Under certain circumstances, a reporting manager can request confidential treatment of the information contained in the Form 13F filing. Separate Shareholder Report Requirements . [18] Under Rule 14Ad-1, a reporting manager exercises voting power when it votes or influences a vote. While the persons subject to the reporting requirements under Section 13 and Section 16 (each, a reporting person) generally include both individuals and entities, this legal update focuses on the application of the reporting requirements to investment advisers and broker-dealers (each, a securities firm). Requirements for Schedule 13D Schedule 13D requires that the beneficial owner provide relevant information about several items, which include the following: Item 1: Security and Issuer. A reporting person that is required to switch to reporting on a Schedule 13D will be subject to a cooling off period from the date of the event giving rise to a Schedule 13D obligation (such as the change to an activist intent or acquiring 20% of a class of an issuers Section 13(d) Securities) until 10calendar days after the filing of Schedule 13D. Accordingly, once an institutional investment managers obligation to report on Form13F is established, the manager must make four quarterly filings with the SEC. Under DTR 5.8.12R, issuers are required to disclose to the public major shareholding notifications they receive from shareholders and holders of financial instruments falling within DTR 5.3.1R (1), unless the exemption available in DTR 5.11.4R applies. Public Company SEC Reporting Requirements and Transaction Reporting by Officers, Directors and 10% Shareholders Section 16 of the Exchange Act applies to an SEC reporting company's directors and officers, as well as shareholders who own more than 10% of a class of the company's equity securities registered under the Exchange Act. Equity securities not held in a Qualified Institutions fiduciary capacity or which were acquired with an activist intent are attributable to the Qualified Institution and will be counted to determine whether it is a 10% Beneficial Owner. The Firms Obligations. Schedules 13D and 13G are commonly referred to as a "beneficial ownership reports.". The SEC has indicated that filing within 10 days will be deemed a prompt filing. SEC Rules and Amendments . However, a Qualified Institution that acquires direct or indirect beneficial ownership of more than 10% of a class of an issuers Section 13(d) Securities prior to the end of a calendar year must file an initial Schedule 13G within 10 days after the first month in which the person exceeds the 10% threshold. [29] Under proposed Rule 13f-2, an institutional investment manager would be subject to the monthly reporting requirement if it had investment discretion over accounts with (a) gross short positions in the equity securities of public companies with a value of at least $10 million or an average of 2.5% of the issuers outstanding equity securities, or (b) gross short positions in any other equity securities with a value of at least $500,000, in each case, at the close of any settlement date during a calendar month. [24] Previously, an insider also had an obligation to deliver a copy of any Section 16 filing to the public company and the national exchange on which the public companys equity securities were listed. However, Section 929R of the Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated that obligation. A reporting person that is a Qualified Institution also is required to file its initial Schedule 13G within 45 days of the end of the calendar year in which the person exceeds the 5% threshold. This no-action letter has given rise to what practitioners refer to as the rule of three, which provides that, where voting and investment decisions regarding an entitys portfolio are made by three or more persons and a majority of those persons must agree with respect to voting and investment decisions, then none of those persons individually has voting or dispositive power over the securities in the entitys portfolio and, thus, none of those persons will be deemed to have beneficial ownership over those securities. Section 12 (g) of the Securities Exchange Act of 1934 calls for issuers of securities to register with the SEC and begin public dissemination of financial information within 120 days of the. beneficially owns, in the aggregate, more than 5% of a class of the voting, equity securities (the Section 13(d) Securities): issued by any closed-end investment company registered under the Investment Company Act of 1940, as amended (the Investment Company Act), or, issued by any insurance company that would have been required to register its securities under Section 12 of the Exchange Act but for the exemption under Section 12(g)(2)(G) thereof (see, manages discretionary accounts that, in the aggregate, hold equity securities trading on a national securities exchange with an aggregate fair market value of $100 million or more (see, securities and standardized options) in an aggregate amount equal to or greater than (a) 2 million shares or shares with a fair market value of more than $20 million during a day, or (b) 20 million shares or shares with a fair market value of more than $200 million during a calendar month (see, Significant Acquisitions and Ownership Positions, any general partner, managing member, trustee, or controlling shareholder of the firm; and. All rights reserved. For example, if a private fund that beneficially owns more than 5% of a class of an issuers Section 13(d) Securities is managed by a securities firm that is a limited partnership, the general partner of which is an LLC that in turn is owned in roughly equal proportions by two managing members, then each of the private fund, the securities firm, the firms general partner, and the two managing members of the general partner likely will have an independent Section 13 reporting obligation. The list is available at http://www.sec.gov/divisions/investment/13flists.htm. For example, a person that acquired all of its Section 13(d) Securities prior to the issuers registration of such securities (or class of securities) under the Exchange Act, or acquired no more than 2% of the Section 13(d) Securities within a 12-month period, is considered to be an Exempt Investor and would be eligible to file reports on Schedule13G. STAY CONNECTED If there has been any material change to the information in a Schedule 13D previously filed by a reporting person,[11] the person must promptly file an amendment to such Schedule 13D. There is currently no filing fee for Schedule 13G or Schedule 13D. A Large Trader must file an initial Form 13H promptly after effecting aggregate transactions equal to or greater than one of the identifying activity levels. For example, the sale of a warrant to purchase common stock of a public company would be matched with any purchase of the common stock of that public company occurring within six months for purposes of determining short-swing profits under Section 16(b). 1 Twitter 2 Facebook 3RSS 4YouTube Provide updated disclosure on previously disclosed cybersecurity incidents in 10-Ks and 10-Qs. Unlike the definition of beneficial ownership for the purpose of determining whether a person is a 10% beneficial owner discussed above (i.e., voting and dispositive power), for Section 16 reporting purposes, an insiders beneficial ownership depends on whether the person has the opportunity to profit, directly or indirectly, from a purchase, sale or other transaction in the public companys equity securities (a profit interest). Whether you use an outside vendor or you make your EDGAR filings yourself, you must first obtain several different identification codes from the SEC before the filings can be submitted. Even if your company does not have an effective registration statement for a public offering, it could still be required to file a registration statement and become a reporting company under Section 12 of the Exchange Act if: For banks, bank holding companies and savings and loan holding companies, the threshold is 2,000 or more holders of record; the separate registration trigger for 500 or more non-accredited holders of record does not apply. [30] Prohibition 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, SEC Release No. Obligations of a Firms Control Persons. The Section 13 (d) reporting requirement is satisfied by filing Schedule 13D with the SEC. Section 16: Reports of Directors, Officers, and Principal Shareholders. Schedule 13D must be amended promptly to reflect any material changes in the information provided. [12]A person or entity that beneficially owns more than 10% of a class of Section 13(d) Securities may also have filing or other obligations under the Hart-Scott-Rodino Act and/or Section 16 of the Exchange Act. This legal update summarizes (a) the reporting requirements under Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are generally applicable to persons that own, or exercise investment discretion over accounts that own, publicly traded or exchange-listed equity securities, [1] and (b) the reporting requirements under Section 16 of the Exchange Act . [9]We have standard forms of powers of attorney and joint filing agreements for Schedule 13G filings. If a securities firm has multiple affiliates in its organization that qualify as Large Traders, Rule 13h-1 permits the Large Traders to delegate their reporting obligation to a control person that would file a consolidated Form 13H for all of the Large Traders it controls. Please contact us if you would like further guidance in determining who may constitute a control person of your firm for these purposes. When beneficial ownership of a Qualified Institution with no previous Section 13 filing exceeds 10% at month end, 10th Day after the Month in which the 10% threshold exceeded, 3. Along with certain other institutions listed under the Exchange Act,[5] a reporting person that is a registered investment adviser or broker-dealer may file a Schedule 13G as a Qualified Institution if it (a) acquired its position in a class of an issuers Section 13(d) Securities in the ordinary course of its business, (b) did not acquire such securities with the purpose or effect of changing or influencing control of the issuer, nor in connection with any transaction with such purpose or effect (such purpose or effect, an activist intent), and (c)promptly notifies any discretionary account owner on whose behalf the firm holds more than 5% of the Section 13(d) Securities of such account owners potential reporting obligation. When a Passive Investor exceeds the 5% threshold, When a reporting person acquires or holds Section 13(d) Securities with an activist intent, When a Passive Investors beneficial ownership equals or exceeds 20%, Within 10 days of the triggering transaction, Any material change in information reported on previous Schedule 13D, Any change in information reported on Schedule 13G, 1. In a 1987 SEC no-action letter, the SEC staff took the position that where investment decisions by an employee benefit plan trust required the approval of three out of five trustees, none of the trustees was the beneficial owner of the trusts portfolio securities for purposes of Section 13(d) of the Exchange Act. These funds also will have 18 months to comply with amendments to rule 30e-3 and Form N-CSR. An insider must report on Form 4 any change that occurs with respect to its beneficial ownership interest in the public companys equity securities. The violation is not regarded as a criminal offense, but the liability is strict, which means that an insider may not offer any defenses (reasonable or otherwise) to avoid disgorgement. An agreement to act together does not need to be in writing and may be inferred by the SEC or a court from the concerted actions or common objective of the group members. The reporting obligations of a Large Trader continue until it files an amendment to Form 13H showing that it has ceased operations (a terminating filing) or has not effected transactions in NMS Securities at or above the identifying activity level for a full calendar year (an inactive status filing). In calculating the amount of the disgorgement, an insider is required to pay the excess of (a) the highest sales price per share, over (b) the lowest purchase price per share, with respect to the covered securities involved in the matching transactions made within the six-month period. A securities firm that has one of its control persons serving on an issuers board of directors may not be eligible to qualify as a Passive Investor with respect to such issuer. Sections 13(d) and 13(g) of the Exchange Act require any person or group of persons[2] who directly or indirectly acquires or has beneficial ownership[3] of more than 5% of a class of an issuers Section 13(d) Securities (the 5% threshold) to report such beneficial ownership on Schedule 13D or Schedule 13G, as appropriate. In order to receive your filing codes, you must first submit a Form ID to the SEC. 1 Twitter 2 Facebook 3RSS 4YouTube The instructions for the reports will encourage the use of graphics and text features to make them more effective. An annual Form N-PX filing will be due by August 31 of each year thereafter to report the say-on-pay votes during the most recent 12-month period ended June 30. Certain swaps may be Section 13(f) Securities if the transaction grants the reporting manager investment discretion over an underlying asset that is a Section 13(f) Security. Insiders who serve as trustees for a trust may need to comply with Section 16 if the trust beneficially owns more than 10% of a registered class of the public companys equity securities. The reports that an insider will file with the SEC[24] under Section 16 are: Form 3 Initial Statement of Beneficial Ownership of Securities. Amendments to Schedule 13D. If a client of a securities firm (including a private or registered fund or a separate account client) by itself beneficially owns more than 5% of a class of an issuers Section 13(d) Securities, the client has its own independent Section 13 reporting obligation. [28]Short Position and Short Activity Reporting by Institutional Investment Managers, SEC Release 34-94313 (Feb. 25, 2022), available at https://www.sec.gov/rules/proposed/2022/34-94313.pdf. FILING DEADLINE (ifdeadline falls on a weekend or holiday, the deadline is extended to the next business day), When a reporting person is not qualified to file a Schedule 13G and exceeds the 5% threshold, 1. A profit interest may exist as the result of any contract, arrangement, understanding, or relationship that the insider may have with another person or organization. SEC regulations require that annual reports to stockholders contain certified financial statements and other specific items. Public companies are a key part of the American economy. [4]In calculating the 5% test, a person is permitted to rely upon the issuers most recent quarterly or annual report for purposes of determining the amount of outstanding voting securities of the issuer, unless the person knows or has reason to believe that such information is inaccurate. Copyright 2023 Paul Hastings, LLP. Inline eXtensible Business Reporting Language (iXBRL) tagging will be required for the Tailored Shareholder Reports. each reporting person is eligible to file on the Schedule used to make the Section 13 report (e.g., each person filing on a Schedule 13G is a Qualified Institution, Exempt Investor, or Passive Investor); each reporting person is responsible for the timely filing of the Schedule 13D or Schedule 13G and for the completeness and accuracy of its own information in such filing; the Schedule 13D or Schedule 13G filed with the SEC (a) contains all of the required information with respect to each reporting person; (b) is signed by each reporting person in his, her, or its individual capacity (including through a power of attorney); and (c) has a joint filing agreement attached. 6LinkedIn 8 Email Updates, Compliance Guide: Changes to Exchange Act Registration Requirements to Implement Title V and Title VI of the JOBS Act, Compliance Guide: Interactive Data for Financial Reporting, Press Release: SEC Adopts Amendments to Implement JOBS Act and FAST Act Changes for Exchange Act Registration Requirements, JOBS Act FAQs: Changes to the Requirements for Exchange Act Registration and Deregistration, Sarbanes-Oxley Section 404: A Guide for Small Business. The large shareholding reporting system requires a person who has become a Large Shareholder of Share Certificates, etc. Section 16 also establishes mechanisms for a company to recover "short swing" profits, or profits an insider realizes from a purchase and sale of the companys security that occur within a six-month period. Limited exemptions exist for transactions that do not need to be reported on Form 4, including the acquisition of a portfolio companys equity securities not exceeding $10,000, subject to specified conditions (the Small Acquisitions Exemption). When a Qualified Institution or Exempt Investor exceeds the 5% threshold (subject to item 2 below), 2. In determining whether a securities firm has crossed the 5% threshold with respect to a class of an issuers Section 13(d) Securities,[4] it must include the positions held in any proprietary accounts and the positions held in all discretionary client accounts that it manages (including any private or registered funds, accounts managed by or for principals and employees, and accounts managed for no compensation), and positions held in any accounts managed by the firms control persons (which may include certain officers and directors) for themselves, their spouses, and dependent children (including IRA and most trust accounts). Schedules 13D and 13G: Reporting Significant Acquisitions and Ownership Positions. On September 25, 2018, the SEC staff issued guidance on compliance with the new requirement to present changes in shareholders' equity in interim financial statements within Form 10-Q filings. Registration statements and prospectuses become public shortly after filing with the SEC. However, we suggest an amendment in such a circumstance to eliminate the reporting persons filing obligations if the reporting person does not in the near term again expect to increase its ownership above 5%. Your companys CEO and CFO must certify the financial and certain other information contained in annual reports on Form 10-K and quarterly reports on Form 10-Q. A reporting person that is a Passive Investor must file its initial Schedule 13G within 10 days of the date on which it exceeds the 5% threshold. Under Section 13 of the Exchange Act, reports made to the U.S. Securities and Exchange Commission (the SEC) are filed on Schedule 13D, Schedule 13G, Form 13F, and Form 13H, each of which is discussed in more detail below. In June 2022, the SEC adopted rule and form amendments that require electronic filing of all Forms 144 on EDGAR. For those considered a "reporting company" for at least 90 . the direct or indirect parent company of the firm and any other person that indirectly controls the firm (e.g., a general partner, managing member, trustee, or controlling shareholder of the direct or indirect parent company). See definition in Footnote 3 above and accompanying text. As an example, a reporting manager exercises voting power when it votes (or directs another party to vote) in accordance with the reporting managers voting policies or uses its independent judgment or expertise to determine how a clients voting policies should apply to a say-on-pay vote, or when it influences the decision of whether to vote a security, such as determining whether to vote on a say-on-pay matter or whether to recall loaned securities in advance of a vote. However, any person who acquires a derivative security or power specified in clauses (a), (b), and (c) above with the purpose or effect of changing or influencing the control of the issuer, or in connection with any transaction having such purpose or effect, will, immediately upon acquisition, be deemed to be the beneficial owner of the securities which may be acquired through the exercise or conversion of such derivative security or power. Unless a securities firm has an activist intent with respect to the issuer of the Section 13(d) Securities, the firm generally will be able to report on Schedule 13G either as a Qualified Institution or as a Passive Investor. Under the proposed amendments, if adopted without further comment: In certain circumstances, it may be appropriate for the Schedule 13D or Schedule 13G made by control persons to include a disclaimer of beneficial ownership. Houston, Texas Area. You are required to retain a manually signed hard copy of all EDGAR filings (and related documents like powers of attorney) in your records available for SEC inspection for a period of five years after the date of filing. Individualized outreach to large holders should be a priority. The monthly reports would include detailed information about the institutional investment managers gross short position on an issuer-by-issuer basis, any shares purchased to cover a short position in whole or in part, and any daily activity that increased, decreased or closed a short position during the calendar month (e.g., purchasing or selling options and other derivatives, tendering convertible securities, and engaging in secondary offering transactions). [17] A reporting manager may choose to exclude from its Form 13F any small position in an issuers Section 13(f) Securities that (a) amounts to less than 10,000 shares, and (b) has an aggregate fair market value of less than $200,000. Broadridge has announced the launch of a template and end-to-end process solution for fund companies and fund administrators that simplifies the steps involved in creating and providing the SEC's new Tailored Shareholder Reports.. If your company qualifies as a smaller reporting company or an emerging growth company, it will be eligible to rely on scaled disclosure requirements for these reports. These reports require much of the same information about the company as is required in a registration statement for a public offering. Because EDGAR submissions require the use of specialized software, we do not recommend that you make EDGAR filings yourself unless you fully understand the process. On November 2, 2022, the SEC adopted Rule 14Ad-1 under the Exchange Act that will require any manager to annually report its proxy voting record with respect to the securities of any public company over which it exercises voting power[18] regarding the shareholder advisory votes on (a) the compensation paid to the public companys executives, (b) the frequency of the executive compensation approval votes, and (c) any so-called golden parachute arrangements in connection with a merger or acquisition (collectively, say-on-pay votes). While a persons title is generally indicative, the final determination of whether a person is a director or designated officer of a public company for Section 16 purposes depends on the facts and circumstances, primarily based on the persons function and influence at the public company. The initial report would be due within 1 business day of exceeding the notional threshold and an amendment would be due within 1 business day following any material change to the information in a previously filed report (including a change equal to 10% or more of a security-based swap position).
