2. Rule 13d-1(b), (c), and (d)

In response to the enactment of section 13(g), the Commission adopted Schedule 13G to serve two purposes: (1) provide an optional short form disclosure statement for certain persons subject to section 13(d); and (2) provide a mandatory disclosure statement for persons subject to section 13(g).¹⁹⁵ Together with section 13(d), section 13(g) was intended to provide a “comprehensive disclosure system of corporate ownership” applicable to all persons who are the beneficial owners of more than five percent of a covered class.¹⁹⁶ Rule 13d-1(b), (c), and (d) provide the filing deadlines for the initial Schedule 13G. Which deadline a person is subject to for its initial Schedule 13G filing depends on whether the person is a QII, Exempt Investor, or Passive Investor.

A QII relying upon Rule 13d-1(b) currently is obligated under Rule 13d-1(b)(2) to file a Schedule 13G “within 45 days after the end of the calendar year in which the person became obligated” to report beneficial ownership, but only if such QII beneficially owns more than five percent of a covered class at the end of a calendar year.¹⁹⁷ If the QII beneficially owns more than 10 percent of a covered class as of the last day of any month, then the initial Schedule 13G must be filed within 10 days after the end of that month. A QII relying on Rule 13d-1(b), therefore, may have beneficial ownership in excess of five percent throughout the calendar year without incurring a filing obligation unless the QII beneficially owns more than 10 percent of a covered class at the end of any month during that year.

Rule 13d-1(d),¹⁹⁸ as with Rule 13d-1(b), imposes an initial Schedule 13G filing deadline of 45 days after the end of the calendar year, but only for investors who have become beneficial owners without having made an acquisition recognized under section 13(d)(1). Given that these investors did not make the requisite acquisition that would have subjected them to section 13(d), the Commission has previously referred to this type of beneficial owner as an “Exempt

Investor.” Unlike the QIIs and Passive Investors—discussed below, in the context of Rule 13d-1(c)—who file a Schedule 13G in lieu of Schedule 13D and at all times remain subject to section 13(d), Exempt Investors are subject to section 13(g) at the time their initial filing obligation arises. Exempt Investors reporting pursuant to Rule 13d-1(d) today may include persons such as founders of companies and early investors in an issuer’s class of equity securities who made their acquisition before the class was registered under section 12 of the Exchange Act.¹⁹⁹ These beneficial owners may continue to influence or control the issuer. Accordingly, the Commission has emphasized that the disclosures required under section 13(g) are obtained in connection with the overall regulatory purposes served by section 13(d).²⁰⁰

Finally, a beneficial owner electing to report on Schedule 13G in lieu of Schedule 13D in reliance on Rule 13d-1(c) as a Passive Investor must file a Schedule 13G within 10 days after acquiring beneficial ownership of more than five percent of a covered class. A person is eligible to file as a Passive Investor only if such person is not seeking to acquire or influence control of an issuer and beneficially owns less than 20 percent of a covered class. Persons unable or unwilling to certify under Item 10 of Schedule 13G that they do not have a disqualifying purpose or effect because, for example, the possibility exists that they may seek to exercise or influence control, are ineligible to file a Schedule 13G and must instead file a Schedule 13D.

a. Proposed Amendments

The Commission proposed to amend Rule 13d-1(b) and (d) to shorten the filing deadline for the initial Schedule 13G to be filed by QIIs and Exempt Investors to five business days after the end of the month in which beneficial ownership exceeds five percent of a covered class. The Commission expected that the proposed acceleration of these deadlines would result in more timely disclosures while minimizing any potential additional burdens.²⁰¹ The Commission also believed that these investors should already have well-established compliance systems in place to monitor Schedule 13G ownership levels to determine whether filing obligations have been triggered.²⁰²

Given the proposal to shorten the initial reporting deadline to five business days after the end of the month, the Commission also recognized that the current provision of Rule 13d-1(b)(2) that operates to accelerate that initial filing deadline if beneficial ownership exceeds 10 percent at the end of any month would be unnecessary in light of Rule 13d-2(c)’s overlapping Schedule 13G amendment requirement.²⁰³ Accordingly, the Commission proposed to further amend Rule 13d-1(b)(2) to delete the language that imposes an initial reporting obligation on QIIs after exceeding 10 percent of a covered class.

The Commission also proposed to amend the filing deadline in Rule 13d-1(c) to five days after the date the person becomes obligated to file an initial Schedule 13G. The Commission believed that it would be appropriate to amend the initial Schedule 13G filing deadline in Rule 13d-1(c) to match the proposed initial Schedule 13D filing deadline in Rule 13d-1(a) in order to maintain the historical consistency between the deadlines in Rule 13d-1(c) and (a) and to facilitate the overall goal of increasing transparency in beneficial ownership.²⁰⁴

In proposing these amendments, the Commission stated that the current initial Schedule 13G filing deadlines’ length and manner of applicability to QIIs and Exempt Investors together could, in certain circumstances, frustrate the purposes of sections 13(d) and 13(g).²⁰⁵ For example, the Commission noted investors reporting pursuant to current Rule 13d-1(b) and (d) may avoid beneficial ownership reporting by selling down their positions before the end of the calendar year, and, in the case of QIIs, selling down before the end of a month if ownership exceeds 10 percent.²⁰⁶ The proposed amendments to the filing deadlines for initial Schedule 13G filings by QIIs and Exempt Investors, therefore, were intended to improve transparency and avoid any gaps in reporting.²⁰⁷

In addition, the Commission noted that when Rule 13d-1(c) was adopted in 1998, Passive Investors may not have had reasonable access to advanced technologies to make more immediate filings possible.²⁰⁸ Consistent with its justification for proposing to shorten the initial Schedule 13D filing deadline under Rule 13d-1(a), the Commission asserted that Passive Investors today not only have gained valuable experience complying with these reporting provisions, but also have ready access to the necessary filing technology.²⁰⁹ As such, the Commission proposed amending Rule 13d-1(c) in light of those technological advancements and its proposed amendment to the analogous filing deadline in Rule 13d-1(a).

b. Comments Received

Commenters submitted a variety of views on the proposed amendments to Rule 13d-1(b), (c), and (d). Several commenters supported the proposed amendments.²¹⁰ Some of those commenters supported accelerating the initial Schedule 13G filing deadlines for many of the same reasons they supported accelerating the initial Schedule 13D filing deadline.²¹¹ Another commenter asserted that the proposed amendments would benefit shareholders and other market participants by facilitating sound corporate governance.²¹²

Several commenters supported the proposed amendments based on changes in technology and developments in the financial markets.²¹³ A number of commenters noted that some foreign jurisdictions require beneficial ownership reporting on a shorter deadline than currently required under Regulation 13D-G.²¹⁴ One commenter viewed the current Schedule 13G filing deadlines as outdated.²¹⁵ Other commenters asserted that the proposed amendments would not impose significant costs to beneficial owners of more than five percent of a covered class.²¹⁶ And, another commenter stated that the proposed amendments would be consistent in balancing the need for adequate disclosures with burdens placed on filers to accurately prepare required disclosures.²¹⁷

Several commenters opposed the proposed amendments.²¹⁸ Some of those commenters disagreed with the Commission’s technological advancement-based justifications for the proposed acceleration of the beneficial ownership reporting deadlines.²¹⁹ For example, one commenter asserted that the Commission has never suggested that technological ability to file is or should be the primary basis to determine the appropriate filing deadlines for Schedules 13D and 13G.²²⁰ Another commenter stated that electronic filing of a Schedule 13G can take longer than physical mailing because of the time and effort required to obtain EDGAR filing codes as compared to simply making an overnight mailing or hand delivery of a paper filing.²²¹ Another commenter questioned why the existence of new filing technologies justify subjecting QIIs to Schedule 13G filing requirements so much shorter than the ones currently in place.²²²

Some opposing commenters acknowledged the technological advances identified in the Proposing Release but disagreed that they justify the proposed amendments. For example, one commenter stated that technological advances do not support significantly reducing filing deadlines as proposed because, despite advances in technology, the filing process still has numerous operational components that take time to complete.²²³ Similarly, some commenters stated that notwithstanding any technological advancements, a month-end-based reporting deadline for Schedule 13G would be difficult to meet because much of the process is still manual and cannot be done reliably via any current technology, including exercising the judgment required to determine whether a person is a beneficial owner under the various provisions of Rule 13d-3.²²⁴ Another commenter stated that, despite technological advancements, it is often difficult for QIIs to gather aggregate information quickly, confirm such information for accuracy, draft disclosure documents and receive approval for filing purposes, especially given that QIIs often beneficially own positions in many issuers and those positions change frequently.²²⁵

Opposing commenters also criticized some of the Commission’s other justifications for, or the purported benefits of, the proposed amendments. For example, some commenters stated that the Commission has not provided evidence to support its concerns regarding reporting gaps and information asymmetries that would warrant the proposed acceleration of the reporting deadlines.²²⁶ Others asserted that the Commission has not articulated how the proposed amendments will promote transparency into matters of corporate control and questioned the necessity of the proposed amendments in that respect.²²⁷ Some of those commenters expressed the view that the Commission’s existing rules provide sufficient transparency into matters of corporate control with respect to QIIs and Passive Investors,²²⁸ as well as Exempt Investors.²²⁹

In addition, one commenter asserted that the Commission has not persuasively explained why it is appropriate to accelerate the beneficial ownership reporting deadlines as proposed.²³⁰ Some commenters stated that the information filed on Schedule 13G by Passive and Exempt Investors is unlikely to be material information that is market-moving.²³¹ Other commenters asserted that the proposed amendments would provide little benefit to the market given that institutional investment managers’ trading activity is already subject to significant scrutiny by the Commission and the public through the filing of Form 13F.²³²

Several commenters also expressed concern regarding administrative burdens associated with the proposed amendments to Rule 13d-1(b) and (d).²³³ Some commenters noted that beneficial owners often file a Schedule 13G for multiple different issuers, which “strains” their filing resources at the end of the reporting period.²³⁴ One commenter stated that a month-end-based reporting deadline applicable would burden the external resources (including outside counsel, filing agents, and the EDGAR system) needed to prepare and make these filings given that all QIIs and Exempt Investors would be performing the Schedule 13G filing analysis during the same five-business day period.²³⁵ One commenter expressed concern that the proposed amendment to Rule 13d-1(b) could create practical difficulties for QIIs, including insufficient time to validate the data to be included in a consolidated filing for a large institutional investor with multiple entities.²³⁶ And, one commenter expressed concern that institutional investors and other unregistered entities may lack the infrastructure and personnel to comply with the revised filing deadlines and described year-round monitoring of beneficial ownership reporting obligations and the filing deadlines that would be required under the proposed amendments as burdensome.²³⁷

Other commenters expressed similar concerns that the proposed amendment to Rule 13d-1(b) would increase QIIs’ filing burdens significantly, without material benefit to investors.²³⁸ Some of those commenters disagreed with the Commission’s statement that QIIs already have systems in place to monitor their beneficial ownership levels and asserted that the proposed amendment would require significant changes to their operational systems and processes.²³⁹ One commenter disagreed with the Commission’s statement that the proposed amendments only would require QIIs to monitor the beneficial ownership levels on a monthly basis, suggesting instead that the proposed amendments would require daily monitoring.²⁴⁰ Another commenter expressed concern that, as a practical matter, the proposed five-day deadline under Rule 13d-1(c) would be impossible to comply with in most cases.²⁴¹ The same commenter also stated that Exempt Investors that are not affiliated with the issuer are unlikely to become aware of their potential beneficial ownership reporting obligations in a timely manner and, therefore, may be unlikely to be able to comply with the proposed deadline under Rule 13d-1(d) given the practical challenges associated with making a Schedule 13G filing.²⁴²

Some commenters expressed concern that the proposed deadlines would be unduly burdensome for smaller and non-institutional beneficial owners,²⁴³ with one commenter stating that by increasing overhead costs and expanding an already complex regulatory regime, the Commission’s accelerated timeline will render it particularly difficult for smaller managers, who cannot readily bear the costs and administrative burden of monthly filings.²⁴⁴ Some commenters also asserted that the proposed amendment to Rule 13d-1(b) raises significant concerns regarding harm to investment advisers and funds and would impose substantial unnecessary costs on their clients.²⁴⁵ Similarly, some commenters stated that the proposed amendment to Rule 13d-1(b) and (d) would create a significant risk of prematurely disclosing sensitive portfolio holdings information to the market, which may result in front-running, copycatting, and other abusive trading practices that harm advisers and their clients, including funds and their investors.²⁴⁶ And, more generally, one commenter expressed concern that the proposed amendments would create significant reporting and monitoring burdens for all Schedule 13G filers.²⁴⁷

Opposing commenters also highlighted some other potential risks associated with the proposed deadlines. For example, one commenter expressed concern that reporting within such a short time period under the proposed amendment to Rule 13d-1(b) would increase the risk reported information would subsequently need to be revised through amendments to Schedule 13G, potentially confusing the market.²⁴⁸ One commenter asserted that the proposed amendments would increase the number of unintentionally inaccurate filings.²⁴⁹ 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.²⁵⁰ Another commenter stated that the proposed amendments could be more broadly disruptive to trading.²⁵¹

Finally, several opposing commenters expressed concern that the proposed amendments do not reflect the differences between Schedule 13D and 13G filers (particularly QIIs) based on the legislative and administrative history of sections 13(d) and (g) of the Exchange Act.²⁵² And, other commenters expressed concern that the proposed amendment to Rule 13d-1(b) would be unprecedented and inappropriate, unnecessary to accomplish the Commission’s regulatory objectives, and inconsistent with the intent and administrative history of the rules under sections 13(d) and 13(g).²⁵³

The opposing commenters also provided some recommendations regarding the proposed amendments. A number of those commenters suggested a quarter-end-based initial Schedule 13G filing deadline for QIIs and Exempt Investors rather than a month-end-based deadline. For example, some commenters recommended that QIIs be required to file their initial Schedule 13G within 45 days after the end of a calendar quarter as of which the QII beneficially owns more than five percent of a covered class to align with the filing timeframe under section 13(f) and better reflect the distinction the Commission has historically made between QIIs and other institutional investors.²⁵⁴ Similarly, some commenters recommended that the Commission require that both QIIs and Exempt Investors file their initial Schedule 13G 45 days after the end of a calendar quarter, consistent with the Form 13F²⁵⁵ filing deadline.²⁵⁶ One commenter recommended that QIIs be required to file their initial Schedule 13G within 15 business days after the end of a calendar quarter as of which the QII beneficially owns more than five percent of a covered class.²⁵⁷ Another commenter recommended that QIIs be required to file their initial Schedule 13G on a quarterly basis with at least a 30-day period before the filing deadline.²⁵⁸

Opposing commenters also made alternative suggestions regarding the proposed amendments. For example, one commenter recommended that QIIs and Exempt Investors be required to file their initial Schedule 13G within 10 days after the end of the month in which its beneficial ownership exceeds five percent as of month-end.²⁵⁹ Another commenter recommended that to the extent the Commission is concerned about Schedule 13G 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.²⁶⁰ One commenter suggested that if the Commission seeks to apply the proposed amendments to a broad set of investors whose activities are largely unrelated to matters of corporate control, or where such matters may be implicated but are already subject to disclosure requirements under the existing disclosure regime, it should conduct further study and analysis to better understand what percentage of such investors ever are implicated in actual change in control scenarios—to determine the percentage of activist matters where earlier and more frequent disclosure of such investors’ holding would have been materially beneficial to investors.²⁶¹ Another commenter recommended that rather than adopting the proposed amendments, the Commission should add a column to Form 13F requiring filers to explicitly note, for each listed class of securities, whether the filer has acquired over five percent beneficial ownership during the reporting period.²⁶² And, one commenter recommended that the Commission consider extending the filing deadline for Passive Investors (e.g., to 15 or 30 days) rather than accelerating it.²⁶³

In addition, some supporting commenters recommended that the Commission consider further shortening the initial Schedule 13G filing deadlines.²⁶⁴ Those commenters, however, did not specify alternative deadlines that the Commission should adopt.²⁶⁵

Finally, some commenters that neither clearly supported nor opposed the proposed amendments made recommendations to the Commission. One commenter expressed the view that there should not be filing differences between institutional investors and Passive Investors and suggested that certain institutional investors should have more stringent filing requirements than Passive Investors.²⁶⁶ Several other commenters recommended that the Commission require Passive Investors to file an initial Schedule 13G in five business days rather than five calendar days.²⁶⁷

c. Final Amendments

We are amending Rule 13d-1(b) and (d) to shorten the initial Schedule 13G filing deadlines under those rules, with some modifications from the proposals in response to commenter concerns. Specifically, we are adopting an initial Schedule 13G filing deadline of 45 days²⁶⁸ after calendar quarter-end for QIIs and Exempt Investors. In addition, consistent with our amendment to the initial Schedule 13D deadline, we are amending Rule 13d-1(c) to require that Passive Investors file their initial Schedule 13G within five business days after the date on which the Passive Investor acquired beneficial ownership of more than five percent of a covered class.

As noted above, Rule 13d-1(b) and (d) currently require QIIs and Exempt Investors, respectively, to file an initial Schedule 13G within 45 days after calendar year-end if, as of the end of that year, they beneficially own more than five percent of a covered class. We are amending Rule 13d-1(b) and (d) to require that QIIs and Exempt Investors file their initial Schedule 13G within 45 days after calendar quarter-end if, as of the end of that quarter, their beneficial ownership exceeds five percent of a covered class (rather than five business days after the end of the month in which beneficial ownership exceeds five percent, as proposed). Further, because we are adopting the new 45 days after quarter-end deadline rather than the proposed five business days after month-end deadline, we are not adopting the proposed amendment to delete the language in Rule 13d-1(b)(2) that imposes an accelerated initial reporting obligation.²⁶⁹ Instead, we are amending that rule to require that such an initial Schedule 13G be filed within five business days (instead of the current requirement of 10 days) after the end of the first month in which the QII’s beneficial ownership exceeds 10 percent of a covered class, computed as of the last day of the month.

The Commission adopted the current initial Schedule 13G filing deadlines of 45 days after year-end in Rule 13d-1(b) and (d) in the late 1970s.²⁷⁰ In light of the technological advancements and developments in the financial markets in the more than 40 intervening years,²⁷¹ we believe it is appropriate to shorten those deadlines to ensure beneficial ownership information disclosed in an initial Schedule 13G is reported in a manner that is considered timely by modern standards. We also expect that shortening those deadlines from year-end to quarter-end will reduce the risk that QIIs and Exempt Investors sell down their positions before the end of the year and avoid reporting altogether,²⁷² which should help to ensure large accumulations of beneficial ownership are reported in a timely manner, ultimately improving market transparency.²⁷³

In the Proposing Release, the Commission stated its expectation that the proposed initial Schedule 13G deadlines under Rule 13d-1(b) and (d) (i.e., five business days after the end of the month in which beneficial ownership exceeds five percent of a covered class) would result in minimal additional burdens on filers because QIIs and Exempt Investors “already have well-established compliance systems in place to monitor Schedule 13G ownership levels to determine whether filing obligations have been triggered.”²⁷⁴ Although some commenters agreed with this expectation,²⁷⁵ several comments disagreed and asserted that the proposed deadlines would be unduly burdensome for QIIs and Exempt Investors (especially those that are smaller and non-institutional investors) given the number of tasks and amount of resources required to prepare a filing in such a limited amount of time²⁷⁶ and that such burdens are not sufficiently mitigated by any technological advancements to justify adopting the proposed deadlines.²⁷⁷

Based on commenters’ observations regarding the potentially significant burdens that the proposed deadlines would impose on QIIs and Exempt Investors, we have decided to take a different approach from the proposal and instead amend Rule 13d-1(b) and (d) to require an initial Schedule 13G be filed within 45 days after calendar quarter-end. This change to a quarter-end-based deadline, rather than the proposed month-end-based deadline, is consistent with the recommendations that a number of commenters made to the Commission.²⁷⁸ We note that those commenters recommended various different numbers of days after quarter-end for the deadline.²⁷⁹ Taking into account those various recommendations, believe that 45 days is the appropriate length of time because it aligns with the filing deadline for Form 13F,²⁸⁰ and many institutional investment managers who file a Schedule 13G are already reviewing and assessing their holdings on a quarterly basis in order to prepare Form 13F filings.²⁸¹ In addition, although most of the other amended Schedule 13D and 13G filing deadlines will be expressed in “business days,” we believe the potential compliance benefits of aligning the initial Schedule 13G filing deadlines for QIIs and Exempt Investors with the Form 13F filing deadline justify using calendar days rather than business days.²⁸²

Even for those QIIs and Exempt Investors that are not Form 13F filers, the 45-day period after calendar quarter-end deadline will be familiar given that they currently must file their initial Schedule 13G within 45 days after calendar year-end.²⁸³ As such, we believe that many of those beneficial owners are well-positioned to submit their Schedule 13G filings within 45 days after calendar quarter-end. This deadline, therefore, is likely to be less burdensome and should require fewer changes to QIIs’ and Exempt Investors’ existing compliance operations than the proposed month-end-based deadline. We also expect that the extended filing deadline (i.e., 45 days rather than the proposed five business days) will address some commenters’ concerns that the more compressed time period under the proposed deadlines could have negatively impacted the accuracy and usefulness of initial Schedule 13G filings.²⁸⁴

Further, a 45-day, quarter-end-based deadline (instead of the proposed five-business day, month-end-based deadline) should help mitigate concerns that some opposing commenters expressed regarding the risk of QIIs and Exempt Investors prematurely disclosing sensitive portfolio holdings information to the market (i.e., “front-running” and “free-riding”),²⁸⁵ especially given that many of those Schedule 13G filers already are obligated to disclose their holdings via Form 13F on a quarterly basis. We also believe that, as compared with the current year-end-based deadline, a quarter-end-based deadline will increase transparency for market participants and better reflects the technological advancements and developments in the financial markets since the Commission adopted Rule 13d-1(b) and (d).²⁸⁶ Thus, we believe that this deadline will address the goals that prompted the Commission’s reassessment of those rules in the Proposing Release while, at the same time, avoiding inordinately burdening Schedule 13G filers.

In addition, as discussed above, Rule 13d-1(c) currently requires Passive Investors to file an initial Schedule 13G within 10 days of acquiring beneficial ownership of more than five percent of a covered class. As with our final amendment to Rule 13d-1(a), we are amending Rule 13d-1(c) to require that Passive Investors file their initial Schedule 13G within five business days after²⁸⁷ acquiring beneficial ownership of more than five percent of a covered class. We believe it is appropriate to amend the initial Schedule 13G filing deadline in Rule 13d-1(c) to match the initial Schedule 13D filing deadline in Rule 13d-1(a) in order to maintain the historical regulatory consistency between the deadlines in Rule 13d-1(c) and (a) and to facilitate the overall goals of increasing transparency in beneficial ownership and ensuring that investors receive material information in a timely manner.

Consistent with our rationale for shortening the initial Schedule 13D deadline, we believe that many Passive Investors are large and sophisticated enough to prepare and file an initial Schedule 13G within five business days.²⁸⁸ The change to a five-business day deadline from the proposed five-calendar day deadline should mitigate commenters’ concerns regarding the burdens that a shortened deadline would impose on Passive Investors and the workability of that deadline.²⁸⁹ Further, we note that research indicates that at least some beneficial owners may improperly rely on Rule 13d-1(c) to file a Schedule 13G in lieu of a Schedule 13D to obscure their control purpose.²⁹⁰ Given this increased likelihood, as compared to QIIs and Exempt Investors,²⁹¹ of Passive Investors ultimately having a control purpose with respect to an issuer, we believe it is appropriate to shorten their initial Schedule 13G filing deadline to five business days in order for that deadline to continue to mirror the initial Schedule 13D filing deadline. This is consistent with the Commission’s decision to require Passive Investors to file their initial Schedule 13G in 10 days, the same deadline as Schedule 13D, when it adopted Rule 13d-1(c).²⁹²