiate corporate change as a result of 

the shortened Schedule 13D filing 

deadlines and, therefore, the reduction 

of the costs and benefits the presence of 

such blockholders bring. To estimate 

such costs, we would need to know, for 

example, how many potential 

blockholders would reduce their share 

accumulation prior to disclosure after 

the proposed rule change, and the 

amount of any such reduction. The 

ability for blockholders to achieve their 

target accumulation level prior to 

disclosure depends on such target level, 

the liquidity of the targeted covered 

class, their acquisition plans and their 

ability to adapt the plans. Because we 

do not have all the inputs for these 

variables, we cannot provide a 

reasonable estimate of the effects of the 

proposed amendments. Where we are 

unable to quantify the economic effects 

of the proposed amendments, we 

provide a qualitative assessment of the 

potential effects and encourage 

commenters to provide data and 

information that would help quantify 


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183See supra Section II.A.1. 

184See supra Section II.A.3. 

185See supra Section II.A.2. 

186See supra Section II.A.4.a and note 65. 

187See supra Section II.A.4.a. 

188See supra Section II.A.5.a. 

189 Id. 

190See supra Section II.G. 

191See supra note 168 and accompanying text. 

192See 15 U.S.C. 78p(a)(2)(B); see also supra 

notes 162–163 and accompanying text. 

193See 15 U.S.C. 78p(a)(2)(C); see also supra note 

164 and accompanying text. 

194Public Law 94–435, 90 Stat 1383 (1976). 

195 16 CFR part 803, appendix A. 

196See 15 U.S.C. 18a(a), (b)(1)(A); 16 CFR 803.1; 

Revised Jurisdictional Thresholds for Section 7A of 

the Clayton Act, 86 FR 7870 (Feb. 2, 2021). 

Specifically, notification is required either by 

planned acquisition of in excess of $200 million in 

voting securities or assets as adjusted annually or 

in excess of $50 million as adjusted annually 

combined with certain additional factors. Adjusted 

thresholds are published for each fiscal year to 

reflect the percentage change in the gross national 

product for that year compared to the gross national 

product for the year ending September 30, 2003. 

197See 15 U.S.C. 18a(h). 

the benefits, costs and potential impacts 

of the proposed amendments on 

efficiency, competition and capital 

formation. 

B. Economic Baseline 

1. Current Regulatory Framework 

To understand the effects of the 

proposed amendments, we first compare 

them to the current regulatory 

framework. 

a. Filing Deadlines 

Section 13(d)(1) and Rule 13d–1(a) 

together require a person who directly 

or indirectly acquires ‘‘beneficial 

ownership’’ of more than 5% of a 

covered class to file a Schedule 13D 

within 10 days of the acquisition that 

exceeds 5%.183 For investors who are 

eligible to file a Schedule 13G, the filing 

deadlines for the initial Schedule 13G 

are 45 days after the end of calendar 

year for QIIs and Exempt Investors if 

they beneficially own more than 5% of 

a covered class as of the last day of the 

calendar year, and within 10 days of 

acquiring beneficial ownership of more 

than 5% of a covered class for Passive 

Investors, under Rules 13d–1(b), (d), 

and (c), respectively.184 Rules 13d–1(e), 

(f), and (g) set forth the initial Schedule 

13D filing obligations for investors who 

are no longer eligible to file Schedule 

13G.185

Sections 13(d)(2) and 13(g)(2), 

together with Rules 13d–2(a), (b), (c), 

and (d), set forth amendment obligations 

related to original filings. Rule 13d–2(a) 

provides that if any material change 

occurs to the facts reported in the initial 

Schedule 13D filing, an amendment 

disclosing that change shall be filed 

with the Commission ‘‘promptly.’’ 186

Rule 13d–2(b) requires that for all 

persons who report beneficial 

ownership on Schedule 13G, an 

amendment shall be filed ‘‘within fortyfive days after the end of each calendar 

year if, as of the end of the calendar 

year, there are any changes in the 

information reported in the previous 

filing on that Schedule [13G].’’ 187 In 

addition, Rule 13d–2(c) requires QIIs to 

file an amendment to their Schedule 

13G within 10 days after the end of the 

first month in which their beneficial 

ownership exceeds 10% of a covered 

class, or increases or decreases by more 

than 5% of the covered class, once 

across the 10% threshold.188 For Passive 

Investors, current Rule 13d–2(d) 

requires that they ‘‘promptly’’ file an 

amendment to their Schedule 13G upon 

acquiring greater than 10% of a covered 

class, or if, once across the 10% 

threshold, they increase or decrease 

their beneficial ownership by more than 

5% of the covered class.189

In addition to Sections 13(d) and (g), 

Exchange Act Section 16 provides the 

public with information about the 

securities transactions and holdings of 

an insider of an issuer, including 10% 

holders.190 Rule 16a–1(a)(1) defines 

10% holders under Section 16 as 

persons deemed 10% beneficial owners 

under Section 13(d) and the rules 

thereunder.191 Within 10 days of 

becoming an insider (including within 

10 days of becoming a 10% holder), or 

upon registration of the class of equity 

security under Section 12, Section 16(a) 

requires an insider to file an initial 

report (Form 3) with the Commission 

disclosing his or her beneficial 

ownership of all equity securities of the 

issuer.192 Section 16(a) also requires 

insiders (including 10% holders) to 

report subsequent changes in such 

ownership by the end of the second 

business day following the day the 

transaction was executed (Form 4).193

These filing requirements are not 

necessarily duplicative with the 

Schedule 13D and 13G filing 

requirements given that, among other 

things, they only begin to apply to 

certain beneficial owners once the 10% 

threshold has been crossed and may 

require materially different disclosures, 

such as those relating to pecuniary 

interests. The reporting obligation under 

Section 16 could reduce incentives for 

large shareholders to accumulate stakes 

exceeding 10%; however, it should not 

eliminate such incentives, the extent of 

which would depend on the objectives 

of the blockholders. 

Lastly, certain acquisitions of 

ownership stakes are reportable under 

the Hart-Scott-Rodino Antitrust 

Improvements Act of 1976 (‘‘HSR’’) 194

via the Notification and Report Form.195

Instead of requiring public disclosure 

after acquiring beneficial ownership of a 

certain percentage of the covered class, 

HSR requires notification to the Federal 

Trade Commission and the Department 

of Justice prior to acquisition of any 

voting securities or assets if the 

acquisition will cause value of the 

acquirer’s holdings to exceed certain 

dollar thresholds (i.e., if the value of 

equity or assets to be acquired exceeds 

$368 million, or if it is between $92 

million and $368 million and meets 

some additional criteria).196 Because the 

dollar thresholds are not tied to the size 

of the target company, the category of 

persons required to report under 

Sections 13(d) and (g) would not 

necessarily be identical to those 

required to give prior notice under HSR. 

Also, unlike Section 13(d) and (g) 

reporting, the filing of the Notification 

and Report Form and the information in 

it are not publicly disclosed, except in 

some special circumstances.197 Similar 

to Section 16 reporting obligations, 

reporting obligations under HSR could 

also reduce incentives for blockholders 

to accumulate ownership. However, this 

effect should be relatively smaller than 

those under Section 16, because the 

filings under HSR are not publicly 

disclosed. 

b. Beneficial Ownership 

Neither Section 3(a) nor Section 13(d) 

of the Exchange Act defines the term 

‘‘beneficial owner’’ or ‘‘beneficial 

ownership.’’ Regulation 13D–G 

similarly does not expressly define 

those terms. Rule 13d–3(a) provides that 

a person is a beneficial owner of a 

security if that person, directly or 

indirectly, has or shares voting power 

and/or investment power. In addition, 

Rule 13d–3 deems certain persons to be 

beneficial owners even if they lack 

voting power and investment power. 

Rule 13d–3(b) deems a person who uses 

any contract, arrangement or device to 

divest or prevent the vesting of 

beneficial ownership of the security as 

part of a plan or scheme to evade 

reporting under Section 13(d) to be a 

beneficial owner. Rule 13d–3(d) deems 

a person to be a beneficial owner of an 

equity security if that person holds a 

right to acquire the security that is 

exercisable within 60 days or who 

acquires a right to acquire the security 

for the purpose or with the effect of 

changing or influencing control of the 

issuer of securities regardless of when 

that right is exercisable. Under the 

current rule, the scope of beneficial 


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198See supra Section II.B.1. Under certain 

circumstances, investors in security-based swaps 

may be beneficial owners, as determined under 

Rule 13d–3, of a covered class. To the extent that 

a holder of a security-based swap owns that security 

not exclusively settled in cash, the person could be 

viewed as a beneficial owner under Rule 13d– 

3(d)(1). In addition, if a security-based swap is used 

as part of plan or scheme to evade beneficial 

ownership reporting, the person could be deemed 

a beneficial owner as described in Rule 13d–3(b). 

Finally, if the holder of a security-based swap 

directly or indirectly holds the power to direct a 

counterparty how to vote or dispose of shares in a 

covered class used as a reference security, that 

person can be a beneficial owner as provided in 

Rule 13d–3(a). See Beneficial Ownership Reporting 

Requirements and Security-Based Swaps 

(Confirmation), Release No. 34–64628 (June 8, 2011) 

[76 FR 34579 (June 14, 2011)]. 

199See supra note 168 and accompanying text; 

see also supra Section II.G. 

200See supra Section II.C.1. 

201Out of all the Schedule 13D filings, there were 

a total of 2,288 initial filings and 8,254 

amendments. 

202Out of all the Schedule 13G filings, there were 

a total of 12,838 initial filings and 31,221 

amendments. 

203We were able to collect data for our analysis 

from 2,236 initial Schedule 13D filings and 12,759 

initial Schedule 13G filings. Out of the 2,236 initial 

Schedule 13D filings, there are 994 unique filings 

with sufficient data for our subsequent analysis. 

204We note that approximately 32.9% of the 

Schedule 13D filings were made after 10 days. 

However, not all of these filings are considered late 

by the Commission. By rule, the Commission 

accepts as timely any filing that, if the calendar due 

date falls on a weekend or holiday, is received by 

the next business day. See supra note 3. Therefore, 

after we take into account weekends and holidays, 

we preliminarily estimate that about 20.1% of the 

filings are deemed late. 

205We note that Schedule 13G filers include QIIs, 

Exempt Investors and Passive Investors. Under the 

current rules, Passive Investors must file their 

initial Schedule 13G within 10 days of acquiring 

more than 5% beneficial ownership, and Exempt 

Investors and QIIs must file within 45 days of the 

calendar year end in which their beneficial 

ownership exceeds 5%. Accordingly, the median 

filing time for all Schedule 13G filers presented 

here could be skewed for different types of filers. 

More specifically, the median of 21 days might be 

shorter than the actual median for QIIs and Exempt 

Investors, and longer than the actual median for 

Passive Investors. It is impracticable to produce 

statistics for different types of filers at this point 

because underlying data are not structured into an 

analyzable format. 

ownership ordinarily does not include 

holders of cash-settled derivative 

securities because those instruments 

generally do not convey voting or 

investment power over any equity 

securities in the reference covered 

class.198 As noted above, if a person is 

deemed a beneficial owner for the 

purposes of Section 13(d) and the rules 

thereunder, then he or she also is 

deemed a beneficial owner for the 

purposes of Exchange Act Section 16 to 

the extent the beneficial ownership held 

exceeds 10% of a covered class.199

c. Group Formation 

Under Sections 13(d)(3) and (g)(3), 

two or more persons ‘‘act[ing]’’ as a 

‘‘group for the purpose of acquiring, 

holding, or disposing of [equity] 

securities’’ constitute a single person for 

purposes of those statutory 

provisions.200 Rule 13d–5(b) states that 

when two or more persons ‘‘agree to act 

together’’ for the purpose of acquiring, 

holding, voting or disposing equity 

securities, the group formed thereby 

shall be deemed to have acquired 

beneficial ownership, for purposes of 

Sections 13(d) and (g), of all equity 

securities of the issuer beneficially 

owned by such persons. 

d. Item 6 of Schedule 13D 

As discussed in Section II.E.1., 

Congress set forth a statutory 

requirement under Section 13(d)(1)(E) 

that a person disclose ‘‘information as to 

any contracts, arrangements, or 

understandings with any person with 

respect to any securities of the issuer, 

including [the] transfer of any of the 

securities, joint ventures, loan or option 

arrangements, puts or calls, guaranties 

of loans, guaranties against loss or 

guaranties of profits, division of losses 

or profits, or the giving or with holding 

of proxies . . . .’’ This obligation is 

codified at Rule 13d–101 and reflected 

in Item 6 of Schedule 13D. Item 6 

provides only an illustrative subset of 

the types of contracts, arrangements, 

understandings or relationships that 

must be disclosed, and cash-settled 

derivative securities have not been 

expressly identified in the list of 

examples, which could create an 

impression that a person is not required 

to disclose interests in all derivative 

securities that use the issuer’s equity 

security as a reference security. 

2. Affected Parties 

The relevant market participants for 

purposes of establishing the economic 

baseline for the proposed rules include: 

All investors that are required or 

potentially required to report their 

beneficial ownership on Schedules 13D 

and 13G; the issuers of the equity 

securities beneficially owned; investors 

that rely on beneficial ownership 

reports in connection with their 

investment decisions as to issuers’ 

securities; shareholders of the issuer, 

particularly the long-term shareholders 

of the issuer, who might be more 

affected by shareholder activism; market 

professionals, such as analysts that 

valuate securities; the financial 

institutions that serve as counterparties 

to cash-settled derivatives; and the 

management of the issuer. Section 16 

filers also are relevant market 

participants because Section 13(d) and 

the rules thereunder are used to 

determine whether a person’s beneficial 

ownership exceeds 10% and must be 

reported on Forms 3, 4 and 5. 

During the calendar year 2020, the 

Commission received a total of 10,542 

Schedule 13D filings 201 and 44,059 

Schedule 13G filings,202 involving 3,940 

unique Schedule 13D filers and 8,789 

unique Schedule 13G filers, 

respectively. To understand the extent 

to which the proposed amendments 

could affect holders with reporting 

obligations, we examine their current 

filing practice. Our preliminary analysis 

of the 2020 filings 203 shows that 

Schedule 13D filers reported a median 

accumulation of 8.4% of shares in their 

initial Schedule 13D filings. 

Approximately 20.7% of the initial 

Schedule 13D filings were filed within 

the first five days after the acquisition 

that crossed the 5% threshold. The 

median number of days between the 

acquisition that crossed the 5% 

threshold and the initial Schedule 13D 

filing was 10 days 204 with 22.9% of the 

initial Schedule 13D filings being made 

on the 10th day. A detailed day-by-day 

breakdown of the percentage of the 

filings made each day after crossing the 

5% threshold is provided in Figure 1 

and Table 1 below. For Schedule 13G 

filers, the median number of days 

between the date on which the 5% 

threshold was crossed and the initial 

filing was 21, and the median reported 

accumulation was 6.3%.205


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13880 Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 

206See infra Section IV.B. 

207See infra Section IV.B. 

TABLE 1—DISTRIBUTION OF THE NUMBER OF DAYS BETWEEN CROSSING 5% AND THE FILING OF AN INITIAL SCHEDULE

13D 

Distribution of Number of Days Between Crossing 5% Threshold and Filing of Schedule 13D 

Day Bin ........................ 0 1 2 3 4 5 6 

Number of Events ........ 45 45 38 33 19 26 38 

Percent of Sample ....... 4.5% 4.5% 3.8% 3.3% 1.9% 2.6% 3.8% 

Day Bin ........................ 7 8 9 10 11–14 15+ Total 

Number of Events ........ 57 62 76 228 180 147 994 

Percent of Sample ....... 5.7% 6.2% 7.6% 22.9% 18.1% 14.8% 100.0% 

Note: The graph and table are based on staff analysis of 2020 EDGAR initial Schedule 13D filings. Filers are currently required to file within 

10 days of the acquisition that exceeds 5% of a covered class. 

C. Potential Benefits and Costs of the 

Proposed Amendments 

We have considered the potential 

costs and benefits associated with the 

proposed amendments. Overall, we 

believe the proposed amendments to 

Regulation 13D–G would benefit 

investors and market participants by 

providing more timely information 

relating to significant stockholders as 

well as potential changes in corporate 

control, facilitating investor decisionmaking, reducing information 

asymmetry and improving price 

discovery in the market. We also 

recognize that the proposed 

amendments could impose costs on the 

affected parties. For instance, the 

proposed amendments could increase 

the costs for blockholders to influence 

or control an issuer and potentially 

inhibit shareholder activism and its goal 

of improving corporate efficiency. A 

discussion of the anticipated economic 

costs and benefits of the proposed 

amendments is set forth in more detail 

below. We also expect the proposed 

amendments to affect compliance 

burdens. The quantitative estimates of 

changes in those burdens for purposes 

of the Paperwork Reduction Act of 1995 

(‘‘PRA’’) are further discussed in Section 

IV below. For purposes of the PRA, we 

estimate that the proposed amendments 

would result in an increase of 140,799 

burden hours from the increase in the 

number Schedule 13D filings and 13G 

filings.206 In addition, the estimated 

increase in the paperwork burden as a 

result of the proposed amendments for 

Forms 3, 4, and 5 will be 1,099 hours, 

16,911 hours and 594 hours, 

respectively.207

1. Proposed Amendments to Rules 13d– 

1 and 13d–2 and Rules 13 and 201 of 

Regulation S–T 

a. Benefits 

i. Schedule 13D Filing Deadlines 

We are proposing to amend Rule 13d– 

1(a) to shorten the initial Schedule 13D 

reporting deadline from 10 days to five 

days after the date of the acquisition 

that exceeds 5% of a covered class. We 

believe the proposed change would 

benefit investors, issuers and other 

market participants by providing them 

more timely disclosure on material 

information related to potential changes 

of corporate control. More timely 

disclosure of such market-moving 

information could improve 

transparency, reduce information 

asymmetry and mispricing in the 

market, and allow investors to make 

more informed investment decisions. 

As discussed above, significant stock 

ownership contains market-moving 

information related to potential changes 


khammond on DSKJM1Z7X2PROD with PROPOSALS2EP10MR22.000</GPH>

Figure 1: Number of days between crossing 5% and the filing of an initial Schedule 13D 

130 Filings Timeline Distribution 

"' ~20.00'6 

ii: 'o 15.00J6 

"" f 10.ooori 

C: 

B 

;; 5$0()% a. 

0.0()% 

0 1 2 3 4 S 6 7 8 9 10 11-14 15+ 

Number of days between crossing S%and the filing of an initial Schedule 13D 
Federal Register / Vol. 87, No. 47 / Thursday, March 10, 2022 / Proposed Rules 13881 

208See supra note 95. 

209See supra Section II.A.1 and Section II.B.1. 

210See Wachtell Petition, supra note 16; see also 

Guhan Subramanian, Corporate Governance 2.0, 

Harv. Bus. Rev. (Mar. 2015) (using the example of 

activist shareholders’ acquisition of a large stake in 

J.C. Penney to illustrate that some shareholders are 

‘‘disorderly’’ and a takeover by such parties could 

be ‘‘disastrous’’ for the company), available at 

https://hbr.org/2015/03/corporate-governance-2-0; 

Williams Cos. Stockholder Litig., No. 2020–0707, 

2021 WL 754593, at *33–34 (Del. Ch. Feb. 26, 2021), 

aff’d., No. 139, 2021, 2021 WL 5112495 (Del. Nov. 

3, 2021). 

211See infra note 217 (findings are based on 

based on hedge fund activism events over the 

period 1994–2016); see also Lucian A. Bebchuk, 

Robert J. Jackson Jr, Alon Brav and Wei Jiang, Predisclosure accumulations by activist investors: 

Evidence and policy, 39.1 J. Corp. L. 1–34 (2013) 

(reporting that filers in top 5th percentile disclosed 

21.2% of ownership based on a sample of data 

includes a total number of 2,040 Schedule 13D 

filings made by activist hedge funds from 1994 to 

2007). 

212See supra note 211. 

213See, e.g., Brav et al. (2008), infra note 215 

(finding an increase in issuer’s payout, operating 

performance and CEO turnover after 13D filings). 214See, e.g., Wachtell Petition, supra note 16 

(‘‘[T]he ten-day [Schedule 13D] reporting lag leaves 

a substantial gap after the reporting threshold has 

been crossed during which the market is deprived 

of material information and creates incentives for 

abusive tactics on the part of aggressive investor 

prior to making a filing.’’); see also, Coffee and Palia 

(2016), supra note 19 (‘‘[T]he gains that activists 

make in trading on asymmetric information—before 

the Schedule 13D’s filing—come at the expense of 

selling shareholders. . . . Disclosure that is 

delayed ten days enables activists to profit from 

trading on asymmetric information over that period 

. . . .’’). 

215See, e.g., Alon Brav, Wei Jiang, Frank Partnoy, 

and Randall Thomas, Hedge Fund Activism, 

Corporate Governance, and Firm Performance, 63.4 

The Journal of Finance 1729–1775 (2008) (finding 

‘‘The abnormal return around the announcement of 

activism is approximately 7%, with no reversal 

during the subsequent year.’’); see also April Klein 

and Emanuel Zur, Entrepreneurial Shareholder 

Activism: Hedge Funds and Other Private Investors, 

64.1 The Journal of Finance 187–229 (2009) (finding 

‘‘a significantly positive market reaction for the 

target firm around the initial Schedule 13D filing 

date, significantly positive returns over the 

subsequent year.’’)); see also Christopher Clifford, 

Value Creation or Destruction? Hedge Funds as 

Shareholder Activists, 14 The Journal of Corporate 

Finance 323–336 (2008) (‘‘Firms targeted by 

activists earn an average cumulative abnormal 

return of 3.4% during the (¥2,+2) window around 

the filing date’’). For a comprehensive survey of 

literature on hedge fund activism, see also Alon 

Brav, Wei Jiang, and Rongchen Li, Governance by 

Persuasion: Hedge Fund Activism and Marketbased Shareholder Influence (December 10, 2021), 

European Corporate Governance Institute—Finance 

Working Paper No. 797/2021, available at https:// 

ssrn.com/abstract=3955116 or http://dx.doi.org/ 

10.2139/ssrn.3955116 (retrieved from SSRN 

Elsevier database). 

216See Brav et al. (2008), supra note 215. 

217See John Barry, Alon Brav, and Wei Jiang, 

Hedge Fund Activism: Updated tables and figures 

(Feb. 6, 2020), available at https://

faculty.fuqua.duke.edu/∼brav/HFactivism_March_

2019.pdf. 

218See, e.g., Lawrence Glosten and Paul Milgrom, 

Bid, Ask, and Transaction Prices in a Specialist 

Market with Heterogeneously Informed Investors, 14 

The Journal of Financial Economics 71–100 (1985). 

of corporate control which could 

influence investors’ decision making, 

and therefore Section 13(d) was enacted 

with the intention to ‘‘alert the market 

place to every large, rapid aggregation or 

accumulation of securities, regardless of 

technique employed, which might 

represent a potential shift in corporate 

control.’’ 208 Following technological 

advances and financial product 

innovation in the years since Section 

13(d)’s enactment,209 the current 10-day 

filing deadline under Section 13(d)(1) 

and Rule 13d–1(a) could be used by 

shareholders to acquire more— 

sometimes far more—than 5% of a 

covered class during the 10-day window 

before any disclosure, a concern raised 

by some observers.210 For example, 

Barry, Brav and Jiang (2020) has 

documented that, while blockholders 

disclosed a median ownership of 6.5% 

in their Schedule 13D filings, filers in 

the top 5th percentile of reported 

ownership disclosed an accumulation of 

22.5% of the shares when initial 

Schedule 13D filings are made,211 far 

exceeding the 5% threshold. These 

statistics suggest that while the 

reporting obligations under Section 16 

and HSR may reduce the incentives for 

shareholders to accumulate ownership 

far above the statutory threshold, they 

do not eliminate such accumulations. 

However, such practice is also not as 

pervasive as some have claimed.212

Nevertheless, the ability or practice for 

shareholders to accumulate a level of 

beneficial ownership far exceeding the 

statutory threshold without timely 

disclosure could undermine the benefits 

of beneficial ownership reporting, 

increasing information asymmetry and 

mispricing in the market. Thus, by 

shortening the deadline for initial 

Schedule 13D filings, the proposed 

amendment could improve the 

timeliness of beneficial ownership 

reporting, benefiting investors and other 

market participants through improved 

transparency and reduced information 

asymmetry in the market. 

Schedule 13D contains information 

related to significant stockholders and 

potential changes of corporate control. 

Such information is important to 

investors’ decision making, because the 

change in control over the issuer of the 

relevant covered class could directly 

affect the change in management, its key 

operational decisions, strategy and 

financial results, and thereby its 

valuation.213 The current 10-day filing 

deadline leads to a delay of such market 

moving information being incorporated 

by the market, leading to less efficient 

pricing and information asymmetries 

that would harm investors.214 It is well 

documented in the academic literature 

that economically significant price 

changes occur in response to news 

about changes in corporate control, such 

as the initial filing of a Schedule 13D.215

For example, Brav et al. (2008) find that 

the filing of a Schedule 13D is 

associated with large positive average 

abnormal returns, in the range of 7% to 

8%, during the [¥20, +20] 

announcement window, and about 2% 

during the filing day and the following 

day.216 Similar to Brav et al. (2008), 

Klein and Zur (2009) document that 

issuers targeted by hedge funds earn a 

mean market-adjusted abnormal return 

of 5.5% over the [¥30, +5] window 

around the initial Schedule 13D filing 

date and 7.2% for the [¥30, +30] period 

around the filing. Extending the analysis 

by Brav et al. (2008) to more recent 

years, Barry, Brav and Jiang (2020) 

report an average abnormal return about 

4.5% over the [¥20, 20] window.217

Therefore, during any delay between a 

market-moving event and the Schedule 

13D filing, securities are likely to be 

mispriced relative to a full-information 

benchmark, and information asymmetry 

between Schedule 13D filers and those 

with whom they share the information, 

and the rest of the market, is greater 

than otherwise. The prolonged delay 

could, therefore, harm the investors who 

happen to sell their shares during the 

10-day window. As discussed in Section 

III.A, we are not able to quantify the 

potential harm to investors due to data 

limitations. If an initial Schedule 13D 

were required to be filed more 

promptly, those investors might be able 

to sell their shares at a higher price, or 

they may re-evaluate their investment 

decisions. Timelier reporting would also 

allow other market participants, such as 

analysts and investment advisers, to 

better value the securities and make 

better recommendations. We recognize 

that the benefit of more timely reporting 

to investors and other market 

participants could be offset by the costs 

to blockholders and other investors as a 

result of the proposed amendment’s 

effect on shareholder activism. We 

discuss these offsetting costs in more 

detail below in Section III.C.b.i. 

Additionally, academic studies have 

shown that information asymmetry has 

a first-order effect on liquidity.218 Thus, 

the proposed amendment, by reducing 

information asymmetry, would provide 

incremental benefits to investors in 

general through the increased liquidity 

of the shares of the companies subject 

to Schedule 13D filings. The 

Commission implicitly recognized the 

importance of this point when it 


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219We recognize that the accelerated deadlines 

apply, in the case of Form 8–K filings, to issuers, 

and rely on different statutory authorities compared 

to deadlines for Schedule 13D filings. However, 

their economic effects on liquidity are similar. See 

also supra note 26. 

220See 43 FR 18484 (Apr. 28, 1978), supra notes 

51 and 52. 221See, e.g., Alex Edmans, Vivian W. Fang, and 

Emanuel Zur, The Effect of Liquidity on 

Governance, 26.6 The Review of Financial Studies 

1443–1482 (2013) (finding that Schedule 13G filings 

generate on average approximately 0.8% 

cumulative abnormal return during the (¥1,+1) 

window around the filing date, and more 

specifically, ‘‘[a] 13G filing leads to a positive 

market reaction, a positive holding period return, 

and an improvement in operating performance; all 

these effects are stronger in more liquid firms’’); see 

also Christopher Clifford, Value Creation or 

Destruction? Hedge Funds as Shareholder Activists, 

14 The Journal of Corporate Finance 323–336 (2008) 

(‘‘Firms targeted by passive investors earn an 

average cumulative abnormal return of 1.6% during 

the (¥2,+2) window around the filing date.’’). 

222See Edmans, Fang, and Zur (2013), supra note 

221. 

223See Bebchuk, Jackson, Brav and Jiang (2013), 

supra note 211. 

224See id. 

accelerated deadlines for Form 4 and 

Form 8–K filings, as discussed above.219

We also are proposing to amend Rule 

13d–2(a) to require that all amendments 

to Schedule 13D be filed within one 

business day after the material change 

that triggers the amendment obligation. 

Rule 13d–2(a) currently requires a 

Schedule 13D amendment to be filed 

‘‘promptly’’ to disclose a material 

change. The benefits of this proposed 

amendment to Rule 13d–2(a) are very 

similar to the benefits of our proposed 

amendment to Rule 13d–1(a) discussed 

above. More timely reporting would 

facilitate price discovery in the market, 

reduce information asymmetry and 

mispricing, and therefore allow 

investors to make more informed 

investment decisions. In addition, as 

discussed above, replacing the 

‘‘promptly’’ requirement with a brightline requirement would provide greater 

clarity as to when material changes are 

to be disclosed, which could reduce 

filer confusion and improve 

compliance. The positive economic 

effect on the information environment 

and investor decision-making associated 

with our proposed amendment to Rule 

13d–1(a) also apply to our proposed 

conforming revisions to Rules 13d–1(e), 

(f), and (g). 

ii. Schedule 13G Filing Deadlines 

We are also proposing amendments to 

Rules 13d–1(b), (c), and (d), and Rules 

13d–2(b), (c), and (d) to shorten other 

reporting deadlines under Regulation 

13D–G, which govern the deadlines for 

initial Schedule 13G filings and 

Schedule 13G amendments. 

As discussed above, currently, under 

Rules 13d–1(b), (c), and (d), for 

beneficial owners with reporting 

obligations who are eligible to file a 

Schedule 13G, the filing deadlines for 

the initial Schedule 13G are 45 days 

after the end of calendar year for QIIs 

and Exempt Investors if they 

beneficially own more than 5% of a 

covered class as of the last day of the 

calendar year, and within 10 days of 

acquiring beneficial ownership of more 

than 5% of a covered class for Passive 

Investors. Under the current rules, QIIs 

and Exempt Investors may avoid 

beneficial ownership reporting 

altogether by selling down their 

positions before the end of the year. As 

discussed in Section II.A.4.b., the 

avoidance of beneficial ownership 

reporting enabled by these reporting 

deadlines could undermine the 

informational benefits of reporting 

under Sections 13(d) and 13(g). 

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 5% of a covered class.220

Information regarding beneficial 

ownership is important to the market, 

regardless whether it is disclosed on 

Schedule 13D or 13G. There is evidence 

that the initial filing of Schedule 13G, 

like that of Schedule 13D, generates a 

positive stock price reaction, albeit 

smaller in magnitude.221 Therefore, the 

avoidance of beneficial ownership 

reporting on Schedule 13G made 

possible in part by the extended length 

of time in which certain beneficial 

owners have to report, if at all, could 

contribute to information asymmetry 

and mispricing in the market. As with 

the Schedule 13D filings, the prolonged 

delay in Schedule 13G reporting could 

harm the investors who happen to sell 

their shares in the days before the filing. 

To address this concern, we are 

proposing to shorten the filing deadlines 

for an initial Schedule 13G to (1) no 

more than five business days after the 

end of the month in which their 

beneficial ownership exceeds 5% of a 

covered class for QIIs and Exempt 

Investors, and (2) five days after 

acquiring beneficial ownership of more 

than 5% of a covered class for Passive 

Investors. 

By shortening the initial Schedule 

13G deadlines, the proposed 

amendments would reduce the 

opportunities for these holders to avoid 

their reporting obligations and improve 

transparency. Academic research has 

provided evidence that Schedule 13G 

filings contain value-relevant 

information—i.e., they are shown to 

lead to positive announcement returns 

and improvements in firm operating 

performance.222 Therefore, timely 

reporting of value-relevant information 

would facilitate price discovery and 

reduce information asymmetry and 

mispricing in the market, benefiting 

investors and other market participants 

similar to our proposed shortening of 

the initial Schedule 13D filing deadline. 

The proposed amendments would 

also shorten reporting deadlines for 

Schedule 13G amendments under Rules 

13d–2(b), (c), and (d). We believe the 

potential benefits of shortening initial 

Schedule 13G filing deadlines discussed 

above also apply to the accelerated 

filing of the Schedule 13G amendments. 

b. Costs 

i. Schedule 13D Filing Deadlines 

It could be costly to shorten the 

deadline for filing the initial Schedule 

13D under Rule 13d–1(a) as proposed 

because it may have a negative impact 

on corporate control and related 

shareholder engagement activities. 

Activists seeking to influence or control 

an issuer may be deterred from 

undertaking initiatives to engage 

management or launch campaigns 

because of the reduced gains in 

stockholder value that activists could 

capture and the earlier warning 

provided to management as a result of 

the proposed amendments, according to 

academic research.223 We discuss these 

potential effects and mitigating factors 

below. 

Facilitating the Use of Low-Threshold 

Poison Pills 

There is a concern that a shortened 

reporting deadline could give early 

notice to an issuer’s management 

regarding a potential takeover 

attempt.224 This accelerated filing 

deadline thus may provide management 

with more of an opportunity to quickly 

deploy defense mechanisms, increasing 

the costs for blockholders to 

successfully carry out their initiatives. 

Bebchuk et al. (2013) argue that 

shortening the deadline would ‘‘enable 

incumbents to adopt low-trigger poison 

pills that make it impossible for outside 

blockholders to accumulate additional 

shares after they cross the five-percent 

threshold,’’ and therefore ‘‘deter outside 

investors from accumulating large 

blocks of stock in public companies.’’ 

While we recognize the concern that 

a shortened reporting deadline could 

aid the use of low-threshold poison 

pills, the filing deadline’s impact on 

shareholder activism through lowthreshold poison pills may be overstated 

for several reasons. First, while the use 


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225Williams Cos. Stockholder Litig., 2021 WL 

754593, at *2. 

226See Kahan and Rock (2019), infra note 260. 

227 Id. at 970. 

228See Paul J. Shim, James E. Langston, and 

Charles W. Allen, Cleary Gottlieb Steen & Hamilton 

LLP, ISS and Glass Lewis Guidances on Poison Pills 

during COVID–19 Pandemic, Harvard Law School 

Forum on Corporate Governance (April 26, 2020), 

available at https://corpgov.law.harvard.edu/2020/ 

04/26/iss-and-glass-lewis-guidances-on-poisonpills-during-covid-19-pandemic/. 

229These pills are designed to protect a 

company’s net operating loss (‘‘NOL’’) and were 

held to be valid because of tax regulations. See 

Eldar and Wittry (2021), infra note 230; see also 

Versata Enterprises, Inc. v. Selectica, Inc., 5 A.3d 

586 (Del. 2010). 

230See Ofer Eldar and Michael D. Wittry, Crisis 

Poison Pills, 10 Rev. Corporate Fin. Stud. 204, 204– 

251 (2021) (reporting that conventional triggers 

historically have been about 20%, while also 

documenting a lower average trigger of about 12% 

in their study of crisis pills adopted during the 

Covid–19 pandemic); see also Shim et al. (2020), 

supra note 228. 

231See supra note 217. 232See 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, 154–156 (2013) (‘‘[S]hareholder 

rights plans play a crucial corporate governance 

role by, among other things, protecting shareholders 

from coercive, partial or two-tier tender offers 

. . . .’’). 

233Francis J. Aquila, Adopting a Poison Pill in 

Response to Shareholder Activism (April 2016) 

(‘‘[W]hen a threat arises, a shelf pill can be put into 

action within 24 hours. Without a shelf pill, the 

Board still has the ability to adopt a poison pill 

quickly and without the need for a shareholder 

vote. However, having a shelf pill increases a 

company’s response time because it has prepared 

all the necessary paperwork in advance.’’), available 

at https://www.sullcrom.com/files/upload/Apr16_

InTheBoardroom.pdf. 

234See, e.g., Sanford J. Grossman and Oliver D. 

Hart, Takeover Bids, the Free-Rider Problem, and 

the Theory of the Corporation, The Bell Journal of 

Economics 42–64 (1980) (showing that 

‘‘shareholders can free ride on the raider’s 

improvement of the corporation, thereby seriously 

limiting the raider’s profit’’). Note, however, that 

the model in this paper assumes immediate price 

adjustment. See also Bebchuk, Jackson, Brav and 

Jiang (2013), supra note 211. 

235See Bebchuk and Jackson, supra note 17, at 44 

(recounting the history of the Williams Act). 

236See, e.g., Marianne Bertrand and Sendhil 

Mullainathan, Are CEOs Rewarded for Luck? The 

Ones Without Principals Are, 116 Quarterly Journal 

of Economics 901–33 (2001); Lucian A. Bebchuk, 

Yaniv Grimstein, and Urs Peyer, Lucky CEOs and 

Lucky Directors, 65 Journal of Finance 2363–2401 

(2010); James A. Brickley, Ronald Lease, and 

Clifford Smith, Ownership Structure and Voting on 

Antitakeover Amendments, 20 Journal of Financial 

Economics 267–91 (1988); Anil Shivdasani, Board 

Composition, Ownership Structure, and Hostile 

Takeovers, 16 Journal of Accounting and Economics 

167–198 (1993). 

237See Lucian Bebchuk, Alma Cohen, and Allen 

Ferrell, What Matters in Corporate Governance? 

22.2 The Review of Financial Studies 783–827 

(2009) (finding that management entrenchment 

level is ‘‘monotonically associated with 

economically significant reductions in firm 

valuation as well as large negative abnormal returns 

during the 1990–2003 period’’). For more 

discussion on managerial entrenchment and the 

costs, see Andrei Shleifer and Robert W. Vishny, 

Management entrenchment: The case of managerspecific investments, 25.1 Journal of Financial 

Economics 123–139 (1989). 

238Other subsets of Schedule 13D filers include, 

for example, mutual funds, pension funds, 

investment advisers, private individuals and public 

companies. 

239See Alon Brav, Wei Jiang, and S. Kim, The 

Real Effects of Hedge Fund Activism: Productivity, 

Asset Allocation, and Labor Outcomes, 28.10 The 

Review of Financial Studies 2723–2769 (2015). 

of low-threshold (10%–15%) poison 

pills has increased, such poison pills 

have been scrutinized by courts, 

academia and industry. Issuers’ ability 

to adopt poison pill plans with low 

triggering thresholds is limited by the 

requirements of state law, with courts in 

Delaware and other jurisdictions 

scrutinizing poison pill plans under 

heightened judicial standards and at 

least one court expressing skepticism of 

a poison pill plan that had a 5% 

triggering threshold.225 In addition, as 

discussed above, legal scholars have 

expressed concern that these pills are 

too restrictive and could negatively 

affect activist investors’ profits and 

incentives and thereby activism.226

Kahan and Rock (2019) have stated that 

pills with a threshold of 10% or 15% 

should be permitted depending on the 

context, and that pills with a threshold 

of less than 10% and pills with a ‘‘wolfpack’’ trigger should be regarded as 

presumptively invalid, because the 

latter pills are ‘‘not a reasonable 

response to any cognizable threat and 

impose excessive restrictions on the 

ability of an activist to conduct a 

credible contest and communicate with 

other shareholders.’’ 227 And the longstanding guidance of the proxy advisory 

firm Institutional Shareholder Services 

is that the ownership trigger cannot be 

so low as to be unduly restrictive and 

recommending that defensive pills 

generally should have a trigger no lower 

than 20%.228 Pills with 5% triggers are 

extremely rare in practice.229

Second, the median reported 

ownership on initial Schedule 13D 

filings are much lower than the 

historically conventional triggers of 

about 20%, or recent precedents which 

tended to cluster in the 10%–15% 

range.230 As discussed above, our 

preliminary analysis of 2020 filings 

show that the median reported 

accumulation was 8.4% for all initial 

Schedule 13D filers. According to Barry, 

Brav and Jiang (2020), the median 

reported ownership was 6.3% in their 

sample of hedge fund filers.231 Because 

blockholders could potentially 

accumulate fewer shares under the 

shortened reporting deadline, the 

reported ownership on initial Schedule 

13D filings may be even lower than the 

prevalent poison pill triggers, and 

therefore unlikely to trigger lowthreshold poison pills.232

Moreover, the length of the reporting 

period is not likely to affect the ability 

of issuers to adopt poison pill plans 

quickly. For example, issuers today 

already have the ability to implement a 

poison pill plan quickly by having a 

‘‘shelf’’ poison pill plan that could be 

implemented by the issuer’s board as 

soon as 24 hours after the Schedule 13D 

filing is made.233 This would remain 

true even if we reduce the Schedule 13D 

deadline from 10 days to five days. 

Inhibiting Shareholder Activism 

Shortening the deadline may reduce 

blockholders’ profits from stock price 

increases attributable to corporate 

governance improvements, and, as a 

result, reduce incentives for them to 

seek influence or a change in control. 

Blockholders have to expend resources 

to succeed in their bids to replace or 

influence inefficient management. They 

bear the costs for such initiatives, but 

share the improvement in corporate 

efficiency and security prices with other 

investors of the issuer upon the 

disclosure.234 By shortening the initial 

Schedule 13D filing deadline, the 

proposed amendments would reduce 

opportunities for blockholders to profit 

from their research and time 

investments that motivate large share 

accumulations, which could be used to 

acquire more shares at lower prices, 

selectively inform other investors to 

acquire shares or for other purposes. 

This inability to benefit from the 

observable increase in stock price after 

the announcement of the presence of an 

activist may reduce their incentive to 

initiate the change. A five-day deadline 

would nonetheless still allow 

blockholders to profit from their 

additional information, as contrasted, 

for example, with the original Williams 

Act amendment requiring prior 

notification.235

In addition to blockholders, the 

proposed change could also be costly for 

general shareholders of companies that 

are potential targets of activist 

blockholders. There is evidence from 

the academic literature that the presence 

of blockholders is associated with 

improved outcomes for shareholders.236

If blockholders are disincentivized from 

seeking corporate control, it is possible 

that value-increasing corporate changes 

that could happen otherwise might not 

take place.237 The finance literature 

indicates that companies targeted by 

activist hedge funds, which are a subset 

of all blockholders filing Schedule 

13D,238 tend to improve productivity 

without increases in wages.239 Activists 


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240See, e.g., Nikolay Gantchev, Oleg Gredil, and 

Chotibhak Jotikasthira, Governance under the Gun: 

Spillover Effects of Hedge Fund Activism, The 

Review of Finance 1031–1068 (2018). 

241See, e.g., Alex Edmans, Vivian W. Fang and 

Emanuel Zur, The Effect of Liquidity on 

Governance, 26.6 The Review of Financial Studies 

1443–1482 (2013); Christopher Clifford and Laura 

Lindsey, Blockholder Heterogeneity, CEO 

Compensation, and Firm Performance, 51.5 The 

Journal of Financial and Quantitative Analysis 

1491–1520 (2016); Brav, Jiang, and Li, (2021), supra 

note 215. 

242See Brav et al. (2008), supra note 215. 

243See Barry, Brav and Jiang (2020), supra note 

217 (studying hedge fund activism events over the 

period 1994–2016). 

244 Id. at 12. 

245The 95th percentile of share accumulation 

reported in Barry et al. (2020) is approximately 

20.5%. Brav et al (2021), in describing trends in 

activism, note an increased importance of hedge 

fund activism, characterized by lower stakes than 

those acquired by ‘‘corporate raiders’’ who sought 

direct control in the 1980s. See Brav, Jiang, and Li 

(2021), supra note 215. 

246See Brav, Jiang, and Li (2021), supra note 215. 

247 It is possible that larger shareholders are more 

likely to be able to accumulate target amounts at 

faster speeds. The speed of accumulation could also 

depend on the size and liquidity of the target issuer. 

Therefore, the proposed amendments could affect 

smaller blockholders, or blockholders who are 

trying to acquire shares in less liquid firms, more 

than others. 

248See Andrei Shleifer and Robert W. Vishny, 

Takeovers in the ’60s and the ’80s: Evidence and 

Implications, Strategic management journal 12.S2 

(1991): 51–59 (‘‘The American economy has 

experienced two large takeover waves in the 

postwar period: one in the 1960s and one in the 

1980s. Both waves had a profound impact on the 

structure of corporate America. The dominant trend 

in the ’60s was diversification and conglomeration. 

The ’80s takeovers, in contrast, reversed this 

process and brought American corporations back to 

greater specialization.’’). 

249See Coffee and Palia (2016), supra note 19, at 

596 (‘‘To sum up, the arguments against ‘closing the 

window’ work only if one assumes both that 

activists are the hero of the story and that they 

generate value for all shareholders. Neither 

assumption seems sound, at least without 

substantial qualification. Nor does the fear that 

closing the window will chill activism sound 

convincing. Activists are reaping record returns at 

present; the number of such campaigns is 

accelerating, and fears for their future seem 

premature.’’). 

250See Coffee and Palia (2016), supra note 19, at 

592 (‘‘[A]ctivists do not always need to have a 

superior strategy; indeed, some may seek to launch 

an activist campaign largely to roil the waters on 

the premise that noisy activism will be read by the 

market as signaling a possible takeover or 

restructuring. Even when the proposed change is 

flawed, those who purchase shares in the target firm 

before the filing of a Schedule 13D and exit at an 

early point will likely profit handsomely.’’), and at 

593 (‘‘If management is in fact motivated today to 

maximize the firm’s stock price, attempts to limit 

management’s discretion through sudden and 

concealed activist campaigns would not necessarily 

lead to optimal outcomes. Also, because 

management generally has better information than 

outsiders—coupled with a strong incentive to 

maximize the firm’s stock price—one can no longer 

begin from the premise that investment projects 

favored by management are the product of an 

also tend to relocate underused assets to 

more productive uses. Additionally, 

studies show that the mere threat of 

activism incentivizes potential targets to 

increase payouts to shareholders and 

reduce investment in the long term, as 

well as improve operating 

performance.240

While we recognize that a shortened 

initial Schedule 13D filing deadline 

might have the potential to inhibit 

shareholder activism through reduced 

incentives, there are several reasons to 

expect that this effect, including its 

impact on corporate control, would be 

limited. First, academic research has 

shown that the presence of activist 

blockholders in a company is driven by 

many factors, including the company’s 

size, the extent to which the company 

is undervalued, the liquidity of its stock, 

its leverage and the ownership stake of 

its officers and directors, among 

others.241 Thus, it is reasonable to 

expect that some of these factors may 

play a more important role in a 

blockholder’s decision to take a stake in 

a company compared with the ability to 

obtain a large block undetected, or to 

receive compensation in the form of 

inside knowledge. For example, how 

undervalued the stock of the company 

is, or the size of the company, may 

determine the willingness of a 

blockholder to obtain a stake in the 

company. 

Second, even with a shortened filing 

deadline, as proposed, blockholders still 

stand to gain based on their information 

on the day of the filing, as well as on 

additional information they have 

regarding their plans to acquire more 

shares. As discussed above, Brav et al. 

(2008) show that the filing day and the 

following day see an abnormal return 

about 2.0%, and that return continues 

trending up to a total of 7.2% in 20 

days.242 Brav et al. (2008) also suggest 

that hedge funds adopt different 

strategies regarding announcing their 

activist intent. While some launch 

aggressive activism only after they have 

filed a Schedule 13D, some hedge funds 

file a Schedule 13D after publicly 

announcing their activist intent. These 

varying practices further indicate that 

the gains from share accumulation prior 

to Schedule 13D filings is not the only 

way for blockholders to profit or 

succeed in their activism. 

Third, based on the statistics shown 

in academic research, the negative 

impact from the proposed amendments 

might not be as severe as some have 

suggested. For example, according to 

Barry et al. (2020), approximately 28% 

of their sample of activist hedge funds 

filed an initial Schedule 13D within five 

days after crossing the 5% threshold.243

Additionally, their subsample analysis 

shows that the activist hedge funds that 

filed with 0–1 days and 2–4 days after 

crossing 5% threshold reported on 

average 9.6% and 9.7% ownership, both 

of which are actually slightly higher 

than the overall average of 9.2% across 

all activist hedge fund filings.244 Even 

for funds that accumulate large 

percentage ownership before filing, their 

ownership percentages do not differ by 

much at the time of the filing. For 

example, the 95% percentile of activist 

hedge funds that file within 0–1 days 

after crossing 5% threshold accumulate 

20.5% ownership, which is the same as 

those that file within 8–10 days after 

crossing the threshold. These statistics 

from the study suggest that a non-trivial 

number of blockholders are already 

voluntarily filing their initial Schedule 

13D in what would be a timely manner 

under our proposed amendments, and 

the percent ownership they are able to 

accumulate is comparable to those who 

disclose later. These statistics suggest 

that it may be possible to obtain target 

percentages within the proposed filing 

deadline.245 In addition, academic 

literature suggests that, unlike the 

‘‘corporate raiders’’ of the 1980s who 

sought direct control, today’s 

blockholders’ aim is to ‘‘influence’’ 

corporate policies and governance, 

which requires lower levels of 

ownership.246 Namely, it seems possible 

for blockholders to adapt to the 

proposed deadline, albeit at a higher 

cost for some.247 Although the 

circumstances were not identical, 

lowering the statutory reporting 

threshold from 10% to 5% in 1970 did 

not appear to inhibit the increase in 

hostile takeovers and issuer deployment 

of corresponding defensive measures in 

the following decades—indeed, 

corporate America experienced a 

takeover wave in the 1980s.248

Fourth, regarding a shorter reporting 

window’s effects on shareholder 

activism, some scholars contend that the 

concerns discussed above are 

overstated, because a shorter reporting 

window may negatively affect shortterm oriented activism more than the 

long-term oriented activism. Short-term 

oriented activism could be suboptimal 

for long-term shareholders, and 

therefore the shortened deadline might 

provide some benefit or incur less costs 

to long-term shareholders by 

encouraging more long-term focused 

activism.249 Specifically, these scholars 

assert that blockholders do not always 

have a superior strategy—sometimes 

these investors could be short-term 

focused, and incumbent management 

does not necessarily embody 

entrenchment.250 They argue that 


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inefficient preference for ‘empire-building.’ If that 

premise was justified in its time that time is now 

past.’’). 251 Id. at 594. 252See Coffee and Palia (2016), supra notes 249 

and 250. 

253See supra note 215. 

254See infra notes 255–257 for academic 

literature; see also Final Rule: Shareholder Reports 

and Quarterly Portfolio Disclosure of Registered 

Management Investment Companies, 17 CFR parts 

210, 239, 249, 270, and 274, Release Nos. 33–8393; 

34–49333; IC–26372; File No. S7–51–02 [69 FR 

11244 (March 9, 2004)], available at https://

www.sec.gov/rules/final/33-8393.htm#IIB4. 

Notably, the Commission decided to adopt the 

quarterly disclosure requirement with a 60-day 

delay as opposed to the 45-day delay or monthly 

reporting as some had suggested, citing the 

concerns that ‘‘more frequent portfolio holdings 

disclosure and/or a shorter delay for release of this 

information may expand the opportunities for 

predatory trading practices that harm fund 

shareholders.’’ 

255See Russ Wermers, The Potential Effects of 

More Frequent Portfolio Disclosure on Mutual Fund 

Performance, 7.3 Perspective 1–11 (2001). 

256 Id.; see also Mary Margaret Frank, James M. 

Poterba, Douglas A. Shackelford, and John B. 

Shoven, Copycat Funds: Information Disclosure 

Regulation and the Returns to Active Management 

in the Mutual Fund Industry, 47.2 The Journal of 

Law and Economics 515–541 (2004) (‘‘[W]hile these 

actively managed funds earned higher returns 

before expenses than their associated copycat 

funds, after expenses copycat funds earned 

statistically indistinguishable, and possibly higher, 

returns.’’); Vikas Agarwal, Kevin A. Mullally, 

Yuehua Tang, and Baozhong Yang, Mandatory 

Portfolio Disclosure, Stock liquidity, and Mutual 

Fund Performance, 70.6 The Journal of Finance 

2733–76 (2015) (finding that more informed mutual 

funds, especially those holding stocks with greater 

information asymmetry, experience greater 

performance deterioration after the Commission 

increased mutual fund periodical filing from semiannual to quarterly in 2004). 

shortening the reporting window would 

not necessarily disincentivize 

shareholder activism per se—while it 

might disincentivize short-term focused 

shareholder activism because 

blockholders could experience reduced 

profit in the short-term, it should matter 

less to blockholders who truly believe 

they could improve the firm value in the 

long-term. Shortening the initial 

Schedule 13D reporting window has 

thus been recommended as an approach 

to encourage longer-term holdings and 

deter short-term activists without 

necessarily insulating managements 

from shareholder accountability.251

Therefore, from this viewpoint, to the 

extent that the proposed amendments 

could encourage blockholders to focus 

on long-term value creation, they could 

improve corporate control.252 We note 

that while the literature shows that a 

price increase in a window around a 

Schedule 13D reporting event does not 

reverse in the long term, providing 

evidence opposite to this view,253 the 

determination of long-term returns (e.g., 

over a year or more after the Schedule 

13D filing), and whether there is indeed 

an increase in value in the long term 

that can be attributed to a particular 

filing, is inherently more complicated. 

Shortening the initial Schedule 13D 

filing deadline could also increase 

compliance costs for beneficial owners 

who have an obligation to file an initial 

Schedule 13D. These beneficial owners 

could incur a one-time cost to update 

their information technology system to 

monitor the share accumulations and 

generate alerts and reports in time to 

accommodate the rule change. They 

may also need to allocate more 

resources on an ongoing basis to 

monitor their holdings so that they can 

meet their obligation to file an initial 

Schedule 13D. These compliance costs 

could be significant for certain filers 

(e.g., those whose share accumulations 

need to be aggregated across different 

time zones or jurisdictions). 

We believe the proposed amendment 

to Rule 13(a)(4) of Regulation S–T, 

which would extend the Schedule 13D 

and 13G filing ‘‘cut-off’’ time from 5:30 

p.m. to 10 p.m., should mitigate the 

additional compliance costs for 

Schedule 13D filers resulting from the 

proposed amendments to Rules 13d– 

1(a), (e), (f), and (g). We do not think the 

proposed amendment to Rule 201(a) of 

Regulation S–T would have any 

significant cost or benefit. While the 

proposed amendment would make 

temporary hardship exemptions 

unavailable to filers of Schedules 13D 

and 13G, as discussed in Section 

II.A.6.b., the proposed treatment is 

consistent our treatment of Forms 3, 4 

and 5, and the proposed amendments to 

Rule 13(a)(4) should avoid the need for 

such hardship exemptions. 

Finally, we note that the compliance 

costs and mitigating factors discussed 

above also would apply to our proposed 

amendments to Rule 13d–2(a) that 

would shorten the filing deadline for 

Schedule 13D amendments. 

ii. Schedule 13G Filing Deadlines 

Accelerated Schedule 13G filings (for 

both initial filings and amendments) 

under our proposed amendments to 

Rules 13d–1(b), (c), and (d) and Rules 

13d–2(b), (c), and (d) could potentially 

impose costs on filers. These costs may 

appear to be significant for QIIs because 

the proposed amendments to Rules 

13d–1(b) and 13d–2(b) and (c) would 

significantly shorten the filing deadlines 

for these holders and potentially 

increase their filing frequency. Under 

the proposed amendments to Rules 

13d–1(b) and 13d–2(b), QIIs would be 

required to file an initial and amended 

Schedule 13G, respectively, no more 

than five business days after the end of 

the month in which their beneficial 

ownership exceeds 5% of a covered 

class or a material change occurs. This 

deadline is significantly shorter than the 

current deadline of 45 days after the end 

of the calendar year for both an initial 

and amended Schedule 13G filing. In 

addition, under the proposed 

amendments to Rule 13d–2(c), QIIs 

would be required to file an amendment 

to their Schedule 13G within five days 

after the date on which their beneficial 

ownership exceeds 10% of a covered 

class, or increases or decreases by more 

than 5% of the covered class once 

across the 10% threshold, rather than 

the current requirement of 10 days after 

the end of the relevant month. 

While shortening the filing deadlines 

could improve the timeliness of 

Schedule 13G reporting and market 

efficiency, it could also negatively 

impact some filers, particularly some 

QIIs (e.g., mutual funds or hedge funds). 

The existing academic literature 

identifies free riding and front running 

as explanations for why more timely 

disclosure would negatively impact 

fund performance, and provides 

evidence that mutual funds experienced 

reduced returns after the Commission 

required more frequent portfolio 

disclosure.254 The finding of a reduction 

in returns may be attributable to several 

factors, according to the literature. First, 

more timely filings may reveal a fund’s 

proprietary information or trading 

strategies to other market participants, 

thus allowing those participants to free 

ride by copying the fund’s strategies 

without incurring a cost to research, 

identify and devise profitable 

strategies.255 Funds typically need to 

expend considerable resources to 

research and identify promising 

investments, and profits from the 

research take time to accrue. For 

example, it is estimated that it could 

take 12 to 18 months for mutual funds 

to profit after the date a newly acquired 

stock is first added to a fund’s portfolio. 

Therefore, more timely disclosure 

would provide free-riding opportunities 

for other investors to mimic or reverse 

engineer a fund’s strategy, which could 

ultimately diminish a fund’s return.256

Second, more timely disclosure could 

increase the risk that funds would be 

front run by outside investors. 

Specifically, more timely disclosure 

could potentially allow professional 

investors to better understand a fund’s 

strategies and anticipate trades of the 

fund. Therefore, those professional 

investors may attempt to trade ahead of 

the funds to capture the temporary 


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257See Wermers (2001), supra note 255; see also 

Sophie Shive, and Hayong Yun, Are Mutual Funds 

Sitting Ducks? 107.1 Journal of Financial Economics 

220–237 (2013) (providing evidence on front 

running behavior by showing that hedge funds 

trade on expected mutual fund flows, and showing 

that this type of anticipatory trading is stronger after 

2004 when quarterly portfolio disclosure was 

required of mutual funds). 

impact on prices of traded securities.257

As a result, funds could see an increase 

in trading costs and a decrease in 

returns. 

While most of the literature focuses 

on mutual fund portfolio disclosure 

when discussing the tradeoff between 

timely reporting and fund performance, 

we believe the tradeoff between timely 

reporting and fund performance can be 

applied to the Schedule 13G reporting 

by QIIs. The proposed amendment to 

the initial Schedule 13G deadline 

(shortening the deadline to five business 

days after the end of the applicable 

month) would be a significant change 

for QIIs considering both the current 

deadline (45 days after the applicable 

calendar year) and the filing 

requirements for other forms that QIIs 

generally file (including the 60-day 

deadline for Form N–Q as discussed 

above, and the 45-day deadline for Form 

13F). The accelerated deadline under 

the proposed amendments could reveal 

valuable information about a fund’s 

investment strategies, facilitate free 

riding and front running behaviors, and 

therefore potentially reduce a fund’s 

returns and harm fund shareholders. In 

the long run, the proposed accelerated 

disclosure requirements could reduce 

incentives for funds to collect and 

process information, leading to market 

inefficiency. 

We recognize that the proposed 

accelerated filing requirements could 

potentially increase the risks of free 

riding or front running for certain 

Schedule 13G filers. However, we also 

note that Schedule 13G filings are 

different from portfolio disclosures such 

as Form N–Q or Form 13F. Schedule 

13G filings do not have a set frequency 

and do not require a disclosure of a 

fund’s entire portfolio. Thus, these 

filings are unlikely to provide 

information with the level of precision 

and predictability needed for free riding 

or front running purposes. Therefore, 

we believe the risks of increased free 

riding and front running as a result of 

the proposed amendments are likely to 

be low. 

Shortening Schedule 13G filing 

deadlines could also generate 

compliance costs for filers. QIIs may 

incur a one-time cost to update their 

information technology systems to 

monitor share accumulations and 

generate alerts and reports in time to 

accommodate the rule change. They 

may also need to allocate more 

resources on an ongoing basis to 

monitor material changes so they can 

meet their obligations to file 

amendments to Schedule 13G. However, 

as mentioned in Section II.A.3.b., 

because these holders with reporting 

obligations typically have compliance 

systems to monitor Schedule 13G filing 

obligations on at least a monthly basis 

(e.g., in case their holdings exceed more 

than 10% at the end of the month), the 

ongoing cost could be mitigated. 

Overall, we believe the compliance 

costs to QIIs should be minor. 

For Passive Investors, the filing 

deadline for an initial Schedule 13G 

would be shortened from 10 days to five 

days under the proposed amendment to 

Rule 13d–1(c). The proposed 

amendment to Rule 13d–2(b) would 

accelerate the filing deadline for 

Schedule 13G amendments from the 

current standard of 45 days after the end 

of the calendar year to within five 

business days of the end of the month 

in which a material change occurs. In 

addition, the proposed amendment to 

Rule 13d–2(d) would change the 

Schedule 13G amendment deadline for 

Passive Investors from the current 

‘‘promptly’’ standard to five days after 

the date on which their beneficial 

ownership exceeds 10% of a covered 

class, or increases or decreases by more 

than 5% once across the 10% threshold. 

Similar to QIIs, Passive Investors may 

incur a one-time cost to update their 

information technology systems to 

monitor share accumulations in order to 

accommodate the rule change. They 

may also need to allocate more 

resources to monitor material changes 

on an ongoing basis so they can meet 

their obligations to file amendments to 

Schedule 13G in a more timely manner. 

Exempt Investors would be required 

to file an initial and amended Schedule 

13G no more than five business days 

after the end of the month in which 

their beneficial ownership exceeds 5% 

or a material change occurs under the 

proposed amendments to Rules 13d– 

1(d) and 13d–2(b), as compared to the 

current deadlines of 45 days after the 

end of calendar year for both initial and 

amended Schedule 13G filings. As a 

result, Exempt Investors may also incur 

one-time and continuing compliance 

costs as a result of the proposed 

amendments. 

Passive Investors and Exempt 

Investors should not incur the economic 

costs associated with the risk of freeriding and front-running that QIIs 

would, because they do not actively 

manage their portfolios like QIIs do. 

However, the compliance costs to 

Passive Investors and Exempt Investors 

may be relatively higher than those to 

QIIs. Specifically, neither Passive 

Investors nor Exempt Investors 

currently need to monitor their 

beneficial ownership levels on a 

monthly basis as QIIs do to determine 

whether their holdings exceed more 

than 10% at the end of the month and 

trigger an initial Schedule 13G filing 

pursuant to Rule 13d–1(b)(2). 

For all Schedule 13G filers, an 

increase in compliance costs may 

reduce their incentive to invest in 

smaller public companies, where equity 

holdings could more easily cross the 5% 

threshold. This could ultimately reduce 

the liquidity of these issuers’ equity 

securities and potentially their 

incentives to be listed on an exchange. 

We are unable to quantify the 

potential increase in costs related to the 

proposed shortened Schedule 13D and 

13G filing deadlines due to the lack of 

data. For example, we lack data to 

estimate how the proposed amendments 

would affect blockholders’ ability to 

initiate corporate change because such 

ability would depend on their target 

share accumulation level, the liquidity 

of their target stocks and their 

acquisition plans. Regarding Schedule 

13G filings, the potential increase in 

costs would depend on a filer’s 

investment strategy and frequency of 

disclosure after the rule change. Because 

we do not have all the inputs for these 

variables, we cannot provide a 

reasonable estimate for these costs. 

2. Proposed Amendment to Rule 13d–3 

a. Benefits 

The proposed amendment to Rule 

13d–3 would deem holders of certain 

cash-settled derivative securities as 

beneficial owners of the reference 

securities in a covered class. Overall, we 

believe this proposed amendment could 

improve transparency, promote market 

stability and ultimately enhance 

investor protection. 

First, the proposed amendment could 

benefit investors and other market 

participants by providing improved 

transparency regarding persons with 

significant economic interests in an 

issuer’s equity securities and potential 

control intent. Under current Rule 13d– 

3, it is possible for holders of cashsettled derivative securities to acquire 

economic exposure to substantial blocks 

of securities without public disclosure 

because those instruments generally do 

not convey voting or investment power 

over the reference equity security. 

However, academic literature has raised 

concern over the ‘‘hidden ownership’’ 


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258See Henry T.C. Hu, and Bernard Black, Hedge 

Funds, Insiders, and the Decoupling of Economic 

and Voting Ownership: Empty Voting and Hidden 

(Morphable) Ownership, 13.2–3 Journal of 

Corporate Finance 343–367 (2007); see also PierreHenri Conac, Cash-Settled Derivatives as a 

Takeover Instrument and the Reform of the EU 

Transparency Directive, in The European Financial 

Market in Transition 49–68 (2011). 

259See, e.g., Pierre-Henri Conac (2011), at 51 

(stating ‘‘[a]lthough it seems that CSDs [cash-settled 

derivatives] are not equivalent for the investor to 

holding the shares, the reality can be quite different. 

The reason is that banks do not want to face the 

risk that the price of the share increases and they 

have to pay the difference. Therefore, in order to 

hedge their risk, they usually purchase the 

underlying shares relating to the CSDs. At the end 

of the contract, the banks will normally sell their 

shares in the market in order to pay to the investor 

the difference with the price at the beginning of the 

contract. Even if the bank does not do so, it will 

not keep the shares once the contract terminates 

since it usually has no use of the shares. This is 

especially the case if the CSDs relate to a large 

number of shares, unless the bank is interested in 

keeping an exposure to this company which is 

usually not the case. Then, nothing prevents the 

investor from purchasing the shares that the bank 

is selling in the open market. Alternatively, the 

investor and the bank can decide before the end of 

the contract to modify it in order that the contract 

will not be settled in cash but will be settled 

physically by delivery of the underlying shares. 

Therefore, if the bank holds the shares in order to 

hedge its risk, the investor is during the life of the 

CSD a quasi-shareholder, except that subject to the 

contractual agreement, he usually does not control 

the voting rights attached to the shares held by the 

bank.’’); see also Eugenio de Nardis, and Matteo 

Tonello, Know your shareholders: the use of cashsettled equity derivatives to hide corporate 

ownership interests, Conference Board Director 

Notes No. DN–009, 2010 (stating ‘‘The derivatives 

dealer (i.e., the short party in the derivatives 

transaction) often holds the underlying securities as 

a hedge against its short position. Especially in 

those cases where the equity swap involves a 

substantial amount of shares of a single company, 

hedging with matched shares may be the only 

commercially sound choice for the dealer, as 

alternative hedging strategies are likely to be 

limited and more expensive.’’). 260See Henry T.C. Hu and Bernard Black (2007), 

supra note 258 (stating that in the U.K., it is 

‘‘frequently the expectation’’ of a long equity swap 

holder that the dealer would ‘‘ensure’’ that shares 

are available to be voted by its customer or sold to 

the customer on closing out the swap). But see 

Marcel Kahan and Edward Rock, Anti-Activist 

Poison Pills, 99 B.U. L. Rev. 915, 948–953 (2019) 

(taking a different view regarding cash-settled 

derivative securities’ effectiveness in achieving 

activists’ objectives in the context of poison pills 

and arguing that synthetic equity confers no voting 

rights, and hence poses no threats that should be 

counted toward a poison pill triggering threshold). 

261See, e.g., The Case of Volkswagen, The Hedge 

Fund Journal, Nov. 2008 (available at https://

thehedgefundjournal.com/the-case-of-volkswagen/). 

While most of the examples referenced in this 

discussion involve European transactions or cashsettled security-based-swaps (which are excluded 

from the proposed amendments), the underlying 

mechanism for exercising influence over the voting, 

acquisition or disposition of reference securities is 

the same as for other cash-settled derivative 

securities. See also supra Section II.B.1 and note 88. 

262See Wachtell Petition, supra note 16. 

263See Marcel Kahan and Edward Rock (2019), 

supra note 260, at 950 (‘‘While synthetic equity 

entails no voting rights, it enables an activist 

shareholder to increase its economic stake and 

confers some credibility upon the activist with 

other shareholders (albeit presumably less than 

actual share ownership).’’). 

264See supra Section III.C.1.A.i. 

through cash-settled equity-based 

derivatives, because in many cases, 

holders of such derivative securities 

may have the de facto ability to procure 

votes quickly when needed.258

According to these studies, 

counterparties to these derivative 

contracts commonly hedge their risks by 

purchasing the reference shares related 

to these contracts and, at the end of the 

contract when those share are no longer 

needed, sell the shares to reduce their 

exposure.259 It is convenient, and 

sometimes even expected (e.g., in the 

U.K.), for counterparties to sell these 

shares back to their customers, the 

holders of the cash-settled derivative 

securities.260 Alternatively, the holder 

of the derivative security and the 

counterparty can always try to modify 

the terms of a derivative security to 

settle the contract by transferring the 

reference securities instead of cash. 

Therefore, cash-settled derivative 

securities could ultimately be settled in 

kind. This optionality allows holders of 

the derivatives to have the ability to 

influence or control an issuer without 

triggering public disclosure. Indeed, 

there have been takeover attempts using 

this de facto ability to quickly acquire 

shares.261

Holders of cash-settled derivative 

securities could also influence or 

control an issuer in other ways. For 

example, they might try to influence the 

counterparties to vote any hedged 

shares according to their desire. 

Additionally, any shares used in a 

hedge would be eliminated from the 

universe of voting shares as a result of 

the derivative contract, altering the 

balance of the voting power.262 Of 

course, there is no guaranteed success 

through these approaches. However, 

significant economic interest could 

confer some credibility upon the activist 

with other shareholders,263 which could 

increase the likelihood of success. 

Section 13(d) requires public 

disclosure of the rapid accumulation of 

sizable positions linked to equity 

ownership by investors with potential 

control intent. As discussed above, 

information related to a potential 

change in corporate control is material 

to the market, and withholding the 

information could lead to information 

asymmetry and mispricing in the 

market.264 Therefore, by expanding the 

scope of beneficial ownership to include 

certain holders of cash-settled derivative 

securities, the proposed amendments 

would address concerns regarding large 

shareholders using ‘‘hidden ownership’’ 

to avoid their reporting obligations. 

Treating such holders as beneficial 

owners also would reduce information 

asymmetries and enhance investor 

protection. Greater transparency would 

allow investors to make more informed 

investment decisions and help other 

market participants to better evaluate 

securities. 

Enhanced disclosure could also 

promote market stability. Rapid 

accumulation of large equity positions 

could impact the liquidity of a covered 

class, and the lack of disclosure could 

prevent the market from incorporating 

that liquidity risk into the pricing for 

the security. Therefore, an unwinding of 

the positions could lead to excessive 

volatility and adversely impact the stock 

price of an issuer. 

b. Costs 

Deeming certain holders of cashsettled derivative securities to be a 

beneficial owner may result in new 

entrants to the Sections 13(d), 13(g), and 

16 reporting systems, and thus generate 

increased costs for those who previously 

were not subject to these regulations. 

These persons may incur more 

extensive and ongoing compliance costs 

due to their reporting obligations under 

these provisions. For example, as 

discussed in Section II.B.2., a person 

who holds a derivative security with 

variable delta would need to calculate 

the delta on a daily basis, for purposes 

of determining the number of equity 

securities that such person will be 

deemed to beneficially own. In addition, 

persons who would become ten percent 

holders as a result of proposed Rule 

13d–3(e) would be subject to Section 

16(b)’s short-swing profit liability and 

Section 16(c)’s short sale prohibitions. 

The proposed amendment could also 

potentially reduce the incentive to use 

cash-settled derivatives for hedging 

purposes, especially when hedging large 

positions. The financial institutions that 

serve as counterparties to cash-settled 

derivatives could be negatively affected 

because the reduced use of cash-settled 

derivatives could result in loss in 

revenue. However, we believe the 

impact on hedging incentives should be 

limited. If holders of derivative 

securities have an economic reason to 

use derivative securities to limit their 

market risk exposure, the potential 

compliance costs should be small 

compared to the downside of not using 

them. In addition, we are proposing 

Rule 13d–6(d) to provide that two or 

more persons will not be deemed to 

have formed a group under Section 

13(d)(3) or 13(g)(3) solely by virtue of 

their entrance into an agreement 

governing the terms of a derivative 


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265See supra Section II.C. 

266See, e.g., Carmen X.W. Lu, Unpacking Wolf 

Packs, 125 Yale L.J. 773, 775–76, 777 (2016) 

(observing that wolf packs, which may not be 

deemed groups by some courts despite ‘‘empirical 

and anecdotal evidence of coordination’’ if there is 

not ‘‘specific evidence of coordination,’’ are able to 

evade Section 13(d) reporting if, for instance, ‘‘each 

of the activist investors acquires less than a five 

percent stake in the target’’); see also John C. Coffee, 

Jr. and Darius Palia, supra notes 19 and 143. 

267See Michael C. Jensen, and William H. 

Meckling, Theory of the firm: Managerial behavior, 

agency costs and ownership structure, 3.4 Journal 

of financial economics 305–360 (1976). 

security. This proposed exemption 

seeks to avoid impediments to certain 

financial institutions’ ability to conduct 

their business in the ordinary course, 

which, we believe, could mitigate some 

of the costs imposed on financial 

institutions. 

We are unable to quantify these costs 

related to beneficial ownership 

disclosure, because we lack data on the 

current use of cash-settled derivative 

securities to provide reasonable 

estimates on how such use would 

change. 

3. Proposed Amendments to Rules 13d– 

5 and 13d–6 

a. Benefits 

The Commission is proposing a series 

of amendments to Rule 13d–5 to clarify 

and affirm its operation as applied to 

two or more persons who ‘‘act as’’ a 

group under Sections 13(d)(3) and (g)(3) 

of the Exchange Act.265 Current Rule 

13d–5(b) states that when two or more 

persons ‘‘agree to act together’’ for the 

purpose of acquiring, holding, voting or 

disposing of equity securities of an 

issuer, then the group that is formed has 

acquired beneficial ownership of the 

securities. The intent of the rule, 

together with Sections 13(d)(3) and 

(g)(3), is to prevent investors from 

coordinating to circumvent the 5% 

threshold in Sections 13(d) and (g). 

However, recent academic research has 

underscored concerns that groups of 

blockholders may work together to gain 

control of corporate boards without 

making appropriate disclosure.266

The proposed amendments would 

remove the potential for Rule 13d–5(b) 

to be construed as requiring that an 

express or implied agreement exists 

between two or more persons before a 

group can be formed. By clarifying and 

affirming that an express or implied 

agreement is not needed to subject a 

group to regulation under Section 13(d) 

or 13(g), the proposed amendments 

would avoid misinterpretation of the 

rule, help ensure that the law is applied 

as it was intended to be, and improve 

transparency. Investors and other 

market participants would benefit to the 

extent that they receive more timely 

disclosure to make more informed 

investment decisions or better evaluate 

securities as a result of the proposed 

amendments. 

b. Costs 

To the extent that blockholders 

misinterpreted Rule 13d–5 as requiring 

an express or implied agreement before 

they are required to report their 

collective holdings, these blockholders 

may incur a cost as a result of the 

proposed amendments. For example, 

blockholders seeking to coordinate with 

other investors for corporate influence 

or control might no longer be able to 

avoid reporting because there is no 

express or implied agreement among the 

members. These blockholders would 

thus incur additional compliance costs 

related to the filing of Schedule 13D. 

Considering that the proposed 

amendments would also shorten the 

filing deadlines for Schedule 13D, it 

could be particularly costly for members 

to keep track of the shares purchased as 

a group and coordinate among 

themselves in order to file on time. 

Additionally, such a group of 

blockholders, to the extent its beneficial 

ownership exceeded 10% of a covered 

class, would be deemed a ‘‘beneficial 

owner’’ as defined under Rule 16a– 

1(a)(1). Under our administration of 

Section 16, each group member would 

be considered a 10% holder subject to 

Sections 16(a), (b), and (c). Thus, such 

blockholders may incur additional 

compliance costs for their filing 

obligations under Section 16. 

Further, it could be more costly for 

blockholders to use group formation to 

influence or change corporate control, to 

the extent that they misinterpreted Rule 

13d–5 as requiring an express or 

implied agreement, because they would 

no longer be able to accumulate shares 

at a pre-disclosure price as they might 

have done under such a misimpression. 

As we have discussed in Section 

III.C.1.b., if earlier disclosure were 

made, stock prices would likely 

increase, and, therefore, blockholders 

would have to acquire shares at a higher 

price and the profit they would expect 

to receive would be reduced. As a 

result, it is possible that the proposed 

amendments could chill shareholder 

engagement. Reduced shareholder 

engagement may result in less 

monitoring of an issuer’s management 

by shareholders. Because of the 

principal-agent relationship between 

investors and management in a 

corporation, there may exist conflicts 

between management of the issuer and 

investors.267 Thus, less monitoring by 

investors as a result of reduced 

shareholder engagement could 

negatively affect firm value. However, 

we note that these are the costs 

blockholders or large shareholders 

should have incurred anyway when 

forming a group for purposes of Section 

13(d), and in this regard, the proposed 

amendments would not expand, but 

rather would clarify and affirm, the 

applicability of existing reporting 

obligations. 

Additionally, by removing any 

potential misimpression that an 

agreement must exist for determining 

whether a group is formed, the proposed 

amendments could potentially chill 

shareholder communications in general, 

as shareholders may be uncertain 

whether their coordination constitutes 

‘‘acting as’’ a group. As discussed in 

Section II.D.1., shareholders may choose 

to communicate with one another 

regarding an issuer’s performance or a 

certain policy matter, and they may take 

similar action with respect to the issuer 

or its securities, such as aligning their 

voting of shares at the issuer’s annual 

meeting with respect to one or more 

proposals. We recognize the potential 

risk of chilling such communications. 

We therefore are also proposing 

amendments to Rule 13d–6 to exempt 

certain actions taken by two or more 

persons from the scope of Sections 

13(d)(3) and 13(g)(3). In addition to 

proposed Rule 13d–6(d), which we 

discussed in Section III.C.2.b above, 

proposed Rule 13d–6(c) would provide 

that two or more persons will not be 

deemed to have acquired beneficial 

ownership of, or otherwise beneficially 

own, an issuer’s equity securities as a 

group solely because of their concerted 

actions related to an issuer or its equity 

securities, including engagement with 

one another or the issuer. This 

exemption would only be available if 

such persons, when taking such 

concerted actions, are not directly or 

indirectly obligated to take such actions 

and communications among or between 

such persons are not undertaken with 

the purpose or the effect of changing or 

influencing control of the issuer. This 

exemption would, therefore, exclude 

activity that is not contemplated within 

the purpose of Section 13(d). 

Additionally, to the extent beneficial 

owners qualify for and rely on the 

proposed exemptions in Rule 13d–6, 

those exemptions may offset any 

potential increase in the number of 

persons who become 10% holders as a 

result of our proposed amendments to 

Rule 13d–5. Thus, the proposed 


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exemptions in Rule 13d–6 may lower 

the potential compliance costs 

associated with filings under Section 16 

that are generated by the proposed 

amendments to Rule 13d–5. We believe 

the proposed exemption could alleviate 

the concern that the proposed 

amendments to Rule 13d–5 could chill 

communications among shareholders 

and shareholders’ engagement with 

issuers for reasons that do not implicate 

the purpose of Section 13(d). 

We are unable to quantify the costs of 

our amendments related to group 

formation. Because we lack data on how 

many groups may not be reporting 

beneficial ownership because of the 

misimpression that an agreement is 

required, we cannot provide reasonable 

estimates on how such reporting 

practices would change. 

4. Proposed Amendments to Item 6 of 

Schedule 13D 

Item 6 of Schedule 13D provides that 

beneficial owners must describe ‘‘any 

contracts, arrangements, understandings 

or relationships (legal or otherwise)’’ 

with respect to any securities of the 

issuer, and cash-settled derivative 

securities have not been expressly 

identified in the list of examples. The 

proposed amendment would make it 

explicit that cash-settled derivative 

securities (including cash-settled 

security-based swaps) that use the 

issuer’s securities as a reference security 

are included among the types of 

contracts, arrangements, understandings 

and relationships that must be 

disclosed. 

We believe the proposed amendment 

is consistent with the proposed 

amendment to Rule 13d–3 discussed in 

Section II.B. We also believe it is 

consistent with our goal of modernizing 

the beneficial ownership reporting 

requirements and improving their 

operation and efficacy. Given that the 

baseline disclosure requirement was set 

forth in 1968, and the derivative 

securities market has evolved 

significantly since then, investors would 

benefit if the language of the disclosure 

requirement reflects current market 

practice and the range of instruments 

that should be disclosed as 

contemplated by Section 13(d)(1)(E). By 

revising Item 6 to clarify what 

instruments are covered, the proposed 

amendments could improve compliance 

with Rules 13d–1(a) and 13d–101, and 

reduce potential ambiguity as well as 

litigation risk for filers. To the extent 

that the proposed amendment would 

enhance beneficial ownership reporting, 

investors and the market would benefit. 

However, filers could incur additional 

compliance costs, to the extent that they 

have not already been providing such 

disclosure. 

5. Proposed Structured Data 

Requirement for Schedules 13D and 13G 

The proposed amendments would 

require all disclosures reported on 

Schedules 13D and 13G other than the 

exhibits to be submitted using a 

structured, machine-readable data 

language—specifically, in 13D/Gspecific XML. Currently, Schedules 13D 

and 13G are submitted in HTML or 

ASCII, neither of which is a structured 

data language; as such, the disclosures 

currently reported on Schedules 13D 

and 13G are not machine-readable. This 

aspect of the proposed amendments is 

expected to benefit investors and 

markets by facilitating the use and 

analysis, both by the public and by the 

Commission, of the ownership 

disclosures reported by filing persons 

on Schedules 13D and 13G, compared to 

the current baseline. We expect this 

would improve the public 

dissemination and accessibility of 

material information about potential 

change of control transactions. 

We anticipate that the incremental 

costs associated with requiring reporting 

persons to submit the information 

disclosed on Schedules 13D and 13G in 

13D/G-specific XML, compared to the 

baseline of submitting the Schedules in 

in HTML or ASCII, would be relatively 

low. Because we would provide 

reporting persons with the option of 

using a fillable web form that converts 

inputted disclosures into 13D/G-specific 

XML, the proposed structuring 

requirement would not impose upon 

filers without structured data 

experience the implementation costs of 

establishing related compliance 

processes and expertise. Filers who 

choose to submit directly in 13D/Gspecific XML rather than use the web 

form may incur the aforementioned 

implementation costs, with costs 

varying based on their prior experience 

with encoding and transmitting 

structured disclosures. 

D. Anticipated Effects on Efficiency, 

Competition and Capital Formation 

We believe the proposed amendments 

together could have a positive effect on 

market efficiency, but there may be 

some offsetting effects as well. As 

discussed above, currently, large 

shareholders could use the 10-day 

window to accumulate a level of 

beneficial ownership far exceeding the 

5% threshold before reporting. They 

could seek to avoid the 5% reporting 

threshold through the use of cashsettled derivative securities or refrain 

from communicating or undertaking 

actions that could result in the 

formation of groups. By shortening 

Schedule 13D and 13G filing deadlines, 

expanding the scope of beneficial 

ownership to include holders of certain 

cash-settled derivative securities, and, 

clarifying and affirming that an actual 

agreement is not needed for the 

formation of a group, the proposed 

amendments could help ensure that 

large shareholders, including groups, 

comply with the reporting threshold, 

and therefore improve disclosure 

regarding material information related 

to potential changes of corporate 

control. More timely and enhanced 

disclosure would reduce information 

asymmetry and mispricing in the 

market, thereby improving liquidity and 

market efficiency. More efficient prices 

and more liquid markets help allocate 

capital to its most efficient uses. By 

making material information available 

to the public sooner, and reducing the 

differential access to information, the 

proposed amendments could increase 

public trust in markets, thereby aiding 

in capital formation. Finally, we believe 

that the proposed amendments could 

promote competition in that those who 

delay reporting would not have an 

advantage over similarly situated 

shareholders who report earlier. 

Furthermore, lowering information 

asymmetry could also increase 

competition among market participants. 

For example, if blockholders selectively 

reveal information, this gives some 

market participants advantages over 

others. 

On the other hand, we recognize that 

some aspect of the proposed 

amendments could increase the costs of 

accumulating large blocks of shares. If 

some investors choose not to trade when 

they otherwise might have, capital 

formation, and therefore market 

efficiency, could be harmed. However, 

this cost would be offset by increased 

liquidity that arises from reducing 

information asymmetry. 

Furthermore, because accumulating 

large blocks may be more expensive, 

investors may be less incentivized to do 

so. To the extent that large blocks aid in 

monitoring managerial behavior or 

facilitating changes in corporate control 

for inefficient management, capital 

formation could be adversely effected. 

By reducing the ability of blockholders 

to engage in ‘‘tipping,’’ enhanced 

disclosure also would lower private 

benefits from accumulating blocks, 

potentially reducing the incentives for 

blockholders to initiate corporate 

change. However, while rents to the 

business of initiating corporate change 

may fall, general access to information 


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would increase, offsetting the effects 

described. 

E. Reasonable Alternatives 

1. Alternative Filing Deadlines 

As an alternative to the proposed 

amendments, we considered alternative 

filing deadlines for an initial Schedule 

13D. For example, we considered filing 

deadlines that are longer than the 

proposed five days but shorter than the 

current 10-day deadline. These 

alternatives would reduce the 

compliance costs for filers, especially 

those with operations in different 

jurisdictions or time zones. They would 

also allow blockholders to accumulate 

more shares before making their filings, 

reducing the concern that the five-day 

deadline could discourage shareholder 

activism and encourage management 

entrenchment. However, these 

alternatives would result in less timely 

reporting, and be less beneficial to 

investors, other market participants and 

the overall efficiency of the market. We 

also considered filing deadlines that are 

shorter than the proposed five-day 

deadline. These alternative deadlines 

would provide more timely reporting to 

investors and market. However, they 

could have more negative effects on 

shareholder activism. 

We also considered shortening the 

deadline for QIIs to file an initial 

Schedule 13G to 45 days after the end 

of the quarter, instead of the proposed 

deadline of five business days after the 

end of the applicable month. This 

approach would be more in line with 

the current portfolio reporting 

requirement for institutional investors 

and mutual funds for Form 13F and 

Form N–Q, and could reduce the 

potential risk of free riding or front 

running as discussed in Section 

III.C.1.b.ii and the costs to QIIs as a 

result. On the other hand, similar to the 

alternative Schedule 13D deadline, this 

alternative Schedule 13G deadline 

would provide less timely disclosure 

compared to the proposed approach, 

and thus be of less benefit to investors 

and the market. 

2. Tiered Approach and Purchasing 

Moratorium 

We understand that certain persons 

who would be required to file a 

Schedule 13D under a shortened 

deadline could view an earlier deadline 

as a means of forfeiting a proprietary 

trading strategy or minimizing the 

opportunity to earn a return that is high 

enough to offset their research costs and 

litigation, reputational and investment 

risks. Rather than shortening the 

deadline in all instances, we also 

considered a tiered approach, such as 

maintaining the 10-day deadline for 

acquisitions of greater than 5% but no 

more than 10% while instituting a 

shorter deadline if beneficial ownership 

exceeds 10%. We also considered 

whether the deadline for the initial 

Schedule 13D filing should vary based 

on a particular characteristic of the 

issuer, such as its market capitalization 

or trading volume. A tiered approach 

would affect fewer filers than the 

proposed deadlines discussed above, 

and thus would be less costly. A tiered 

approach also would result in less 

timely reporting than the proposed 

approach, providing less benefit to 

investors and the market. 

Finally, we also considered 

maintaining the 10-day deadline if the 

filer ‘‘stands still’’ by not acquiring 

additional beneficial ownership once 

the 5% threshold has been crossed and 

until the Schedule 13D is filed. This 

approach would differentiate between 

investors seeking to establish a small 

minority stake and those seeking to 

exert influence or accumulate a control 

position, including beneficial 

ownership amounting to a majority or 

more of the covered class. While this 

approach would be the most effective in 

enforcing the 5% threshold, it could 

also be the most costly in terms of its 

impact on shareholder activism. It 

would effectively place a speed bump 

on blockholders’ acquisitions, and 

provide opportunities for management 

to defend and entrench themselves. In 

addition, it might be operationally 

difficult to ensure that the purchases of 

the shares add up to no more than 5%, 

especially when shares are purchased 

from different sources, or purchases are 

made by different entities. Further, this 

alternative would not increase the 

timeliness of Schedule 13D reporting, 

and thus would not provide the same 

benefits to investors and the market as 

the proposal. Rather than propose a 

deadline based upon a person’s 

willingness to abstain from making 

additional acquisitions once the 5% 

threshold has been crossed, we instead 

have solicited comment on the efficacy 

of such an alternative while taking into 

account the operational difficulties 

associated with a person’s attempt to 

acquire no more than the minimum 

reportable amount of beneficial 

ownership. 

3. Consolidate Beneficial Ownership 

Reporting 

We also considered consolidating 

beneficial reporting into one form, 

Schedule 13D (i.e., by eliminating 

Schedule 13G). This approach would 

include a reduction in some of the 

compliance burdens applicable to 

former Schedule 13G filers that would 

now be required to file a Schedule 13D. 

For example, because there would be 

only one form, former Schedule 13G 

filers would no longer need to monitor 

their eligibility continuously. Also, with 

the new deadlines for Schedule 13D, no 

need would exist to amend the other 

filing deadlines applicable to (former) 

Schedule 13G filers. However, this 

alternative would further accelerate the 

filing for former Schedule 13G filers, 

and exacerbate the concerns about freeriding and front-running risks these 

filers could face as discussed above, 

potentially reducing their profits and 

increasing their costs. 

4. Section 16 Rule Amendment 

We considered amending Rule 16a– 

1(a)(1) to avoid the application of 

proposed Rule 13d–3(e) to the 

determination as to whether a person is 

a 10% holder under Section 16. More 

specifically, under this alternative, a 

holder of the cash-settled derivative 

securities covered by proposed Rule 

13d–3(e) would be deemed the 

beneficial owner for purposes of 

Sections 13(d) and (g), but not the 

beneficial owner of those reference 

securities for purposes of determining 

whether that person is a 10% percent 

holder under Section 16. This 

alternative could reduce the costs of 

proposed Rule 13d–3(e) and its impact 

on Section 16 reporting obligations. 

However, the alternative approach 

could also potentially create two 

standards for determining beneficial 

ownership, potentially leading to 

confusion in the market and concerns 

regarding whether the rule is applied 

differentially to different groups of 

filers. Also, investors and the market 

would receive less informative Section 

16 disclosures under the alternative as 

compared to the proposed approach, 

and the disclosures would thus be less 

beneficial. 

5. Modify Scope of Structured Data 

Requirement 

We also considered modifying the 

scope of the proposed structured data 

requirement for Schedules 13D and 13G. 

For example, we considered narrowing 

the requirement to include only the 

quantitative disclosures reported on 

Schedules 13D and 13G. Narrowing the 

scope of the structuring requirement to 

include only the quantitative 

disclosures could provide a clearer 

focus on those data points that could 

potentially be used most widely for 

market-level aggregation, comparison 

and analysis. However, the nonquantitative disclosures on Schedules 


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268 44 U.S.C. 3501 et seq. 

269 44 U.S.C. 3507(d); 5 CFR 1320.11. 

13D and 13G, such as textual narratives 

and identification checkboxes, also 

would be valuable for data users to 

access and analyze in an efficient and 

automated manner. In addition, the 

incremental cost savings to filers of 

requiring only quantitative disclosures 

to be structured would be low given the 

availability of a fillable web form in 

which filers would be able to input both 

quantitative and non-quantitative 

Schedule 13D and 13G disclosures. 

F. Request for Comment 

We request comment on all aspects of 

our economic analysis, including the 

potential costs and benefits of the 

proposed amendments and alternatives 

thereto, and whether the proposed 

amendments, if adopted, would 

promote efficiency, competition and 

capital formation or have an impact on 

investor protection. In addition, we also 

seek comment on alternative approaches 

to the proposed amendments and the 

associated costs and benefits of these 

approaches. Commenters are requested 

to provide empirical data, estimation 

methodologies, and other factual 

support for their views, in particular, on 

costs and benefits estimates. 

Specifically, we seek comment with 

respect to the following questions: 

92. Would the proposed amendments 

shortening Schedule 13D filing 

deadlines negatively affect shareholder 

activism? If yes, are there any other 

reasons for such effects besides the ones 

we have discussed? Would such effects 

be more or less significant than our 

assessment? Would the benefits justify 

the costs? Are you aware of any data or 

methodology that could help us 

quantify the effects? Are there any 

factors that could mitigate these effects 

besides the ones we discussed? Is it fair 

to presume that blockholders generally 

have the ability to adapt to a five-day 

filing deadline given the fact that a 

number of them are already filing on 

this deadline voluntarily? 

93. Studies observe share 

accumulations well above 10% of an 

issuer in the 95th percentile of the data 

set. Is it fair to presume that those 

accumulations are for purposes other 

than shareholder activism? If so, what 

are those purposes? What are the 

outcomes of such accumulations? If not, 

and such high accumulations were 

made for the purposes of activism, what 

motivates abnormally high 

accumulation at the time of 13D filings? 

94. Would the proposed amendments 

shortening Schedule 13G filing 

deadlines increase the risk of free-riding 

or front-running for Schedule 13G 

filers? Would such effects be more or 

less significant than our assessment? 

Are there any other costs associated 

with these proposed amendments 

besides the ones we have identified? 

Would the benefits justify the costs? Are 

you aware of any data or methodology 

that could quantify the costs? 

95. Would the proposed amendments 

to Rule 13d–3 regarding cash-settled 

derivative securities negatively affect 

the use of derivative instruments? 

Would such effect be more or less 

significant than our assessment? Are 

there any other economic effects 

associated with these proposed 

amendments that we have not 

discussed? Would the benefits justify 

the costs? Are you aware of any data or 

methodology that could help quantify 

the costs? To what extent do holders of 

derivative securities have the ability to 

influence or direct the voting, 

acquisition or disposition of shares 

acquired by the counterparty to hedge 

its position? Is it common for the holder 

to acquire the hedge securities from the 

counterparty and/or the counterparty to 

settle its positions with shares (rather 

than cash)? Please provide any data to 

support your view. 

96. Would the proposed amendments 

affirming our view on group formation 

have negative effects on shareholder 

activism, engagement and 

communication? Would such effects be 

more or less significant than our 

assessment? Are there any other 

economic effects associated with these 

proposed amendments that we have not 

discussed? Would the benefits justify 

the costs? Are you aware of any data or 

methodology that could help quantify 

the costs? 

97. Would the proposed amendments 

requiring submission of all disclosures 

(other than exhibits) on Schedules 13D 

and 13G in a structured, machinereadable data language (specifically 

13D/G-specific XML) increase the 

accessibility and usability of those 

disclosures by investors and markets? 

Would this effect consequently improve 

transparency and reduce any existing 

information asymmetries related to 

beneficial ownership reporting on 

Schedules 13D and 13G? What are the 

incremental compliance costs associated 

with the structuring requirements? 

Would those costs be mitigated by the 

availability of an online web form that 

would render manually inputted 

disclosures into 13D/G-specific XML, as 

discussed? How, if at all, would the 

nature and magnitude of benefits and 

costs change if the scope of the 

proposed structuring requirement were 

modified (for example, by requiring 

structuring of only quantitative 

disclosures)? Are there any other 

economic effects associated with these 

proposed amendments that we have not 

discussed? Would the benefits justify 

the costs? Are you aware of any data or 

methodology that can help quantify the 

costs? 

98. Are there any other costs and 

benefits to market participants that are 

not identified or are misidentified in the 

above analysis? 

99. Would the proposed amendments 

affect efficiency, competition and 

capital formation as we have discussed? 

Would such effects be more or less 

significant than our assessment? Are 

there any other effects on efficiency, 

competition and capital formation that 

are not identified or are misidentified in 

the above analysis? Are you aware of 

any data or methodology that can help 

quantify these effects? 

100. Are there any other costs and 

benefits associated with alternative 

approaches that are not identified or 

misidentified in the above analysis? 

Should we consider any of the 

alternative approaches outlined above 

instead of the proposed amendments? 

Which approach and why? 

101. Are there any other alternative 

approaches to improve Section 13(d) 

and (g) disclosure that we should 

consider? If so, what are they and what 

would be the associated costs or benefits 

of these alternative approaches? 

IV. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

Certain provisions of our rules, 

schedules and forms that would be 

affected by the proposed amendments 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).268 We are submitting the 

proposed amendments to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.269

The hours and costs associated with 

maintaining, disclosing or providing the 

information required by the proposed 

amendments constitute paperwork 

burdens imposed by such collection of 

information. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information requirement unless it 

displays a currently valid OMB control 

number. 

The titles for the affected collections 

of information are: 

• ‘‘Regulation 13D and Regulation 

13G; Schedule 13D and Schedule 13G’’ 

(OMB Control No. 3235–0145); 


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270See supra Section III.C.1.b.ii. For example, 

Rule 13d–2(b) currently requires that a Schedule 

13G be amended 45 days after the calendar year-end 

in which any change occurred to the information 

previously reported. Under our proposed 

amendment to Rule 13d–2(b), a Schedule 13G 

would have to be amended five business days after 

the end of the month in which a material change 

occurred to the information previously reported. 

Although an amendment under Rule 13d–2(b) 

currently is required for ‘‘any’’ change in the 

information previously reported, that rule only 

requires that one amendment be filed annually, if 

at all. Under the proposed revisions to that rule, 

although the standard for determining an 

amendment obligation would only arise upon a 

‘‘material’’ change to the information previously 

reported, the rule changes could theoretically result 

in numerous amendments being filed on an annual 

basis, with as many as 12 Schedule 13G 

amendments being filed annually pursuant to Rule 

13d–2(b). 

271See supra Sections III.C.2.b and 3.b. For 

example, a holder of cash-settled derivative 

securities may be deemed the beneficial owner of 

more than 5% of a covered class or a 10% holder 

as a result of the application of proposed Rule 13d– 

3(e). In addition, two or more persons may be 

deemed to have formed a group that beneficially 

owns more than 5% of a covered class or a 10% 

holder as a result of the application of our proposed 

amendments to Rule 13d–5, particularly with 

respect to the tipper-tippee relationships that are 

the subject of proposed Rule 13d–5(b)(1)(ii). The 

group, therefore, may have to comply with Section 

13(d) and Section 16. 

272To the extent that a person or entity incurs a 

burden imposed by Regulation 13D–G, it is 

encompassed within the collection of information 

estimates for Regulation 13D–G. This burden 

includes the preparation, filing, processing and 

circulation of initial and amended Schedules 13D 

and 13G. 

273The current OMB inventory for Regulation 

13D–G reflects 8,587 annual responses. As 

discussed in Section III.B.2 supra, a total of 54,601 

total Schedule 13D and 13G filings were made 

during calendar year 2020. See supra notes 201–202 

and accompanying text. Of those filings, 31,221, or 

57.18%, were Schedule 13G amendments. Id. Upon 

further review of that data set, we note that 25,642, 

or 82.13%, of those filings were made within the 

first 45 days of calendar year 2020. For purposes 

of this PRA estimate, therefore, we assume that 

57.18% of the 8,587 annual responses in the current 

OMB inventory for Regulation 13D–G, or 4,910 

responses, are Schedule 13G amendments. Of those 

4,910 responses, we assume that 67%, or 3,290 

responses, were made pursuant to Rule 13d–2(b). 

Our proposed amendment to Rule 13d–2(b) could 

result in 12 Schedule 13G amendments being filed 

annually pursuant to Rule 13d–2(b), as compared to 

the one annual amendment currently required by 

Rule 13d–2(b). See supra note 270. As such, for 

purposes of this PRA, we estimate that there would 

be 39,480 Schedule 13G amendments filed annually 

pursuant to Rule 13d–2(b) as a result of our 

proposed amendments (calculated by multiplying 

(×) the 3,290 annual responses currently attributable 

to Rule 13d–2(b) by (y) 12), resulting in 36,190 

additional responses to the collection of 

information under Regulation 13D–G (calculated as 

the difference between (×) the 39,480 annual 

responses estimated to be attributable to Rule 13d– 

2(b) as a result of the proposed amendments and (y) 

the 3,290 annual responses currently attributable to 

Rule 13d–2(b)). We note, however, that this 

estimate likely reflects the upper limit of the 

potential increases in the number of annual 

Regulation 13D–G responses as a result of our 

proposed amendments to Rule 13d–2(b) because (1) 

the proposed amendments would revise Rule 13d– 

2(b) to require a Schedule 13G be amended only for 

a ‘‘material’’ change to the information previously 

reported, as compared to the current requirement 

that an amendment be filed for ‘‘any’’ change to the 

information previously reported and (2) the 

information previously reported by many Schedule 

13G filers may not change materially on a monthly 

basis. 

274For purposes of this PRA estimate, we assume 

that the proposed amendment to Rule 13d–3 

potentially would lead to an increase in the number 

of Schedule 13D filings. We do not expect that the 

number of Schedule 13G filings would increase 

given that proposed Rule 13d–3(e)(1)(i)(C) would 

deem a person to be a beneficial owner only if such 

person held the derivative securities with the 

purpose or effect of changing or influencing the 

control of the issuer of the relevant covered class, 

or in connection with or as a participant in any 

transaction having such purpose or effect. 

Consequently, Exempt Investors are the only type 

of Schedule 13G filer that could be deemed 

beneficial owners of a cash-settled derivative 

security’s reference covered class under proposed 

Rule 13d–3(e) and continue to report beneficial 

ownership on Schedule 13G. We believe, however, 

that certain persons filing a Schedule 13G as an 

Exempt Investor, 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, already control or may be in a 

position to control the issuer, and generally would 

not have a need to acquire or hold cash-settled 

derivative securities to effectuate influence or 

control over an issuer. Exempt Investors also may 

seek to avoid acquiring beneficial ownership of 

more than 2% of a covered class as a result of 

application of proposed Rule 13d–3(e) given that 

such an acquisition could not only jeopardize their 

eligibility to rely upon the Section 13(d)(6)(B) 

exemption, but also reduce or eliminate their 

capacity to acquire any shares with voting rights 

during the twelve month period in which the 

availability of the exemption is measured. As 

discussed in Section III.B.2 supra, there were a total 

of 10,542 Schedule 13D filings made in calendar 

year 2020. See supra notes 201–202 and 

accompanying text. Those 10,542 filings comprised 

19.3% of the total number of Schedule 13D and 13G 

filings (54,601) made in calendar year 2020. Id. 

Applying that percentage to the current OMB 

inventory for Regulation 13D–G, we assume that 

1,657 (or 19.3%) of the 8,587 annual responses are 

Schedule 13D filings. As noted in Section III.C.2.b 

supra, we lack data on the current use of cashsettled derivative securities. Based on the number 

of Schedule 13D filings that were made in 2020, 

however, we assume that the proposed amendment 

to Rule 13d–3 could result in a 5% increase in the 

number of Schedule 13D filers. As such, we 

estimate that there would be 83 additional 

responses to the collection of information under 

Regulation 13D–G as a result of our proposed 

amendment to Rule 13d–3 (calculated by 

multiplying (×) the 1,657 estimated number of 

Schedule 13D filings in the OMB inventory by (y) 

5%). We note, however, that our analysis may 

overestimate the potential increase in the number 

of annual Regulation 13D–G responses as a result 

of our proposed amendment to Rule 13d–3. For 

example, it is possible that those derivative holders 

that may beneficially own more than 5% of a 

covered class as a result of proposed Rule 13d–3(e) 

would have eventually acquired beneficial 

ownership of more than 5% of such covered class 

in the same calendar year even absent application 

of proposed Rule 13d–3(e). In such cases, although 

application of proposed Rule 13d–3(e) would 

accelerate the point in time at which such person’s 

initial Schedule 13D filing obligation arose, it 

would not necessarily cause additional persons to 

• ‘‘Form 3—Initial Statement of 

Beneficial Ownership of Securities’’ 

(OMB Control No. 235–0104); 

• ‘‘Form 4—Statement of Changes In 

Beneficial Ownership’’ (OMB Control 

No. 3235–0287); and 

• ‘‘Form 5—Annual Statement of 

Beneficial Ownership’’ (OMB Control 

No. 3235–0362). 

These schedules and forms contain 

item requirements that outline the 

information a reporting person must 

disclose. Compliance with the 

information collections is mandatory. 

Responses to the information collections 

are not kept confidential and there is no 

mandatory retention period for the 

information disclosed. 

B. Incremental and Aggregate Burden 

and Cost Estimates for the Proposed 

Amendments to Rules 13d–2, 13d–3, 

13d–5, and 13d–101 

Below we estimate the incremental 

and aggregate effect on paperwork 

burden as a result of certain of our 

proposed amendments. To fully analyze 

the impact of our proposed 

amendments, our estimates generally 

constitute the upper limit of the amount 

of paperwork burden that potentially 

could be incurred by the parties affected 

by our proposed amendments, 

specifically with respect to our 

proposed amendments to Rules 13d–2, 

13d–3, 13d–5, and 13d–101. In deriving 

our estimates, we recognize that the 

burdens would likely vary among 

individual respondents based on a 

number of factors, including the nature 

and conduct of their business. 

We believe that the proposed 

amendments potentially could increase 

the number of responses to the existing 

collection of information for Schedules 

13D and 13G as well as Forms 3, 4 and 

5. For example, the proposed 

amendments to Rule 13d–2(b) with 

respect to the standard that requires an 

amendment to Schedule 13G could 

potentially increase the filing frequency 

for Schedule 13G amendments.270

Similarly, our proposed amendments to 

Rules 13d–3 and 13d–5 potentially 

could result in additional persons 

becoming subject to Regulation 13D–G 

and Section 16 which would result in 

those persons being required to make 

initial and amended Schedule 13D and 

Schedule 13G filings and Form 3, 4, and 

5 filings.271

For purposes of this PRA, we estimate 

that there could be an additional 36,702 

annual responses to the collection of 

information under Regulation 13D–G 272

as a result of the proposed amendments, 

36,190 of which would be attributable to 

our proposed amendments to Rule 13d– 

2,273 83 of which would be attributable 

to our proposed amendment to Rule 

13d–3,274 and 429 of which would be 


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become Schedule 13D filers. In addition, it is 

possible that persons who use such derivatives may 

take steps to avoid becoming beneficial owners—or 

minimize or entirely eliminate the use of such 

derivatives—in order to avoid a Schedule 13D filing 

obligation if proposed Rule 13d–3(e) were adopted. 

275As discussed in Section III.C.3.b supra, 

because we lack data on how many groups may not 

be reporting beneficial ownership because of the 

misimpression that an agreement is required, we 

cannot provide reliable estimates on how such 

reporting practices would change. For purposes of 

this PRA estimate, however, we assume that our 

proposed amendments to Rule 13d–5 could result 

in a 5% increase in the number Schedule 13D and 

13G filers. As such, based on the current OMB 

inventory for Regulation 13D–G, which reflects 

8,587 annual responses, we estimate that the 

number of responses will be increased by 429 

filings (calculated by multiplying (×) the current 

8,587 annual responses by (y) 5%). We note, 

however, that our analysis may overestimate the 

potential increase in the number of annual 

Regulation 13D–G responses as a result of the 

adoption of our proposed amendments to Rule 13d– 

5 because such adoption may incentivize persons 

to take steps to avoid triggering a requirement to 

report beneficial ownership. For example, two or 

more persons who collectively beneficially own in 

excess of 5% of a covered class may avoid 

coordination that could result in them being found 

to have ‘‘act[ed] as’’ a group for the purpose of 

acquiring, holding or disposing of a covered class 

absent reliance on an exemption. In addition, our 

proposed amendments to Rule 13d–6 would create 

new exemptions under which two or more persons 

will not be deemed to have acquired beneficial 

ownership of, or otherwise beneficially own, an 

issuer’s equity securities as a group. As such, to the 

extent beneficial owners qualify for and rely on the 

proposed exemptions in Rule 13d–6, those 

exemptions may offset any potential increase in the 

number of annual Regulation 13D–G responses as 

a result of the adoption of our proposed 

amendments to Rule 13d–5. 

276The current OMB inventories for Forms 3, 4 

and 5 reflect 21,968, 338,207 and 5,939 annual 

responses, respectively. As discussed above, our 

proposed amendments to Rules 13d–3 and 13d–5 

could increase the number of persons required to 

make Form 3, 4 and 5 filings. See supra note 271 

and accompanying text. For purposes of this PRA 

estimate, we assume that any increase in the 

number of Form 3, 4 and 5 filings will correspond 

with our estimated increase in the number of 

Schedule 13D filings as a result of our proposed 

amendment to Rule 13d–3, which is 5%, and the 

increase in the number of Schedule 13D and 13G 

filings as a result of our proposed amendment to 

Rule 13d–5, which is also 5%. See supra notes 274 

and 275. Taking the sum of these percentages (10%) 

and applying that sum percentage to the current 

OMB inventories for Forms 3, 4 and 5, we estimate 

that the number of responses will be increased by 

2,197, 33,821 and 594 for Forms 3, 4 and 5, 

respectively. But see supra notes 274 and 275 for 

a discussion of why this analysis may overestimate 

the potential increase in the number of annual Form 

3, 4 and 5 responses as a result of our proposed 

amendments to Rules 13d–3 and 13d–5. 

277We do not expect that the proposed 

amendments would change the estimated burden 

per response for Form 3, 4, or 5 because the 

proposed amendments would not alter the filing 

deadlines for those forms or the type or form of the 

information required to be disclosed. 

278Although applicable to both current and 

potential Schedule 13D and 13G filers, we assume 

that the proposed amendment to Rule 13d–3, if 

adopted, would affect only the burden hours for 

Schedule 13D filers, and not for Schedule 13G 

filers. See supra note 274 for a discussion of why 

we do not believe that the proposed amendment to 

Rule 13d–3 would impact Schedule 13G filers. 

279We further expect, however, that this potential 

increase may be offset by the proposed amendment 

to Item 6 that would delete the ‘‘including but not 

limited to’’ proviso. 

attributable to our proposed 

amendments to Rule 13d–5.275 We also 

estimate that there would be an 

additional 2,197 Forms 3 filed, an 

additional 33,821 Forms 4 filed, and an 

additional 594 Forms 5 filed as a result 

of the proposed amendments.276

In addition to a potential increase in 

the number of annual responses, we 

expect that the proposed amendments 

would change the estimated burden per 

response for Regulation 13D–G.277 For 

both Schedule 13D and Schedule 13G 

filers, we expect that the proposed 

structured data requirements would 

increase the estimated burden per 

response by requiring that the 

disclosures in those schedules be made 

using the 13D/G-specific XML. For 

Schedule 13D filers, we expect that the 

amendment to Rule 13d–3 would 

increase the estimated burden per 

response if such filers hold cash-settled 

derivative securities as a result of the 

calculations required by proposed Rule 

13d–3(e) to determine the number of 

reference securities that such filers 

would be deemed to beneficially own 

pursuant to that proposed rule.278

Finally, for Schedule 13D, we expect 

that the amendments to Item 6 of 

Schedule 13D potentially could increase 

the estimated burden per response by 

specifying that disclosure is required 

under Item 6 for the use of cash-settled 

derivative securities with respect to an 

issuer’s securities.279

The burden estimates were calculated 

by estimating the number of parties we 

anticipate would expend time, effort 

and/or financial resources to generate, 

maintain, retain, disclose or provide 

information in connection with the 

proposed amendments and then 

multiplying by the estimated amount of 

time, on average, such parties would 

devote in response to the proposed 

amendments. The following table 

summarizes the calculations and 

assumptions used to derive our 

estimates of the aggregate increase in 

burden corresponding to the proposed 

amendments. 

PRA TABLE 1—CALCULATION OF INCREASE IN BURDEN HOURS RESULTING FROM THE PROPOSED AMENDMENTS

Schedule 13D 

filings 

(A) 

Schedule 13G 

filings 

(B) 

Number of Responses a ............................................................................................................................... 1,823 43,466 

Burden Hours Per Response b .................................................................................................................... 4.29 3.69 

Column Total c ............................................................................................................................................. 7,821 160,390 

Aggregate Increase in Burden Hours d ........................................................................................................ 140,799 

aAs discussed in Section III.B.2 supra, there were 54,601 total Schedule 13D and 13G filings during calendar year 2020, comprised of 10,542 

Schedule 13D filings and 44,059 Schedule 13G filings. See supra notes 201–202 and accompanying text. We note, therefore, that 19.3% of the 

filings were Schedule 13D filings and 80.7% of the filings were Schedule 13G filings. Applying those percentages to the current OMB inventory 

for Regulation 13D–G, we assume that 1,657 (or 19.3%) of the 8,587 annual responses are Schedule 13D filings and that the remaining 6,930 

(or 80.7%) are Schedule 13G filings. When taking into account the potential effects of the proposed amendments, if adopted, we estimate that 

(1) the number of Schedule 13D filings could increase by 10% (166 additional filings) as a result of the proposed amendments to Rules 13d–3 

and 13d–5 and (2) the number of Schedule 13G filings could increase by 5% (346 additional filings) as a result of the proposed amendments to 

Rule 13d–5 and 36,190 as a result of the proposed amendments to Rule 13d–2. See supra notes 273–275. 


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280Our estimates assume that 75% of the burden 

is borne by the reporting persons and 25% is borne 

by outside professionals at $400 per hour. We 

recognize that the costs of retaining outside 

professionals may vary depending on the nature of 

the professional services, but for purposes of this 

PRA analysis, we estimate that such costs would be 

an average of $400 per hour. 

281These amounts are calculated based on the 

estimated number of additional Forms 3, 4, and 5 

filed as a result of the proposed amendments— 

2,197, 33,821 and 594, respectively, see supra note 

276 and accompanying text—multiplied by the 

current OMB inventory number of hours per 

response. The current OMB inventory indicates that 

there are 0.5 burden hours associated with each 

Form 3 and Form 4 filing and one burden hour 

associated with each Form 5 filing. The current 

OMB inventory also indicates that there are $0 of 

burden dollars associated with each Form 3, 4, and 

5 filing. 

bThe current OMB inventory reflects a total of 27,412 annual burden hours for Regulation 13D–G. When applied to the current OMB inventory 

of 8,587 annual responses, this results in an average of 3.19 burden hours per Schedule 13D or 13G filing. We use these per filing burden hours 

as a baseline for estimating the burden impact of the proposed amendments. For the proposed structured data requirements, we estimate they 

would increase the burden per response for both Schedule 13D and 13G filers by 0.5 burden hours. Our assumption is that the burden would be 

greatest in the first year after adoption, as filers adjust to the new requirement and update their Schedule 13D and 13G preparation and filing 

processes accordingly. We estimate that the burden of the proposed structured data requirement would be 1 hour in the first year and 0.25 hours 

in each of the following two years for a three-year average of 0.5 burden hours. For the proposed amendment to Rule 13d–3, we estimate they 

would increase the burden per respondent by 0.5 hours. Our assumption is that the burden would be the greatest in the first year after adoption, 

as filers adjust to the new requirements and develop systems and processes to determine the amount of their beneficial ownership as a result of 

their holdings of cash-settled derivative securities. We estimate that the burden of the proposed amendment to Rule 13d–3 would be 1 hour in 

the first year and 0.25 hours in each of the following two years for a three-year average of 0.5 burden hours. Although we expect that the burden 

of complying with the requirements of proposed Rule 13d–3(e) (including, in particular, the requirements in the notes to proposed Rule 13d– 

3(e)(2) that the relevant calculations be performed on a daily basis) would be greater than the burden of complying with the structured data requirements, we also expect that a relatively small percentage of all Schedule 13D filers hold cash-settled derivative securities and, therefore, 

Rule 13d–3(e) would only apply to a subset of Schedule 13D filers (whereas the structured data requirements would apply to all Schedule 13D 

and 13G filers). As such, we believe that it is appropriate to adjust the burden per respondent accordingly. Finally, for the proposed amendments 

to Item 6 of Schedule 13D, we estimate they would increase the burden per respondent by 0.1 hours. Although these proposed amendments 

could, in some cases, substantially increase the amount of disclosure made pursuant to Item 6, we believe that this estimate accurately reflects 

that only a relatively small percentage of all Schedule 13D filers hold cash-settled derivative securities and, therefore, would be required to make 

additional disclosures. In addition, we also expect that any increased burden may be somewhat offset by the proposed amendment to Item 6 that 

would delete the ‘‘including but not limited to’’ proviso. Taken together, we estimate that the proposed amendments could increase the annual 

burden hours per Schedule 13D filing by 1.1 hours and increase the annual burden hours per Schedule 13G filing by 0.5 hours. When added to 

the current average of 3.19 burden hours per Schedule 13D or 13G filing, we estimate that if the proposed amendments were adopted, the average burden hours per Schedule 13D filing would be 4.29 hours and the average burden hours per Schedule 13G filing would be 3.69 hours. c Derived by multiplying the number of responses in each column by the burden hours per response. 

d Derived by adding together the column totals (168,211 hours) and subtracting from that sum the total annual burden hours for Regulation 

13D–G currently reflected in the OMB inventory (27,412 hours). 

The table below illustrates the 

incremental change to the total annual 

compliance burden in hours and in 

costs 280 as a result of the proposed 

amendments. The table sets forth the 

percentage estimates we typically use 

for the burden allocation for each 

response. 

PRA TABLE 2—CALCULATION OF AGGREGATE INCREASE IN BURDEN HOURS RESULTING FROM THE PROPOSED

AMENDMENTS

Total number of 

estimated responses 

Total 

increase in 

burden hours 

Increase in 

burden hours 

per response 

Increase in 

internal 

hours 

Increase in 

professional 

hours 

Increase in 

professional 

costs 

(A) † (B) †† (C) = (B)/(A) (D) = (B) × 75% (E) = (B) × 25% (F) = (E) × $400 

45,289 140,799 3 ††† 105,599 35,200 $14,080,000 

† This number reflects an estimated increase of 36,702 annual responses to the existing Regulation 13D–G collection of information. See supra notes 272–275 and 

accompanying text. The current OMB PRA inventory estimates that 8,587 responses are filed annually for Regulation 13D–G. 

†† Calculated as the sum of annual burden increases estimated for Schedule 13D and 13G filings. See supra PRA Table 1. 

††† The estimated increases in Columns (C), (D) and (E) are rounded to the nearest whole number. 

Finally, the table that follows 

summarizes the requested paperwork 

burden for Regulation 13D–G that will 

be submitted to OMB for review in 

accordance with the PRA, including the 

estimated total reporting burdens and 

costs, under the proposed amendments. 

PRA TABLE 3—REQUESTED PAPERWORK BURDEN FOR REGULATION 13D–G UNDER THE PROPOSED AMENDMENTS

Current burden Program change Revised burden 

Current 

annual 

responses 

Current 

burden hours 

Current 

cost burden 

Increase in 

number of 

responses 

Increase 

in internal 

hours 

Increase in 

professional 

costs 

Annual 

responses Burden hours Cost burden 

(A) (B) (C) (D) ± (E) ±± (F) ±±± (G) = (A) + (D) (H) = (B) + (E) (I) = (C) + (F) 

8,587 27,412 $32,894,000 36,702 105,599 $14,080,000 45,289 133,011 $46,974,000 

±See supra notes 272–275 and accompanying text. ±±From Column (D) in PRA Table 2. ±±±From Column (F) in PRA Table 2. 

In addition, the requested increase in 

the paperwork burden for Forms 3, 4, 

and 5 that will be submitted to OMB for 

review in accordance with the PRA will 

be 1,099 hours, 16,911 hours and 594 

hours, respectively, and zero dollars for 

each Form.281

Given the number of variables that are 

highly specific to the unique 


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282Public Law 104–121, Title II, 110 Stat. 857 

(1996); 5 U.S.C. 801 et seq. 

283 5 U.S.C. 603(a). 

284Although Section 601(b) of the RFA defines 

the term ‘‘small entity,’’ the statute permits agencies 

to formulate their own definitions. The Commission 

has adopted definitions for the term ‘‘small entity’’ 

for the purposes of Commission rulemaking in 

accordance with the RFA. Those definitions, as 

relevant to this proposed rulemaking, are set forth 

in 17 CFR 240.0–10. See Final Definitions of ‘‘Small 

Business’’ and ‘‘Small Organization’’ for Purposes 

of the Regulatory Flexibility Act, Release No. 34– 

18452 (Jan. 28, 1982) [47 FR 5215 (Feb. 4, 1982)]. 

285See 5 U.S.C. 605(b). 

286See 17 CFR 240.0–10(a). 287Rule 17a–5(d). 

288See 17 CFR 240.0–10(c). 

289Business development companies are a 

category of closed-end investment company that are 

not registered under the Investment Company Act 

[15 U.S.C. 80a–2(a)(48) and 80a–53–64]. 

290 17 CFR 270.0–10(a). 

circumstances of each type of person 

affected by the proposed amendments, 

our ability to predict the magnitude of 

corresponding costs and burdens with 

any precision is limited. Therefore, we 

encourage public commenters to 

consider our assessment and provide 

additional information and, where 

available, data that would be helpful in 

deriving our estimates for purposes of 

the PRA. 

Request for Comment 

Pursuant to 44 U.S.C. 3506(c)(2)(B), 

we request comment in order to: 

• Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information would have 

practical utility; 

• Evaluate the accuracy and 

assumptions and estimates of the 

burden of the proposed collection of 

information; 

• Determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; 

• Evaluate whether there are ways to 

minimize the burden of the collection of 

information on those who respond, 

including through the use of automated 

collection techniques or other forms of 

information technology; and 

• Evaluate whether the proposed 

amendments would have any effects on 

any other collection of information not 

previously identified in this section. 

Any member of the public may direct 

to us any comments concerning the 

accuracy of these burden estimates and 

any suggestions for reducing the 

burdens. Persons who desire to submit 

comments on the collection of 

information requirements should direct 

their comments to the Office of 

Management and Budget, Attention: 

Desk Officer for the Securities and 

Exchange Commission, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, and send a copy 

of the comments to Vanessa A. 

Countryman, Secretary, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549, with reference 

to File No. S7–06–22. Requests for 

materials submitted to the OMB by us 

with regard to these collections of 

information should be in writing, refer 

to File No. S7–06–22 and be submitted 

to the Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 20549. 

Because the OMB is required to make a 

decision concerning the collections of 

information between 30 and 60 days 

after publication, a comment to the 

OMB is best assured of having its full 

effect if the OMB receives it within 30 

days of publication. 

V. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),282 the Commission 

must advise OMB as to whether the 

proposed amendments constitute a 

‘‘major’’ rule. Under SBREFA, a rule is 

considered ‘‘major’’ where, if adopted, it 

results, or is likely to result, in: 

• An annual effect on the economy of 

$100 million or more (either in the form 

of an increase or a decrease); 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment or innovation. 

We request comment on whether the 

proposed amendments would be a 

‘‘major rule’’ for purposes of SBREFA. 

We solicit comment and empirical data 

on: (a) The potential effect on the U.S. 

economy on an annual basis; (b) any 

potential increase in costs or prices for 

consumers or individual industries; and 

(c) any potential effect on competition, 

investment or innovation. Commenters 

are requested to provide empirical data 

and other factual support for their views 

to the extent possible. 

VI. Regulatory Flexibility Act 

Certification 

The RFA requires Federal agencies, in 

promulgating rules, to consider the 

impact of those rules on small entities. 

Section 603(a) of the Administrative 

Procedure Act,283 as amended by the 

RFA, generally requires the Commission 

to undertake a regulatory flexibility 

analysis of all proposed rules, or 

proposed rule amendments, to 

determine the impact of such 

rulemaking on ‘‘small entities.’’ 284

Section 605(b) of the RFA states that 

this requirement shall not apply to any 

proposed rule or proposed rule 

amendment which, if adopted, would 

not have a significant economic impact 

on a substantial number of small 

entities.285

For purposes of Commission 

rulemaking in connection with the RFA, 

a small entity includes: (1) When used 

with reference to an ‘‘issuer’’ or a 

‘‘person,’’ other than an investment 

company, an ‘‘issuer’’ or ‘‘person’’ that, 

on the last day of its most recent fiscal 

year, had total assets of $5 million or 

less; 286 or (2) a broker-dealer with total 

capital (net worth plus subordinated 

liabilities) of less than $500,000 on the 

date in the prior fiscal year as of which 

its audited financial statements were 

prepared pursuant to 17 CFR 240.17a– 

5(d) (‘‘Rule 17a–5(d)’’),287 or, if not 

required to file such statements, a 

broker-dealer with total capital (net 

worth plus subordinated liabilities) of 

less than $500,000 on the last business 

day of the preceding fiscal year (or in 

the time that it has been in business, if 

shorter); and is not affiliated with any 

person (other than a natural person) that 

is not a small business or small 

organization.288 An investment 

company, including a business 

development company,289 is considered 

to be a ‘‘small business’’ if it, together 

with other investment companies in the 

same group of related investment 

companies, has net assets of $50 million 

or less as of the end of its most recent 

fiscal year.290

Although the proposed amendments 

would apply to beneficial owners 

regardless of their size, we believe that 

the vast majority of the beneficial 

owners that would be subject to the 

proposed amendments would not be 

small entities for purposes of the RFA. 

For example, the proposed amendments 

to the filing deadlines in Rules 13d–1 

and 13d–2, as well as the proposed 

amendments to Rules 13 and 201 of 

Regulation S–T and the proposed 

structured data requirements, only 

would impact persons who beneficially 

own more than 5% of a covered class. 

In addition, the proposed amendment to 

Rule 13d–3 would apply to holders of 

cash-settled derivative securities; we 

believe that persons who hold such 

derivatives are generally larger, 

sophisticated investors. Similarly, while 

the proposed amendments to Rule 13d– 

5 could apply to numerous smaller 

persons who individually, absent 

formation of a group pursuant to the 

proposed amendments, would not 

beneficially own more than 5% of a 

covered class, we believe that persons 


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who take concerted actions that would 

implicate the proposed amendments 

generally would be larger, sophisticated 

investors. That same belief applies to 

the exemptions contained in the 

proposed amendments to Rule 13d–6. 

For the foregoing reasons, the 

Commission certifies, pursuant to 5 

U.S.C. 605(b), that the proposed 

amendments, if adopted, would not 

have a significant economic impact on 

a substantial number of small entities 

for purposes of the RFA. We invite 

commenters to address whether the 

proposed amendments would have a 

significant economic impact on a 

substantial number of small entities, 

and, if so, what would be the nature of 

any impact on small entities. We request 

that commenters provide empirical data 

to illustrate the extent of the impact. 

Such comments will be considered in 

the preparation of any final rules (and 

in a Final Regulatory Flexibility 

Analysis if one is needed) and will be 

placed in the same public file as 

comments on the proposed amendments 

themselves. 

VII. Statutory Authority 

We are proposing the rule 

amendments contained in this release 

under the authority set forth in Sections 

3(a), 3(b), 13, 16, and 23(a) of the 

Exchange Act. 

List of Subjects 

17 CFR Part 232 

Administrative practice and 

procedure, Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 240 

Reporting and recordkeeping 

requirements, Securities. 

Text of Amendments 

For the reasons set out in the 

preamble, the Commission proposes to 

amend title 17, chapter II, of the Code 

of Federal Regulations as follows: 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 1. The general authority citation for 

part 232 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 

77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 

80a–29, 80a–30, 80a–37, 7201 et seq.; and 18 

U.S.C. 1350, unless otherwise noted. 

* * * * * 

§ 232.13 [Amended] 

■ 2. Amend § 232.13(a)(4) by: 

■ a. Removing the words ‘‘or a Schedule 

14N’’ and adding ‘‘, a Schedule 14N’’ in 

their place; and 

■ b. Adding the phrase ‘‘, or a Schedule 

13D or Schedule 13G, inclusive of any 

amendments thereto (§§ 240.13d–101 

and 240.13d–102 of this chapter),’’ 

immediately preceding ‘‘submitted by 

direct transmission’’. 

§ 232.201 [Amended] 

■ 3. Amend § 232.201(a) introductory 

text by: 

■ a. Removing the word ‘‘or’’ that 

immediately precedes ‘‘an Asset Data 

File’’; and 

■ b. Adding after the phrase ‘‘Asset Data 

File (as defined in § 232.11),’’ the phrase 

‘‘or a Schedule 13D or Schedule 13G 

(§§ 240.13d–101 and 240.13d–102 of 

this chapter)’’. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 4. The authority citation for part 240 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, and 7201 et seq., and 8302; 

7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 

U.S.C. 1350; Pub. L. 111–203, 939A, 124 Stat. 

1376 (2010); and Pub. L. 112–106, sec. 503 

and 602, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

Section 240.13d–3 is also issued under 

Public Law 111–203 § 766, 124 Stat. 1799 

(2010). 

* * * * * 

■ 5. Amend § 240.13d–1 by revising 

paragraphs (a), (b)(2), (c) introductory 

text, (d), (e)(1) introductory text, (f)(1), 

(g), and (i) to read as follows: 

§ 240.13d–1 Filing of Schedules 13D and 

13G. 

(a) Any person who, upon acquiring 

directly or indirectly the beneficial 

ownership of any equity security of a 

class which is specified in paragraph (i) 

of this section, is directly or indirectly 

the beneficial owner of more than five 

percent of the class shall, within five 

days after the date of the acquisition, 

file with the Commission, a statement 

containing the information required by 

Schedule 13D (§ 240.13d–101). 

(b) * * * 

(2) The Schedule 13G filed pursuant 

to paragraph (b)(1) of this section shall 

be filed within five business days after 

the end of the month in which the 

person became obligated under 

paragraph (b)(1) of this section to report 

the person’s beneficial ownership as of 

the last day of the month, provided, that 

it shall not be necessary to file a 

Schedule 13G unless the percentage of 

the class of equity security specified in 

paragraph (i) of this section beneficially 

owned as of the end of the month is 

more than five percent. 

(c) A person who would otherwise be 

obligated under paragraph (a) of this 

section to file a statement on Schedule 

13D (§ 240.13d–101) may, in lieu 

thereof, file with the Commission, 

within five days after the date of an 

acquisition described in paragraph (a) of 

this section, a short-form statement on 

Schedule 13G (§ 240.13d–102). 

Provided, that the person: 

* * * * * 

(d) Any person who, as of the end of 

any month, is or becomes directly or 

indirectly the beneficial owner of more 

than five percent of any equity security 

of a class specified in paragraph (i) of 

this section and who is not required to 

file a statement under paragraph (a) of 

this section by virtue of the exemption 

provided by Section 13(d)(6)(A) or (B) of 

the Act (15 U.S.C. 78m(d)(6)(A) or 

78m(d)(6)(B)), or because the beneficial 

ownership was acquired prior to 

December 22, 1970, or because the 

person otherwise (except for the 

exemption provided by Section 

13(d)(6)(C) of the Act (15 U.S.C. 

78m(d)(6)(C))) is not required to file a 

statement, shall file with the 

Commission, within five business days 

after the end of the month in which the 

person became obligated to report under 

this paragraph (d), a statement 

containing the information required by 

Schedule 13G (§ 240.13d–102). 

(e)(1) Notwithstanding paragraphs (b) 

and (c) of this section and § 240.13d– 

2(b), a person that has reported that it 

is the beneficial owner of more than five 

percent of a class of equity securities in 

a statement on Schedule 13G 

(§ 240.13d–102) pursuant to paragraph 

(b) or (c) of this section, or is required 

to report the acquisition but has not yet 

filed the schedule, shall immediately 

become subject to paragraph (a) of this 

section and § 240.13d–2(a) and shall file 

a statement on Schedule 13D 

(§ 240.13d–101) within five days if, and 

shall remain subject to those 

requirements for so long as, the person: 

* * * * * 

(f)(1) Notwithstanding paragraph (c) 

of this section and § 240.13d–2(b), 

persons reporting on Schedule 13G 

(§ 240.13d–102) pursuant to paragraph 

(c) of this section shall immediately 

become subject to paragraph (a) of this 

section and § 240.13d–2(a) and shall 

remain subject to those requirements for 


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so long as, and shall file a statement on 

Schedule 13D (§ 240.13d–101) within 

five days after the date on which the 

person’s beneficial ownership equals or 

exceeds 20 percent of the class of equity 

securities. 

* * * * * 

(g) Any person who has reported an 

acquisition of securities in a statement 

on Schedule 13G (§ 240.13d–102) 

pursuant to paragraph (b) of this section, 

or has become obligated to report on the 

Schedule 13G (§ 240.13d–102) but has 

not yet filed the Schedule, and 

thereafter ceases to be a person specified 

in paragraph (b)(1)(ii) of this section or 

determines that it no longer has 

acquired or holds the securities in the 

ordinary course of business shall 

immediately become subject to 

paragraph (a) or (c) of this section (if the 

person satisfies the requirements 

specified in paragraph (c)) and 

§ 240.13d–2(a), (b), or (d), and shall file, 

within five days thereafter, a statement 

on Schedule 13D (§ 240.13d–101) or 

amendment to Schedule 13G, as 

applicable, if the person is a beneficial 

owner at that time of more than five 

percent of the class of equity securities. 

* * * * * 

(i)(1) For the purpose of this section, 

the term ‘‘equity security’’ means any 

equity security of a class which is 

registered pursuant to section 12 of that 

Act, or any equity security of any 

insurance company which would have 

been required to be so registered except 

for the exemption contained in section 

12(g)(2)(G) of the Act, or any equity 

security issued by a closed-end 

investment company registered under 

the Investment Company Act of 1940; 

provided, such term shall not include 

securities of a class of non-voting 

securities. 

(2) For the purpose of this section, the 

term ‘‘business day’’ means any day, 

other than Saturday, Sunday, or a 

Federal holiday, from 6 a.m. to 10 p.m., 

eastern time. 

* * * * * 

■ 6. Amend § 240.13d–2 by: 

■ a. Revising paragraphs (a), (b), (c), and 

(d); and 

■ b. Removing the parenthetical 

authority citation at the end of the 

section. 

The revisions read as follows: 

§ 240.13d–2 Filing of amendments to 

Schedules 13D or 13G. 

(a) If any material change occurs in 

the facts set forth in the Schedule 13D 

(§ 240.13d–101) required by § 240.13d– 

1(a), including, but not limited to, any 

material increase or decrease in the 

percentage of the class beneficially 

owned, the person or persons who were 

required to file the statement shall file 

or cause to be filed with the 

Commission an amendment disclosing 

that change within one business day 

after that change. An acquisition or 

disposition of beneficial ownership of 

securities in an amount equal to one 

percent or more of the class of securities 

shall be deemed ‘‘material’’ for purposes 

of this section; acquisitions or 

dispositions of less than those amounts 

may be material, depending upon the 

facts and circumstances. 

(b) Notwithstanding paragraph (a) of 

this section, and provided that the 

person filing a Schedule 13G 

(§ 240.13d–102) pursuant to § 240.13d– 

1(b) or (c) continues to meet the 

requirements set forth therein, any 

person who has filed a Schedule 13G 

(§ 240.13d–102) pursuant to § 240.13d– 

1(b), (c), or (d) shall amend the 

statement within five business days 

after the end of each month if, as of the 

end of the month, there are any material 

changes in the information reported in 

the previous filing on that Schedule, 

including, but not limited to, any 

material increase or decrease in the 

percentage of the class beneficially 

owned; provided, however, that an 

amendment need not be filed with 

respect to a change in the percent of 

class outstanding previously reported if 

the change results solely from a change 

in the aggregate number of securities 

outstanding. Once an amendment has 

been filed reflecting beneficial 

ownership of five percent or less of the 

class of securities, no additional filings 

are required unless the person thereafter 

becomes the beneficial owner of more 

than five percent of the class and is 

required to file pursuant to § 240.13d– 

1. 

(c) Any person relying on § 240.13d– 

1(b) that has filed its initial Schedule 

13G (§ 240.13d–102) pursuant to 

§ 240.13d–1(b) shall, in addition to 

filing any amendments pursuant to 

§ 240.13d–2(b), file an amendment on 

Schedule 13G (§ 240.13d–102) within 

five days after the date on which the 

person’s direct or indirect beneficial 

ownership exceeds 10 percent of the 

class of equity securities. Thereafter, 

that person shall, in addition to filing 

any amendments pursuant to § 240.13d– 

2(b), file an amendment on Schedule 

13G (§ 240.13d–102) within five days 

after the date on which the person’s 

direct or indirect beneficial ownership 

increases or decreases by more than five 

percent of the class of equity securities. 

Once an amendment has been filed 

reflecting beneficial ownership of five 

percent or less of the class of securities, 

no additional filings are required by this 

paragraph (c). 

(d) Any person relying on § 240.13d– 

1(c) that has filed its initial Schedule 

13G (§ 240.13d–102) pursuant to 

§ 240.13d–1(c) shall, in addition to 

filing any amendments pursuant to 

paragraph (b) of this section, file an 

amendment on Schedule 13G 

(§ 240.13d–102) within one business 

day after acquiring, directly or 

indirectly, greater than 10 percent of a 

class of equity securities specified in 

§ 240.13d–1(d), and thereafter within 

one business day after increasing or 

decreasing its beneficial ownership by 

more than five percent of the class of 

equity securities. Once an amendment 

has been filed reflecting beneficial 

ownership of five percent or less of the 

class of securities, no additional filings 

are required by this paragraph (d). 

* * * * * 

■ 7. Amend § 240.13d–3 by: 

■ a. Revising paragraph (d) introductory 

text; 

■ b. Adding paragraph (e); and 

■ c. Removing the parenthetical 

authority citation at the end of the 

section. 

The revision and addition read as 

follows: 

§ 240.13d–3 Determination of beneficial 

owner. 

* * * * * 

(d) Notwithstanding the provisions of 

paragraphs (a), (c), and (e) of this 

section: 

* * * * * 

(e)(1)(i) A person shall be deemed to 

be the beneficial owner of a number of 

securities for purposes of Sections 13(d) 

and 13(g) of the Act, calculated in 

accordance with paragraph (e)(2) of this 

section, in a class of equity securities if 

that person holds a derivative security, 

as defined in § 240.16a–1(c) (Rule 16a– 

1(c)), other than a security-based swap 

as defined by section 3(a)(68) of the Act 

(15 U.S.C. 78c(a)(68)) and the rules and 

regulations thereunder in this part: 

(A) That references such class of 

equity securities; 

(B) To the extent that such derivative 

security is required to be settled 

exclusively in cash and holding such 

security has not otherwise resulted in a 

determination that the person is a 

beneficial owner under this section; and 

(C) That is held with the purpose or 

effect of changing or influencing the 

control of the issuer of such class of 

equity securities, or in connection with 

or as a participant in any transaction 

having such purpose or effect. 

(ii) Any securities not outstanding 

which are referenced by such derivative 

security shall be deemed to be 


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outstanding for the purpose of 

computing the percentage of 

outstanding securities of the class 

owned by such person but shall not be 

deemed to be outstanding for the 

purpose of computing the percentage of 

the class by any other person. 

(2)(i) The number of securities that a 

person shall be deemed to beneficially 

own pursuant to paragraph (e)(1) of this 

section shall be the larger of (in each 

case as applicable): 

(A) The product that is obtained by 

multiplying {x} the number of securities 

by reference to which the amount 

payable under the derivative security is 

determined by {y} the delta of the 

derivative security; and 

(B) The number that is obtained by 

{x} dividing the notional amount of the 

derivative security by the most recent 

closing market price of the reference 

equity security, and then {y} 

multiplying such quotient by the delta 

of the derivative security. 

(ii) For the purpose of this section, the 

term ‘‘delta’’ means, with respect to a 

derivative security, the ratio that that is 

obtained by comparing {x} the change 

in the value of the derivative security to 

{y} the change in the value of the 

reference equity security. 

Note 1 to Paragraph (e)(2). For 

purposes of determining the number of 

equity securities that a person shall be 

deemed to beneficially own pursuant to 

this paragraph (e), only long positions in 

derivative securities should be counted. 

Short positions in derivative securities 

should not be netted against long 

positions or otherwise taken into 

account. 

Note 2 to Paragraph (e)(2). For 

purposes of determining the number of 

equity securities that a person shall be 

deemed to beneficially own pursuant to 

this paragraph (e), the calculation in 

clause (x) of paragraph (e)(2)(i)(B) of this 

section should be performed on a daily 

basis. 

Note 3 to Paragraph (e)(2). If a 

derivative security does not have a fixed 

delta, then a person who holds such 

derivative security should calculate the 

delta on a daily basis, for purposes of 

determining the number of equity 

securities that such person shall be 

deemed to beneficially own pursuant to 

this paragraph (e), based on the closing 

market price of the reference equity 

security on that day. 

■ 8. Revise § 240.13d–5 to read as 

follows: 

§ 240.13d–5 Acquisition of beneficial 

ownership. 

(a) A person who becomes a beneficial 

owner of securities shall be deemed to 

have acquired such beneficial 

ownership for purposes of section 

13(d)(1) of the Act, whether such 

acquisition was through purchase or 

otherwise. However, executors or 

administrators of a decedent’s estate 

generally will be presumed not to have 

acquired the beneficial ownership held 

by the decedent’s estate until such time 

as such executors or administrators are 

qualified under local law to perform 

their duties. 

(b)(1)(i) When two or more persons 

act as a group under section 13(d)(3) of 

the Act, the group shall be deemed to 

have acquired beneficial ownership, for 

purposes of section 13(d) of the Act, of 

all equity securities of an issuer 

beneficially owned by any such persons 

as of the date of the group’s formation. 

(ii) A person that is or will be 

required to report beneficial ownership 

on Schedule 13D (§ 240.13d–101) who, 

in advance of making such filing, 

directly or indirectly discloses to any 

other market participant the non-public 

information that such filing will be 

made, acts as a group with such other 

person or persons within the meaning of 

section 13(d)(3) of the Act to the extent 

such information was shared with the 

purpose of causing such other person or 

persons to acquire equity securities of 

the same class for which the Schedule 

13D will be filed, and such group will 

be deemed to have acquired any 

beneficial ownership held in the same 

class by its members as of the earliest 

date on which such other person or 

persons acquired beneficial ownership 

based on such information. 

(iii) A group regulated as a person 

pursuant to section 13(d)(3) of the Act 

shall be deemed to have acquired 

beneficial ownership, as determined 

under paragraph (a) of this section and 

for purposes of sections 13(d)(1) and (2) 

of the Act, if any member of the group 

becomes the beneficial owner of 

additional equity securities in the same 

class beneficially owned by the group 

after the date of the group’s formation. 

The beneficial ownership so acquired 

shall be reported as being held by the 

group through the earlier of {x} the date 

of the group’s dissolution or {y} the date 

of that member’s withdrawal from the 

group. 

(iv) Notwithstanding paragraph 

(b)(1)(iii) of this section, a group 

regulated under section 13(d)(3) of the 

Act shall not be deemed to have 

acquired beneficial ownership, as 

determined under paragraph (a) of this 

section, if a member of the group 

becomes the beneficial owner of 

additional equity securities in the same 

class beneficially owned by the group 

after the date of group formation 

through a sale by or transfer from 

another member of the group. 

(2)(i) When two or more persons act 

as a group under section 13(g)(3) of the 

Act, the group shall be deemed to have 

become the beneficial owner, for 

purposes of sections 13(g)(1) and (2) of 

the Act, of all equity securities of an 

issuer beneficially owned by any such 

persons as of the date of group 

formation notwithstanding the absence 

of an acquisition subject to section 13(d) 

of the Act. 

(ii) A group regulated as a person 

pursuant to section 13(g)(3) of the Act 

shall be deemed to have become the 

beneficial owner, for purposes of 

sections 13(g)(1) and (2) of the Act, if 

any member of the group becomes a 

beneficial owner of additional equity 

securities in the same class held by the 

group after the date of the group’s 

formation and through the earlier of {x} 

the date of the group’s dissolution or {y} 

the date of that member’s withdrawal 

from the group. 

(iii) Notwithstanding paragraph 

(b)(2)(ii) of this section, a group 

regulated under section 13(g)(3) of the 

Act shall not be deemed to have become 

the beneficial owner of additional 

equity securities in the same class 

beneficially owned by the group if a 

member of the group becomes the 

beneficial owner of additional such 

equity securities in that same class after 

the date of the group’s formation 

through a sale by or transfer from 

another member of the group. 

■ 9. Revise § 240.13d–6 to read as 

follows: 

§ 240.13d–6 Exemption of certain 

acquisitions. 

(a) The acquisition of securities of an 

issuer by a person who, prior to such 

acquisition, was a beneficial owner of 

more than five percent of the 

outstanding securities of the same class 

as those acquired shall be exempt from 

section 13(d) of the Act; provided, that: 

(1) The acquisition is made pursuant 

to preemptive subscription rights in an 

offering made to all holders of securities 

of the class to which the preemptive 

subscription rights pertain; 

(2) Such person does not acquire 

additional securities except through the 

exercise of his pro rata share of the 

preemptive subscription rights; and 

(3) The acquisition is duly reported, if 

required, pursuant to section 16(a) of 

the Act and the rules and regulations 

thereunder in this part. 

(b) A group shall be deemed not to 

have acquired any equity securities 

beneficially owned by the other 

members of the group solely by virtue 

of their concerted actions relating to the 


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purchase of equity securities directly 

from an issuer in a transaction not 

involving a public offering; provided, 

that: 

(1) All the members of the group are 

persons specified in § 240.13d– 

1(b)(1)(ii); 

(2) The purchase is in the ordinary 

course of each member’s business and 

not with the purpose nor with the effect 

of changing or influencing control of the 

issuer, nor in connection with or as a 

participant in any transaction having 

such purpose or effect, including any 

transaction subject to § 240.13d–3(b); 

(3) There is no agreement among, or 

between any members of the group to 

act together with respect to the issuer or 

its securities except for the purpose of 

facilitating the specific purchase 

involved; and 

(4) The only actions among or 

between any members of the group with 

respect to the issuer or its securities 

subsequent to the closing date of the 

non-public offering are those which are 

necessary to conclude ministerial 

matters directly related to the 

completion of the offer or sale of the 

securities. 

(c) Two or more persons shall not be 

deemed to have acquired beneficial 

ownership of, for purposes of section 

13(d) of the Act, or otherwise 

beneficially own, for purposes of section 

13(g) of the Act, an issuer’s equity 

securities as a group under sections 

13(d)(3) or 13(g)(3) of the Act solely 

because of their concerted actions with 

respect to such issuer’s equity 

securities, including engagement with 

one another or the issuer or acquiring, 

holding, voting or disposing of the 

issuer’s equity securities; provided, that: 

(1) Communications among or 

between such persons 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, including any transaction subject 

to § 240.13d–3(b); and 

(2) Such persons, when taking such 

concerted actions, are not directly or 

indirectly obligated to take such actions. 

(d) Two or more persons who, in the 

ordinary course of their business, enter 

into a bona fide purchase and sale 

agreement setting forth the terms of a 

derivative security, as defined in 

§ 240.16a–1(c) (Rule 16a–1(c)), with 

respect to a class of equity securities 

shall not be deemed to have acquired 

beneficial ownership of, for purposes of 

section 13(d)(1) of the Act and 

§ 240.13d–5, or otherwise beneficially 

own, for purposes of section 13(g) of the 

Act, any such equity securities of the 

issuer referenced in the agreement as a 

group under sections 13(d)(3) or 13(g)(3) 

of the Act; provided, that such persons 

did not enter into the agreement with 

the purpose or effect of changing or 

influencing control of the issuer, or in 

connection with or as a participant in 

any transaction having such purpose or 

effect, including any transaction subject 

to § 240.13d–3(b). 

■ 10. Amend § 240.13d–101 by revising 

Item 6 to read as follows: 

§ 240.13d–101 Schedule 13D—Information 

to be included in statements filed pursuant 

to § 240.13d–1(a) and amendments thereto 

filed pursuant to § 240.13d–2(a). 

* * * * * 

Item 6. Contracts, Arrangements, 

Understandings or Relationships With 

Respect to Securities of the Issuer. 

Describe any contracts, arrangements, 

understandings, or relationships (legal 

or otherwise) among the persons named 

in Item 2 and between such persons and 

any person with respect to any 

securities of the issuer, including any 

class of such issuer’s securities used as 

a reference security, in connection with 

any of the following: Call options, put 

options, security-based swaps or any 

other derivative securities, transfer or 

voting of any of the securities, finder’s 

fees, joint ventures, loan or option 

arrangements, guarantees of profits, 

division of profits or loss, or the giving 

or withholding of proxies, naming the 

persons with whom such contracts, 

arrangements, understandings, or 

relationships have been entered into. 

Include such information for any of the 

securities that are pledged or otherwise 

subject to a contingency the occurrence 

of which would give another person 

voting power or investment power over 

such securities except that disclosure of 

standard default and similar provisions 

contained in loan agreements need not 

be included. 

* * * * * 

By the Commission. 

Dated: February 10, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–03222 Filed 3–9–22; 8:45 am] 

BILLING CODE 8011–01–P 


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