Rule 13f-1 under the Exchange Act requires that a report on Form 13F be filed with the SEC by every so-called institutional investment manager[14] that exercises investment discretion[15] over one or more accounts holding equity securities that (a) are admitted for trading on a national securities exchange (the Section 13(f) Securities),[16] and (b) have an aggregate fair market value as of the last trading day of any month during a calendar year equal to at least $100 million (the $100 million threshold). [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. 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. In that case, each control person would file a 13F Notice as described above. The mandatory electronic filing of Forms 144 will commence on April 13, 2023. These obligations are discussed in more detail in Section 16: Reports of Directors, Officers, and Principal Stockholders below. In calculating whether a securities firm beneficially owns more than 10% of a public companys equity securities, a firm that is a Qualified Institution[22] need not count any equity securities held for the benefit of any third party or in any customer or fiduciary accounts in the ordinary course of business as long as the equity securities were not acquired with an activist intent. The reporting person will thereafter be subject to the Schedule 13D reporting requirements with respect to the Section13(d) Securities until such time as the former Schedule 13G reporting person once again qualifies as a Qualified Institution or Passive Investor with respect to the Section 13(d) Securities or has reduced its beneficial ownership interest below the 5% threshold. [27]Rule 16a-3(k) also requires each public company that maintains a corporate website to post on its website all Forms 3, 4, and 5 filed with respect to its equity securities by the end of the business day after filing with the SEC. However, only a reporting person that was originally eligible to file a Schedule 13G and was later required to file a Schedule 13D may switch back to reporting on Schedule 13G.[10]. This. Change shareholder reporting requirements (Reporting Requirements) for open-end management investment . This is among the reasons that board disclosure and accountability have become increasingly critical aspects of good governance. [13] Modernization of Beneficial Ownership Reporting, SEC Release Nos. This new reporting requirement will be effective on July 1, 2023, and the initial filing of Form N-PX by a current reporting manager will be due by August 31, 2024 and disclose its say-on-pay votes during the period from July 1, 2023 to June 30, 2024. Copyright 2023 Paul Hastings, LLP. An excluded position must meet both of these requirements. 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. In general, Schedule 13G is available to any reporting person that falls within one of the following three categories: Exempt Investors. In lieu of using Form 5, an insider may choose to report a transaction on Form 4; however, the voluntary Form 4 must be timely filed before the end of the second business day following the day on which the transaction that triggered the filing has been executed or otherwise deemed to occur. 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. Form 13H requires that a Large Trader, reporting for itself and for any affiliate that exercises investment discretion over NMS securities, list the broker-dealers at which the Large Trader and its affiliates have accounts and designate each broker-dealer as a prime broker, an executing broker, and/or a clearing broker. Form 13H filings with the SEC are confidential and exempt from disclosure under the United States Freedom of Information Act. Section 16 requirements also apply to all 10% beneficial owners. Section 16: Reports of Directors, Officers, and Principal Shareholders. These three types of Form 13F are: Any reporting manager that files a 13F Notice or 13F Combination Report must identify each other reporting manager that is responsible for a Form 13F filing that reports any Section 13(f) Securities over which such reporting manager shares investment discretion. The following persons are likely to be considered control persons of a firm: If a securities firm (or parent company) is directly or indirectly owned by two partners, members, trustees, or shareholders, generally each such partner, member, trustee, or shareholder is deemed to be a control person. The three quarterly filings are required even if the aggregate fair market value of the Section 13(f) Securities held in a reporting managers discretionary accounts falls below the $100 million threshold during the calendar year. Insiders: Officers, Directors, and 10% Beneficial Owners. Inline eXtensible Business Reporting Language (iXBRL) tagging will be required for the Tailored Shareholder Reports. SEC Issues Guidance on Interim Reporting Requirements to Disclose Changes in Shareholders' Equity. A material change includes, without limitation, a reporting persons acquisition or disposition of 1% or more of a class of the issuers Section 13(d) Securities, including as a result of an issuers repurchase of its securities. Amendments to Schedule 13D. 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. 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). This could occur in the case of (a) a reporting person that changes from acquiring or holding Section 13(d) Securities for passive investment to acquiring or holding such securities with an activist intent, (b) a reporting person that is a Qualified Institution that deregisters as an investment adviser pursuant to an exemption under the Investment Advisers Act of 1940, as amended, or applicable state law, or (c) a reporting person that is a Passive Investor that acquires 20% or more of a class of an issuers Section 13(d) Securities. 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. 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. In addition, the rules adopted under Section 16(b) provide for the matching of purchases and sales of derivative securities with purchases and sales of the securities underlying those derivative securities for the purpose of determining the profits that may be disgorged under Section 16(b). 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. Accordingly, once an institutional investment managers obligation to report on Form13F is established, the manager must make four quarterly filings with the SEC. 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. Section 16 of the Exchange Act and the rules thereunder impose certain obligations on insiders of any public company. Under certain circumstances, a reporting manager can request confidential treatment of the information contained in the Form 13F filing. Section 16 requires insiders of a public company to report their direct and indirect ownership of the companys equity securities and any transactions in such securities, and to disgorge any short-swing profits, which are discussed below. [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. 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. Switching from Schedule 13G to Schedule 13D. The certified financial statement must include a two-year audited. SEC Rules and Amendments . Reporting Obligations of Control Persons and Clients. 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. Filings on Forms 3, 4, and 5 must be submitted to the SEC via EDGAR (unless a hardship exemption of the type specified in Regulation S-T applies).[27]. Form N-PX will allow reporting managers that have a disclosed policy of not voting proxies and that did not vote during the reporting period to indicate this on the form without providing additional information about each voting matter. The SEC also proposed new Rule 10B-1 under the Exchange Act[30] in December 2021 in order to require any person with large notional positions[31] in credit default swaps, other swaps based on debt securities, or swaps based on equity securities to file reports with the SEC that disclose each security-based swap position and any related position in the reference debt or equity security, loan or narrow-based security index underlying the security-based swap. When beneficial ownership of a Passive Investor exceeds 10%, Promptly after the triggering transaction, 2. Examples of an indirect profit interest in a public companys equity securities that will trigger an insiders Section 16 reporting requirement include: (a) the equity securities held by family members in the same household as the insider, (b) a security-based swap involving the equity securities, (c) the right to acquire equity securities through the exercise or conversion of any other derivative security (whether or not exercisable within 60 days), (d) a general partners proportionate interest in the equity securities held by a partnership, and (e) under certain circumstances, receipt of a performance-based fee or allocation from a client with respect to equity securities held in the clients portfolio.[23]. Therefore, a firm will be a reporting person if it directly or indirectly acquires or has beneficial ownership of more than 5% of a class of an issuers Section 13(d) Securities for its own account or any discretionary client account(s). Additional risks and uncertainties that could affect our financial results and business are more fully described in our Annual Report on Form 10-K for the period ended December 31, 2022, which is expected to be filed with the SEC on or about February 28, 2023, and our other SEC filings, which are available on the Investor Relations page of our . Shareholder Disclosure Requirements. [19] Under Rule 16a-1(f), the officers of a public company which are subject to Section 16 are (a)the president, (b) the principal financial officer, (c) the principal accounting officer or controller, (d) any vice president of the issuer in charge of a principal business unit, division, or function, (e) any other officer who performs a policy-making function, or (f) any other person who performs a similar policy-making function for the public company. Shares of mutual funds are not Section 13(f) Securities. This legal update also includes a summary of certain proposed rules under the Exchange Act that would impose additional reporting requirements if adopted, and concludes with a schedule of the filing deadlines under Sections 13 and 16 for 2023. 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, which are applicable to persons considered to be insiders of public companies. STAY CONNECTED An insider must file a Form 5 to report any equity securities and transactions that were not previously reported on a Form 3, 4 or 5. This disclaimer is typically inserted as a footnote to the ownership information on the cover page and in the body of the Schedule. Exemption for non-UK issuers 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. As discussed above, a securities firm is deemed to be the beneficial owner of the Section 13(d) Securities in all accounts over which it exercises voting and/or investment power. [25] See Rule 16a-6 under the Exchange Act. 1 Twitter 2 Facebook 3RSS 4YouTube While not set out in Section 16 or the rules thereunder, the concept of deputization has been found by the courts where a securities firm is acting as a director of a public company through its deputy and (a) the director shares confidential information with the firm, (b) the director influences the firms investment decisions with respect to the public company, or (c) the directors actions as a director are influenced by the firm. A reporting person who is not eligible to use Schedule 13G must file a Schedule13D within 10 days of such reporting persons direct or indirect acquisition of beneficial ownership of more than 5% of a class of an issuers Section 13(d) Securities. Obligations of a Firms Clients. For example, investment advisers (whether or not they are registered), broker-dealers, banks, trustees, and insurance companies are all institutional investment managers. These funds also will have 18 months to comply with amendments to rule 30e-3 and Form N-CSR. to disclose the status of shareholding by submitting a Large Shareholding Report within a prescribed period. When a Qualified Institution or Exempt Investor exceeds the 5% threshold (subject to item 2 below), 2. [9]We have standard forms of powers of attorney and joint filing agreements for Schedule 13G filings. The direct and indirect beneficial owners of the same Section 13(d) Securities may satisfy their reporting obligations by making a joint Schedule13D or Schedule 13G filing, provided that: Initial filings. In each case, the reporting person must file a Schedule 13D within 10 days of the event that caused it to no longer satisfy the necessary conditions (except that, if a former Qualified Institution is able to qualify as a Passive Investor, such person may simply amend its Schedule 13G within 10 days to switch its status). Separate Shareholder Report Requirements . 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). 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. 34-93784 (Dec. 15, 2021), available at https://www.sec.gov/rules/proposed/2021/34-93784.pdf. 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. Thereafter, when beneficial ownership of a Passive Investor increases or decreases by 5% or more from the last Schedule 13G filing, When a reporting person has discretion over accounts with $100 million or more of Section 13(f) Securities on the last trading day of any month during the calendar year, After initial Form 13F, filings must continue for at least the next three calendar quarters, Any omitted holdings or errors in information reported on previous Form 13F, When accounts under discretionary management transact in NMS securities in an amount equal to or more than (a) 2 million shares or $20 million during any calendar day, or (b) 20 million shares or $200 million during any calendar month (identifying activity level), Promptly after effecting aggregate transactions at the identifying activity level, Within 45 days after the end of each full calendar year until the filing of an inactive status Form 13H after a full calendar year of effecting transactions below the identifying activity level, Any information on the previous Form 13H becomes inaccurate, Promptly following the end of the calendar quarter in which the information becomes inaccurate, When a reporting person becomes an officer or director of a public company or meets the 10% threshold, Within 10 days of the triggering eventor at the time of the registration of the companys equity securities on a national securities exchange, Any transaction or change in beneficial ownership (e.g., exercise of any option, warrant or right or conversion of a security), Any transaction not reported on Form 4 during the calendar year (not required if all transactions previously reported on Form 4). Otherwise, each Large Trader in the organization will be required to file a separate Form 13H. This final short-period filing will be due by March 1 of the immediately following calendar year. 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. In order to avoid duplicative reporting of the same Section 13(f) Security, the reporting managers must arrange to file one of the three different types of Form 13F. 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. 33-11030 and 34-94211 (Feb. 10, 2022), available at https://www.sec.gov/rules/proposed/2022/33-11030.pdf. SEC Reporting Requirements - 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. Proposed Reporting of Short Sales and Securities-based Swaps. In the proposed rule release, the SEC directs approximately 200 requests for comment to the investment adviser and fund industry relating to each element of the rule proposal as it looks to finalize the rules. For any securities firm that becomes a reporting manager after July 1, 2023, the initial Form N-PX will be due for the 12-month period ending June 30 of the calendar year following the due date of its initial Form 13F filing (e.g., if the reporting managers initial Form 13F is due on February 15, 2025, then the initial Form N-PX will be due by August 31, 2026 to disclose any say-on-pay votes during the period from July 1, 2025 to June 30, 2026). Any subsequent changes to an insiders position must be disclosed on Form 4 or Form 5. The list is available at http://www.sec.gov/divisions/investment/13flists.htm. Such a change may occur as a result of, among other transactions: (a) any open market or private purchase or sale, or bona fide gift of any equity or convertible securities; (b) a stock option grant or forfeiture; (c) the conversion of a derivative security; (d) the acquisition or vesting of any restricted stock or restricted stock unit; (e) a merger, exchange offer, or a tender offer; and (f) any purchase, sale or exercise of any option, warrant, or right. [23] An insider has an indirect profit interest in the equity securities held by a client if it receives a performance-based fee or allocation from the client, unless (a) the fee or allocation is calculated based on the net capital gains or net capital appreciation of the clients portfolio measured over a period of one year or more, and (b) the public companys equity securities held in the clients portfolio do not account for more than 10% of the market value of the portfolio. Please contact us if you need these forms. The Firms Obligations. 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. [6] While the rule of three is frequently relied on by practitioners and has been acknowledged by the SEC staff, it has never been formally approved by the SEC. 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. However, Section 929R of the Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated that obligation. As an associate, I worked directly with and advised over 15 public companies on corporate and securities law compliance, board and corporate governance . 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. We respectfully submit this letter in opposition to the 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. 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. Please contact us if you would like further guidance in determining who may constitute a control person of your firm for these purposes. 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. Loans made in the ordinary course of business at market rates by issuers that are financial institutions or in the business of consumer lending are excepted from the prohibition. Short-swing profits may result whenever an insider (a) sells (or is deemed to sell) any covered securities within six months of purchasing any covered securities of the same class at a lower price per share, or (b) purchases (or is deemed to purchase) any covered securities within six months of selling any covered securities of the same class at a higher price per share. Under Section 16(b) of Exchange Act, each of these insiders may be liable for any short-swing profits (i.e., profits made from a sale or purchase of the public companys securities made within less than six months of a matching purchase or sale). See definition in Footnote 3 above and accompanying text. 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). Under the new rule, large companies would be required to disclose details on executive compensation for the past five fiscal years while small companies need to report on the past three fiscal years. Generally, shares of registered closed-end funds and exchange-traded funds (ETFs) are Section 13(f) Securities as well as certain convertible debt securities, equity options, and warrants. [21] These requirements seek to discourage insiders from profiting on the basis of the superior information that may be accessible to them because of their influential role in the public company. In February 2022, the SEC proposed amendments to Section 13[13] in order to accelerate the filing deadlines for Schedule 13D and Schedule 13G and to require more frequent amendments to Schedule 13G in lieu of the current annual amendment. The determination of who each of the control persons of a firm are for purposes of Section 13 reporting is very fact-specific and also may have important ramifications with respect to such control persons obligations and liabilities under Section 16 of the Exchange Act, particularly relating to insider reporting and short-swing profits. Please contact us if you would like guidance regarding the application of Section 13 to securities-based swaps or other derivative contracts. [20]For the purpose of determining a persons initial insider status, Section 16 incorporates the definition of beneficial ownership in Section 13(d). Consequently, the direct or indirect control persons of a securities firm may also be reporting persons with respect to a class of an issuers Section 13(d) Securities. STAY CONNECTED Most of the "less retail-focused" information now in prospectuses and shareholder reports would be required to be on mutual funds' websites and also filed with the SEC on Form N-CSR. 13F Holdings Report, on which a reporting manager includes all Section 13(f) Securities over which it or any other reporting manager exercises investment discretion; 13F Notice, on which a reporting manager indicates that all Section 13(f) Securities over which it exercises investment discretion are reported on a Form 13F filed by another reporting manager; and. In addition, a Passive Investor does not have an obligation to notify discretionary account owners on whose behalf the firm holds more than 5% of such Section 13(d) Securities of such account owners potential reporting obligation.
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