1. Rule 13d-1(a), (e), (f), and (g)

Rule 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)²⁶ or (c)²⁷ (which permit investors to file the more abbreviated Schedule 13G in lieu of the longer-form Schedule 13D). Rule 13d-1(e), (f), and (g) ensure that initial Schedule 13D filings uniformly are subject to a 10-day deadline, regardless of whether the beneficial owners were previously eligible to file a Schedule 13G in lieu of the Schedule 13D.

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). Rule 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.²⁸ Institutional and non-institutional beneficial owners who are unable to certify that they do not hold beneficial ownership for the purpose of or with the effect of changing or influencing the control of the issuer 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.”²⁹ Rule 13d-1(e)(1) requires such persons to 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 percent 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 percent 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.

Rule 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). Under Rule 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 Rule 13d-1(b) and (c).

a. Proposed Amendments

In the Proposing Release, the Commission proposed to amend Rule 13d-1(a) to require a Schedule 13D to be filed within five days after the date on which a person acquires beneficial ownership of more than five percent of a covered class. The Commission stated that the deadline for filing an initial Schedule 13D should be revised in light of advances in technology and developments in the financial markets and noted that shortening that deadline would be consistent with previous efforts to accelerate public disclosures of material information to the market.³⁰ The Commission also asserted that the proposed five-day deadline would maintain an appropriate balance between the requirement that material information be timely disseminated to investors and the competing interest that undue burdens not be imposed in the change of control context.³¹ In addition, the Commission stated that it was mindful of the need to balance the market’s demand for timely information and the administrative burden placed upon a filer to adequately and accurately prepare that information.³² Finally, the Commission noted that the current 10-day filing deadline “contributes to information asymmetries that could harm investors” and stated that shortening that deadline could increase transparency and provide assurance “that transactions are not being made based on mispriced securities caused by a prolonged lag in the dissemination of market-moving information,” thereby improving investor confidence, market efficiency, and liquidity.³³

In the Proposing Release, the Commission also proposed to amend the initial Schedule 13D filing deadline under Rule 13d-1(e)(1), (f)(1), and (g) for largely the same reasons that it proposed to amend Rule 13d-1(a). Specifically, the Commission proposed to make conforming revisions to Rule 13d-1(e), (f), and (g) so that persons who initially elected to report beneficial ownership on Schedule 13G, in lieu of a Schedule 13D, but subsequently lost their eligibility would be treated no differently from persons who make a Schedule 13D their initial filing.³⁴ Accordingly, the Commission proposed to amend Rule 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.³⁵

b. Comments Received

Commenters³⁶ expressed a range of views on the proposed amendments to Rule 13d-1(a), (e), (f), and (g). A number of commenters supported shortening the deadline for filing an initial Schedule 13D from 10 days to five days.³⁷ Several commenters asserted that the proposed amendments would increase the timeliness and quality of information for market participants.³⁸ A number of commenters asserted that the proposed amendments would increase transparency and fairness in the financial markets.³⁹

Several commenters identified potential specific benefits of the proposed amendments. For example, some commenters asserted that the proposed amendments would be particularly beneficial for retail investors by providing them with additional information and transparency.⁴⁰ Another commenter stated that the proposed amendments would enable investors and the market to “better track when beneficial owners take significant positions in covered securities for purposes of controlling or exerting influence over issuers, resulting in more informed decision-making by investors and more accurate valuation of securities by the market.”⁴¹

Other commenters highlighted potential downsides of the current 10-day deadline. For example, one commenter described the 10-day deadline as costly to public companies and investors generally and based its support for the proposed amendments “on the fundamental concept that a public company must have timely information about its owners in order to engage with them effectively and respond promptly to their concerns.”⁴² Another commenter stated that “[i]nvestors’ and market participants’ abilities to prudently manage their positions and exposures is materially undermined by the arbitrary, unnecessary, discriminatory delay in reporting.”⁴³

Several commenters suggested that the proposed amendments would reduce information asymmetry among market participants.⁴⁴ Other commenters raised similar information asymmetry-based concerns regarding the 10-day filing deadline. For example, one commenter expressed concern that under the current deadline, pension funds are deprived of any short-term gains from hedge fund activism if they sell shares during the 10-day delay in disclosure of a beneficial ownership stake.⁴⁵ Another commenter asserted that the current 10-day deadline “disadvantages selling shareholders after the 5% threshold is reached and permits activist investors to ambush public companies, often by disclosing an ownership interest that far exceeds 5% of shares outstanding.”⁴⁶ Further, one commenter suggested that the proposed amendments could help address information asymmetries that facilitate “stealth” accumulations at artificially low market prices, which purportedly transfer value from public investors to those activists engaged in seeking ownership, control, or influence over the target company.⁴⁷

Other commenters supported the proposed amendments based on changes in technology and developments in the financial markets.⁴⁸ For example, one commenter supported the proposal based on the “increasing effectiveness of activist campaigns and their decreased cost due to advances in information technology and the rise of concentrated economic ownership in the United States,” citing “cost-effective activism” due to both the fact that “little more than 10 to 15 institutions are the target audience” and “the Commission’s new universal proxy rule.”⁴⁹ Similarly, other commenters described the current Schedule 13D filing deadline as “outdated.”⁵⁰ One commenter agreed with the expressed concern in the Proposing Release 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.⁵¹ One commenter cited an April 2020 survey it conducted of its members (composed of corporate officers and investor relations consultants) indicating that 82 percent supported modernization of the Schedule 13D filing deadlines.⁵²

Several commenters noted that many foreign jurisdictions require beneficial ownership reporting on a shorter deadline than currently required under Regulation 13D-G.⁵³ One commenter disagreed with the notion expressed in the Proposing Release that the comparison of the beneficial ownership reporting deadline in the United States to foreign jurisdictions is imperfect because U.S. corporate law permits anti-takeover provisions that are not present in those jurisdictions.⁵⁴ To the contrary, that commenter asserted that some of those foreign jurisdictions are even less “stockholder” and “activism” friendly than the United States, making corporate takeovers and activism more difficult, and described the corporate laws and corporate governance practices of those foreign jurisdictions as compared to the United States (focusing, in particular, on Delaware corporate law).⁵⁵ Other commenters noted that the proposed amendments would be consistent with similar Commission efforts to accelerate filing deadlines.⁵⁶

A number of commenters asserted that the proposed amendments would not impose significant costs or burdens on beneficial owners of more than five percent of a covered class.⁵⁷ For example, one of those commenters stated that the compliance costs of the proposed amendments “are unlikely to be unduly burdensome, in a manner that outweighs the benefits” of the proposal given the nature of investors that generally file a Schedule 13D and the technology available to them.⁵⁸ Another commenter agreed that the proposed amendments would be consistent in balancing investors’ need for adequate disclosures with the burdens placed on filers to accurately prepare required disclosures.⁵⁹

Several commenters stated that the proposed amendments would not significantly reduce shareholder activism.⁶⁰ For example, one commenter asserted that the proposed five-day deadline would not significantly impair the ability of activists to pursue their agendas.⁶¹ Another commenter questioned whether there is an empirical basis for asserting that the proposed amendments would prevent shareholder activism and engagement.⁶² Some commenters asserted that the proposed amendments would not interfere with shareholder activism on environmental, social, or governance (“ESG”) issues because many such activists are not Schedule 13D filers.⁶³ One commenter was “not persuaded that a 10-day delay in beneficial ownership disclosure after acquiring a 5 percent stake is needed to incentivize . . . [a] large investor to be an activist investor.”⁶⁴ And, one commenter asserted that the proposed amendments are “more likely to adversely affect short-term behaviors than long-term oriented activism.”⁶⁵

In addition, a number of commenters stated that shareholder activism is not uniformly beneficial for issuers and their shareholders.⁶⁶ For example, one commenter asserted that hedge fund activism could be contributing to an emphasis on short-term gains over sustainable, long-term growth that benefits longer-term investors.⁶⁷ One commenter noted that while a Schedule 13D filing by an activist may often lead to an immediate bump in the issuer’s stock price, there is no compelling evidence that activist interventions deliver long-term value to shareholders.⁶⁸ One commenter asserted that the current 10-day deadline may discourage companies from going public, inhibiting capital formation, based on the threat of activism and “the burden of being subject to attacks by activist investors, a number of whom have short-term agendas.”⁶⁹ One commenter stated that activist investors often pressure companies and their management to agree to their short-term demands that may or may not be in the long-term interests of shareholders, employees, and other stakeholders.⁷⁰ Further, one commenter cited a study indicating that activist hedge fund campaigns targeting public companies are associated with a reduction in jobs, research and development spending, and capital expenditures, which arguably harms employees.⁷¹

Finally, commenters raised a variety of other points in support of the proposed amendments. For example, one commenter stated that the balance that Congress sought to strike in the Williams Act⁷² was between activist investors seeking to change companies and those companies’ management—not between an activist investor and a company’s other investors.⁷³ One commenter stated that the proposed amendments could moderate the sudden, abrupt changes in corporate governance that often occur in issuers targeted by activist investors.⁷⁴ And, one commenter noted that the proposed amendments fall “squarely” within the Commission’s legal authority under section 929R of the Dodd-Frank Act and align with the Williams Act’s intent because Congress chose a 10-day deadline to accommodate the practical challenges associated with preparing and filing a Schedule 13D.⁷⁵

A number of commenters opposed shortening the initial Schedule 13D filing deadline to five days.⁷⁶ Several commenters expressed concern that the proposed amendments would disincentivize shareholder activism by reducing the amount of time that such shareholders have to accumulate positions in an issuer before filing a Schedule 13D, thereby depriving issuers and their shareholders of the positive benefits of such activism.⁷⁷ For example, one commenter stated that “if active shareholders are unable to establish an economically efficient pre-disclosure ownership stake, public company shareholders (and the economy more broadly) will be less likely to benefit from the improved stock price performance that often attends the monitoring and engagement activities pursued by engaged shareholders, given that such shareholders would have difficulty justifying certain engagements with issuers.”⁷⁸ Similarly, another commenter asserted that the proposal would “mak[e] it more costly for blockholders to build a sufficient position to effect change” and “reduce the profitability of, and therefore the incentive to pursue, activist strategies,” which would “reduce management’s accountability to shareholders and corporate governance generally.”⁷⁹ And another commenter stated that “although the SEC requires an activist buyer to disclose information that the buyer has acquired, the SEC fails to ask whether the buyer would acquire the information initially” and suggested that, under the proposed deadline, “the buyer would often be unlikely to make the original investment in information.”⁸⁰

In addition, one commenter expressed concern that the proposed amendments would disproportionately disincentivize shareholder activism that is targeted towards reforms other than a sale of the issuer.⁸¹ Another commenter asserted that the proposed amendments would inhibit an activist investor’s ability to make overtures to an issuer’s management prior to public disclosure and to consult with other shareholders to ensure that shareholders’ opinions and proposals are considered when approaching management.⁸² And, one commenter stated that the proposed amendments would particularly disincentivize activism at medium- and small-cap companies because a larger economic position is needed to offset the activists’ costs.⁸³

Several commenters took issue with the information asymmetry concerns that the Commission expressed as a justification for the proposed amendments.⁸⁴ For example, one commenter cited data indicating that shareholders who sell during the period after an activist accumulates more than five percent beneficial ownership but before the activist files its Schedule 13D still generally benefit from that activist’s accumulation because the stock price generally increases prior to the Schedule 13D filing.⁸⁵ Some commenters stated that the information asymmetry described in the Proposing Release is no different from the general asymmetry that exists in the market when any investor—activist or otherwise—determines to invest the time and resources to develop and then implement an investment thesis.⁸⁶ Similarly, some commenters asserted that information asymmetry is a quintessential element of the U.S. capital markets where investors are, and should be, entitled to profit from their analysis, hard work, and risk taking.⁸⁷ Other commenters stated that selling shareholders are not forced to sell their shares and do so voluntarily, either seeking liquidity or because they have doubts about the issuer’s prospects, and noted that such shareholders have the same access as the Schedule 13D filer to disclosures from both the issuer and insiders.⁸⁸ Some commenters asserted that the Commission ignored the fact that although some investors may miss out on selling at an appreciated price once the Schedule 13D is filed, a larger number of investors generally will benefit from the efforts of an activist.⁸⁹ Finally, one commenter asserted that the Williams Act was not intended to address information asymmetry-based concerns or the interests of shareholders who elect to sell prior to the disclosure of an initial Schedule 13D and cited to the legislative history and a U.S. Supreme Court decision to support such assertion.⁹⁰

A number of commenters also disagreed with the Commission’s technological advancement- and financial market development-based justifications for the proposed acceleration of the beneficial ownership reporting deadlines.⁹¹ For example, some commenters asserted that neither Congress nor the Commission previously suggested that technological ability to file is or should be the primary basis to determine the appropriate filing deadlines for Schedules 13D and 13G.⁹² One commenter asserted that the Commission has not made significant technological advances over the years to its own systems that market participants rely on to prepare Schedules 13D and 13G, making it challenging and costly for investors to gather the information about beneficial ownership they need to file Schedules 13D and 13G.⁹³ One commenter asserted that technological advances do not support shortening the filing deadline as proposed because despite advances in technology, the filing process still has numerous operational components that take time to complete.⁹⁴ Another commenter stated that recent trends indicate that activist investors are having a moderate and declining impact in the United States and, therefore, the Commission should “encourage new forms of activism, not suppress them.”⁹⁵

Several commenters expressed concerns that the proposed amendments do not align with the purpose or objectives of the Williams Act. For example, one commenter asserted that the proposed amendments “would necessarily be considered to be beyond [the Commission’s] statutory authority and an ‘abuse of discretion,’ if not ‘arbitrary and capricious’ under the APA” because the proposed rule does not connect the proposed reduction in filing time with what the commenter described as the “sole purpose” of the Williams Act under Supreme Court precedent, namely the protection of shareholders confronted with a cash tender offer.⁹⁶ Another commenter stated that not all of the investors who file on Schedule 13D are activist investors engaging in the types of activities the Williams Act seeks to regulate.⁹⁷ Other commenters expressed concern that the proposed amendments would disrupt the balance that the Williams Act sought to strike.⁹⁸

Some opposing commenters detailed the potential compliance burdens that the proposed amendments could impose. For example, some commenters expressed concern that the proposed five-day deadline would be unduly burdensome for smaller and non-institutional beneficial owners.⁹⁹ Other commenters asserted that the proposed amendments would present compliance challenges¹⁰⁰ and create significant reporting and monitoring burdens.¹⁰¹ One commenter expressed concern that the proposed amendments could negatively impact the ability of investors and their advisors to draft meaningful disclosures and engage in thoughtful analysis.¹⁰²

Other commenters raised various other concerns regarding the proposed amendments. For example, a number of commenters expressed concerns that the proposed amendments would increase management entrenchment and reduce shareholder engagement and corporate accountability.¹⁰³ One commenter stated that although “some purchasers may file within fewer than the required 10 days for Schedule 13D,” that “does not justify accelerating the reporting timeline.”¹⁰⁴ One commenter also noted that the proposed accelerated initial Schedule 13D filing deadline could result in activist investors relying more heavily on derivatives, such as total return swaps and call options.¹⁰⁵ One commenter asserted that the Commission has not provided a compelling justification for the proposed amendments or provided evidence to support its concerns regarding information asymmetries and reporting gaps that would warrant the proposed acceleration of the beneficial ownership reporting deadlines.¹⁰⁶ One commenter expressed concern that the proposed amendments would induce a front-running effect that would distort market pricing and increase market volatility.¹⁰⁷ Other commenters asserted that investors already have access to all of the volume and price data for publicly traded companies that they need to take appropriate action and, therefore, do not need additional information regarding holdings by significant beneficial owners.¹⁰⁸

In addition, one commenter expressed concern that the Commission has not cited a market event or failure related to the existing beneficial ownership regime to support the proposed amendments.¹⁰⁹ That commenter distinguished the proposed amendments from other congressional efforts to accelerate public disclosures based on the fact that the proposed amendments apply to unrelated, third-party investors rather than issuers or insiders.¹¹⁰ Finally, one commenter asserted that the proposed amendments conflict with contract law in the United States, which generally refrains from imposing disclosure obligations on buyers of property.¹¹¹

Some of the commenters that generally supported the proposed amendments also made various recommendations to the Commission. For example, one commenter recommended that the Commission require that an initial Schedule 13D be filed by the end of the day on which a person acquires beneficial ownership of more than five percent of a covered class.¹¹² Another recommended that the Commission require that an initial Schedule 13D be filed within one calendar day of a person acquiring three percent, rather than more than five percent, of a covered class and that a person be prohibited from acquiring more than three percent until one business day after filing a Schedule 13D.¹¹³ Similarly, one commenter recommended that the Commission require that an initial Schedule 13D be filed within one business day after crossing the five percent threshold and institute a moratorium on the acquisition of beneficial ownership of additional equity securities of an issuer by any acquirer required to file a Schedule 13D that would be in effect from the acquisition of a five percent beneficial ownership stake until two business days after filing the Schedule 13D.¹¹⁴

Other supporting commenters recommended that the Commission require that an initial Schedule 13D be filed within two business days, consistent with the filing deadline for a Form 4.¹¹⁵ One supporting commenter recommended that the Commission require that an initial Schedule 13D be filed within three days rather than five days.¹¹⁶ Other supporting commenters recommended that the Commission consider further shortening the beneficial ownership reporting deadlines without specifying an alternative filing deadline.¹¹⁷

In addition, some of the commenters that generally opposed the proposed amendments made various recommendations to the Commission. For example, one recommended that rather than shortening the Schedule 13D filing deadline, the Commission should impose a prohibition on tipping by an activist as soon as it reaches the five percent threshold until it files a Schedule 13D.¹¹⁸ Another recommended that the Commission include an assets under management-based threshold for the proposed accelerated Schedule 13D filing deadlines.¹¹⁹

Other opposing commenters recommended that the Commission consider a “tiered approach” to Rule 13d-1(a).¹²⁰ For example, one commenter suggested a tiered approach designed to vary the reporting deadline for an initial Schedule 13D based on the issuer’s market capitalization without any limitation on acquisitions during the period between the time that the investor acquires more than five percent of a covered class and the time that the initial Schedule 13D is filed.¹²¹ Another opposing commenter recommended that the Commission require those who cross certain thresholds (e.g., 10 percent) or accumulate certain amounts after crossing five percent (e.g., an additional three percent) to file on the more accelerated timeline, but allowing investors who trigger Schedule 13D filings for more technical reasons and who are not accumulating stock in connection with a potential activist engagement (e.g., proxy contests or intended take-private activity) to continue filing under the current regime.¹²²

Some opposing commenters recommended that if the Commission revises the initial Schedule 13D filing deadline, it should adopt a different deadline than proposed. For example, one commenter recommended that the Commission consider extending the filing deadline (e.g., to 15 or 30 days) rather than accelerating it.¹²³ One commenter recommended that the Commission require an initial Schedule 13D be filed within eight days rather than the proposed five days.¹²⁴ Other commenters recommended that the Commission require an initial Schedule 13D be filed in five business days rather than five calendar days.¹²⁵ Some of those commenters suggested that a five-business day deadline would be more appropriate in light of the steps required to prepare and file an accurate Schedule 13D,¹²⁶ and one commenter noted that most analogous securities laws governing reporting of material changes (e.g., Form 8-K and Exchange Act section 16 filings) require filings within time periods designated in business days rather than calendar days.¹²⁷

Finally, some commenters that neither clearly supported nor opposed the proposed amendments made recommendations to the Commission. Several commenters recommended an alternative filing deadline than proposed, with some suggesting that the Commission require an initial Schedule 13D be filed within one day,¹²⁸ within two days,¹²⁹ five business days,¹³⁰ or on the same day as the event triggering the filing obligation.¹³¹ Some commenters expressed a general preference for a deadline expressed in “business days” rather than “calendar days.”¹³² And, one commenter recommended that to the extent the Commission is concerned about Schedule 13D filers acquiring additional shares after crossing the five percent threshold without public disclosure, it should prohibit trading after crossing the five percent threshold rather than accelerating the filing deadlines.¹³³

c. Final Amendments

We are amending Rule 13d-1(a), (e), (f), and (g) to shorten the initial Schedule 13D filing deadline. We are adopting a five-business day¹³⁴ deadline, however, rather than the proposed five-calendar day deadline based on the input we received from commenters.

As noted above, Rule 13d-1(a) currently requires an initial Schedule 13D to be filed within 10 days after the date on which a person acquires beneficial ownership of more than five percent of a covered class.¹³⁵ We are amending Rule 13d-1(a) to require a Schedule 13D to be filed within five business days after the date¹³⁶ of such acquisition. Similarly, as discussed above, Rule 13d-1(e), (f), and (g) currently require an initial Schedule 13D to be filed within 10 days after the date on which a person loses its Schedule 13G eligibility. We are amending those rules to require such Schedule 13D to be filed within five business days after such date.

For purposes of determining the filing deadline under these amendments, the Commission must receive the filing by the fifth business day after the date on which the initial Schedule 13D filing obligation arises—i.e., the date on which a person acquires beneficial ownership of more than five percent of a covered class under Rule 13d-1(a) or the date on which a person loses eligibility to file on Schedule 13G under Rule 13d-1(e), (f), and (g)—in order for the filing to be considered timely. Pursuant to our amendment to Rule 13(a)(4) of Regulation S-T, discussed in section II.A.5 below, the filing will have to be submitted by direct transmission commencing on or before 10 p.m. Eastern Time on the due date.¹³⁷

We believe the current 10-day filing deadline for an initial Schedule 13D filing should be revised to ensure investors receive material information in a manner that is considered timely in light of advancements in technology and developments in the financial markets that have occurred since that deadline was enacted in 1968. Those technological advancements include, for example, market professionals’ use of information technologies to compile the necessary data and prepare a filing,¹³⁸ as well as their ability to submit filings electronically through the Commission’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system.¹³⁹ In addition, the use of modern information technology and other developments in the financial markets may facilitate an investor’s accumulation of a large equity stake more quickly than at the time Congress enacted the Williams Act.¹⁴⁰ Before 1993, “the prevailing practice” was to “settl[e] securities transactions within five business days of trade date.”¹⁴¹ Since then, the Commission has shortened the settlement cycle three times, most recently adopting rule amendments this year that require settlement of most transactions in securities within one business day after the trade date (with which compliance will be required by May 28, 2024).¹⁴² Because a shortened settlement cycle enables investors to access the proceeds of their transactions more quickly, investors also may be able to acquire a significant equity stake more quickly than when settling their transactions within five business days of trade date.¹⁴³ Congress, in the Dodd-Frank Act, expressly empowered the Commission to shorten the deadline for filing the initial Schedule 13D.¹⁴⁴ Because of those advances in technology and developments in the financial markets, we are now exercising that authority to shorten the initial Schedule 13D filing deadline.

We note that our shortening of 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.¹⁴⁵ For example, in 2002, 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.”¹⁴⁶ Similarly, 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.”¹⁴⁷

Despite those efforts to accelerate various other reporting deadlines, the initial Schedule 13D filing deadline has remained unchanged since its enactment in 1968. As a number of commenters pointed out, there have been significant changes in technology and developments in the financial markets in the intervening years that have rendered the 10-day deadline “outdated.”¹⁴⁸ Commenters also highlighted some costs that the current 10-day deadline may be imposing on market participants (i.e., by delaying the disclosure of potentially material information)¹⁴⁹ and identified some potential benefits of shortening that deadline, including increased timeliness of information and improved transparency and fairness in the financial markets.¹⁵⁰ We agree with those commenters that shortening the initial Schedule 13D filing deadline will increase the timeliness of the disclosure of material information, thereby improving market transparency, facilitating better-informed decision-making by investors, and enhancing the efficiency of resource allocation (i.e., the direction of capital and other resources to their most productive uses) across the economy.¹⁵¹

We recognize that several commenters opposed the proposed amendments to Rule 13d-1(a), (e), (f), and (g). Some commenters asserted that neither Congress nor the Commission previously suggested that technological ability to file should be the primary basis to determine the appropriate initial Schedule 13D filing deadline.¹⁵² There is some indication, however, that when enacting the 10-day deadline, Congress considered the amount of time a beneficial owner would need to prepare and submit a filing.¹⁵³ As noted above, there have been significant technological advancements since 1968 that have made it easier to prepare and file a Schedule 13D more quickly.¹⁵⁴ There also is some indication that Congress enacted section 13(d), in part, to provide shareholders with material information regarding potential changes in control in a timely manner to facilitate their investment decisions.¹⁵⁵ Because changes in technology and developments in the financial markets since 1968 have facilitated investors’ abilities to rapidly accumulate beneficial ownership,¹⁵⁶ we believe it is appropriate to shorten the initial Schedule 13D deadline so that the rate at which shareholders become aware of such accumulations keeps pace.¹⁵⁷

Many commenters also expressed concern that shortening the initial Schedule 13D filing deadline could, among other things, disincentivize shareholder activism by reducing the amount of time such shareholders have to accumulate positions in an issuer’s covered class before filing a Schedule 13D.¹⁵⁸ According to those commenters, this reduction of time could deprive issuers and their shareholders of the positive benefits of such activism, thereby increasing management entrenchment and reducing shareholder engagement and corporate accountability.¹⁵⁹

Although we primarily are concerned with ensuring that investors receive material information in a timely manner, we agree that we should remain conscious of the competing interest that undue burdens not be imposed on shareholders engaging in change of control transactions.¹⁶⁰ In the Proposing Release, the Commission “recognize[d] the chilling effect that a shortening of the initial Schedule 13D filing deadline could have on a shareholder’s ability . . . to effect changes at companies” if the shortened deadline increases the costs and reduces the incentives for shareholders attempting to effect a change of control.¹⁶¹ Yet, the Commission further stated that it did not believe “that a shortening of the deadline would unduly disrupt that balance,” noting that “many Schedule 13D filers currently do not avail themselves of the full 10-day filing period.”¹⁶² A number of commenters similarly asserted that the proposed five-day deadline would not significantly impede shareholder activism or impose significant costs or burdens on beneficial owners of more than five percent of a covered class.¹⁶³

Notwithstanding this support for the proposed five-calendar day deadline, we have decided to instead adopt a five-business day deadline. This change from the proposal comports with a recommendation that a number of commenters, including several that opposed the proposed amendments, made to the Commission.¹⁶⁴ Further, this shift to a “business days”-based deadline also will help to address a variety of concerns that commenters expressed about the burdens associated with the proposed five-day deadline. Specifically, five business days (as compared to five calendar days) gives beneficial owners additional time to accumulate positions in an issuer before filing a Schedule 13D and to prepare and file an accurate Schedule 13D.¹⁶⁵ As with the proposed five-calendar day deadline, we also note that many Schedule 13D filings currently are made within the amended five-business day deadline.¹⁶⁶ This demonstrates that at least some Schedule 13D filers are likely to be unaffected by the shortened deadline. And, many Schedule 13D filers are sophisticated, large investors that have access to technology and resources that should allow them to prepare and file a Schedule 13D within five business days.¹⁶⁷ As such, we do not anticipate a five-business day deadline will be unduly disruptive for Schedule 13D filers.

With respect to shareholder activism in particular, we note that for the vast majority of campaigns, the shareholder currently accumulates at least 90 percent of its equity stake, with many accumulating 100 percent of their equity stake, within the amended five-business day deadline.¹⁶⁸ This demonstrates that most shareholder activists may not be affected by the shortened deadline. In addition, for those campaigns that would be affected by the amended five-business day deadline, we expect the activists will adapt to the shortened deadline and continue to pursue the campaigns.¹⁶⁹ For example, for those campaigns in which the shareholder has accumulated less than 90 percent of its equity stake within the amended five-business day deadline, we note that the unrealized gains attributable to the shares accumulated after the amended deadline generally represent a significantly smaller portion of the shareholder’s total unrealized gains (when compared to the shares accumulated prior to the amended deadline).¹⁷⁰

Finally, we note that profits from shareholder activism may not be derived solely from the increase in share price associated with the public disclosure of an activist’s more than five percent beneficial ownership stake. Specifically, shareholder activists may continue to experience abnormal positive returns from activism even after filing their initial Schedule 13D. Thus, to the extent a shareholder activist seeks to profit from increases in share price after the public disclosure of its more than five percent beneficial ownership stake, we would not expect a reduction in the profits associated with such disclosure to be determinative as to whether a shareholder engages in an activist campaign.

The amended five-business day deadline reflects our attempt to ensure investors receive material information in a timely manner while, at the same time, maintaining the appropriate balance between issuers of securities and the shareholders who seek to exert influence or control over issuers, especially when compared with the proposed five-calendar day deadline, which many commenters supported,¹⁷¹ and the even shorter deadlines many commenters recommended.¹⁷² We believe a five-business day deadline is sufficiently prompt and represents a more modern approach that reflects the technological advancements and other developments in the financial markets in the more than 50 years since the 10-day deadline was enacted. A five-business day deadline, as compared to the current 10-day deadline, also would more closely align the initial Schedule 13D filing deadline with the reporting deadline on Form 8-K for issuers (generally, four business days) and Form 4 for officers, directors, and beneficial owners of more than 10 percent of a covered class (two business days), both in terms of the length of the deadline and the use of “business days,” rather than “days,” to express the deadline.¹⁷³ This alignment should help to ensure that investors consistently receive prompt disclosures of material information, irrespective of the source. A five-business day deadline for the initial Schedule 13D also is more consistent in both length and form with the filing deadlines for similar beneficial ownership reports in foreign jurisdictions.¹⁷⁴

Overall, because we expect that the vast majority of activist campaigns, and the value they create, will continue unabated under the amended rules,¹⁷⁵ we conclude that the significant benefits of the amendments outlined here and below¹⁷⁶ justify their costs.

Some commenters expressed other objections to the proposed amendments. For example, several commenters disagreed with the information asymmetry-based concerns in the Proposing Release as a basis for the proposed amendments.¹⁷⁷ We recognize that there are information asymmetries involved in any market transaction and agree that not all information asymmetries warrant a regulatory response. For example, one commenter stated that the information asymmetries described in the Proposing Release “are simply the beneficial result of research and initiative by investors and the sign of properly functioning markets” and expressed concern that “[i]f activists have no economic incentive to pursue activism, other shareholders will not experience the increase in value that would have otherwise resulted from the activist’s conduct.”¹⁷⁸ We acknowledge that benefits may stem from the information asymmetry between a Schedule 13D filer and the market, and we recognize that the informational advantage of Schedule 13D filers results, in general, from their own expenditures on research and analysis or from their efforts and expenditures to pursue changes at the issuers in which they accumulate these shareholdings.¹⁷⁹ As such, although the Proposing Release referred to information asymmetries between Schedule 13D filers and selling shareholders and expressed concern that those information asymmetries “could harm investors,”¹⁸⁰ we do not focus on the reduction of these asymmetries as a justification for shortening the initial Schedule 13D deadline, as discussed in sections IV.C.1.a.iii and iv below.

Some other information asymmetries may, however, raise concerns that warrant a regulatory response. Specifically, the research and analysis prepared by the staff of the Division of Economic and Risk Analysis indicate that shortening the initial Schedule 13D deadline to five business days could meaningfully reduce information asymmetries between “informed bystanders”¹⁸¹ and other, less-informed investors who sell their shares during the period after which an initial Schedule 13D filing obligation has been incurred but before the filing is made.¹⁸² The informational advantage those “informed bystanders” have over the selling shareholders in these transactions and the associated wealth transfers may be perceived by some market participants to be unfair. Thus, to the extent that a shortened initial Schedule 13D filing deadline would reduce these wealth transfers, thereby addressing this perceived unfairness, this change could enhance trust in the securities markets and promote capital formation.¹⁸³

We also note that some commenters questioned the appropriateness and legality of the proposed amendments in light of certain U.S. Supreme Court cases that the commenters cited for the proposition that the “sole purpose” of the Williams Act is to protect shareholders confronted with a cash tender offer.¹⁸⁴ In both cases, the Court made the cited statements in the limited context of determining causes of action or remedies that are available for purported violations of certain provisions of the Williams Act. Neither decision suggests that the provisions and protections of the Williams Act are available only when a cash tender offer is involved; in fact, the Court in Rondeau v. Mosinee Paper Corp. referred to the defendant-shareholder’s belated compliance with section 13(d), notwithstanding the absence of a pending or threatened cash tender offer.¹⁸⁵ We also note statements in the legislative history indicating that Congress intended that the Williams Act would apply to any “acqui[sition] of a substantial block of equity securities . . . by a cash tender offer . . . or through open market or privately negotiated purchases.”¹⁸⁶ We do not believe, therefore, that our shortening of the initial Schedule 13D deadline must be tied to risks shareholders face in connection with cash tender offers.

Finally, some opposing commenters expressed other doubts regarding the Commission’s authority to shorten the initial Schedule 13D deadline as proposed¹⁸⁷ and asserted that the Commission did not identify a market event or failure that would justify the proposed amendments.¹⁸⁸ As noted above, however, section 13(d)(1) of the Exchange Act clearly grants the Commission authority to shorten the initial Schedule 13D filing deadline.¹⁸⁹ In addition, the Commission has long recognized that acquisitions made after a person acquires beneficial ownership of more than five percent of a covered class but before the person files an initial Schedule 13D constitute 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.”¹⁹⁰ We believe that the current length of that disclosure gap, together with the information asymmetry¹⁹¹ that it may facilitate and the advancements in technology and developments in the financial markets since Congress enacted the Williams Act, provide grounds to shorten the initial Schedule 13D filing deadline from 10 days to five business days.