4. Rule 13d-2(c) and (d)

Rule 13d-2(d) governs the amendment obligation for Passive Investors whose beneficial ownership exceeds 10 percent of a covered class. Under current Rule 13d-2(d), Passive Investors are required to “promptly” file an amendment to their Schedule 13G upon acquiring greater than 10 percent of a covered class. Once across the 10 percent threshold, Passive Investors are further required under current Rule 13d-2(d) to file additional amendments “promptly” if their beneficial ownership increases or decreases by more than five percent of the covered class.

The amendment obligations arising under Rule 13d-2(c) and (d) are in addition to the general amendment requirement in Rule 13d-2(b), which is discussed in more detail in section II.3 above. To comply with Rule 13d-2(c) and (d), QIIs and Passive Investors, depending on their beneficial ownership levels, may have to amend their Schedule 13G filings more frequently and do so throughout the year.

a. Proposed Amendments

In connection with the proposed amendment to Rule 13d-2(b),³⁸² the Commission proposed to amend Rule 13d-2(c) to require that QIIs file an amendment to their Schedule 13G within five days after the date on which their beneficial ownership exceeds 10 percent of a covered class, rather than 10 days after the end of the month. Similarly, once across the 10 percent threshold, the proposed amendment would have required QIIs to file additional amendments five days after the date on which their beneficial ownership increases or decreases by more than five percent of the covered class, rather than 10 days after the end of the month. The Commission intended that these amendments, when considered in the context of the proposed amendment to Rule 13d-2(b), would preserve the utility of Rule 13d-2(c) as a provision that provides the market with earlier notice of QIIs’ beneficial ownership exceeding 10 percent of a covered class and, thereafter, upon their beneficial ownership of the covered class increasing or decreasing by more than five percent.³⁸³ The Commission also expressed the view that the imposition of such an accelerated deadline is appropriate in the context of our proposed amendment to Rule 13d-2(c) because the high thresholds in that rule—10 percent beneficial ownership of a covered class and any subsequent five percent increase or decrease in beneficial ownership—warranted that the amendment be rapidly disseminated to the market.³⁸⁴ And, consistent with its rationale for proposing to shorten the other deadlines, the Commission noted that QIIs may have access to the same technology as other Schedule 13D and 13G filers to satisfy this deadline, especially given the size and sophistication of the persons eligible to file as QIIs.³⁸⁵

The Commission also proposed to amend Rule 13d-2(d) to change the amendment filing deadline from the “promptly” standard to one business day after the date on which an amendment obligation arises. The Commission proposed this amendment for substantially the same reasons it proposed to shorten the filing deadline for the initial Schedule 13G³⁸⁶ and change the filing deadline for Schedule 13D amendments.³⁸⁷

b. Comments Received

Commenters expressed a variety of views regarding the proposed amendments to Rule 13d-2(c) and (d). A number of commenters supported the proposed amendments.³⁸⁸ Some of those commenters supported the proposed amendments for many of the same reasons they supported the revising the other Schedule 13D and 13G filing deadlines.³⁸⁹

Some supporting commenters also expressed their expectation that the proposed amendments to Rule 13d-2(c) and (d) would not impose significant costs to beneficial owners of more than five percent of a covered class.³⁹⁰ One commenter asserted that the proposed amendments would be consistent in balancing the need for adequate disclosures to investors with burdens placed on filers to accurately prepare required disclosures.³⁹¹ This commenter also supported the proposed amendments based on changes in technology and developments in the financial markets.³⁹²

Several commenters opposed the proposed amendments to Rule 13d-2(c) and (d).³⁹³ Some of those commenters opposed the proposed amendments for many of the same reasons they opposed revising the other Schedule 13D and 13G filing deadlines.³⁹⁴

In addition, some commenters also expressed concern that the proposed amendment to Rule 13d-2(c) would impose significant and unnecessary additional reporting burdens on QIIs, including costs related to enhancing their systems to comply with potential intra-month reporting.³⁹⁵ Another commenter asserted that retaining the current Schedule 13G amendment filing deadline under Rule 13d-2(c) would be consistent with the Commission’s historical recognition that beneficial ownership by QIIs does not raise the same concerns as beneficial ownership by investors that hold positions with a control intent and, therefore, it is appropriate to minimize the reporting burdens on QIIs.³⁹⁶

With respect to the proposed amendment to Rule 13d-2(d), one commenter asserted that the proposed one business day deadline is unreasonable given that many Passive Investors require assistance of counsel and that a filing under that rule may require input by multiple parties before being filed.³⁹⁷ One commenter stated that the proposed amendment would compromise the accuracy of Schedule 13G amendments and also would not allow for the possibility that a necessary approver or signer may not be available.³⁹⁸

Commenters also criticized the Commission’s justifications for the proposed amendments to Rule 13d-2(c) and (d). For example, several commenters disagreed with the Commission’s technological advancement-based justifications for the proposed amendments,³⁹⁹ some of whom raised many of the same concerns that they expressed with respect to the proposed amendments to the other Schedule 13D and 13G filing deadlines.⁴⁰⁰ One commenter also noted that Passive Investors generally do not have access to specialized technology that would make it practical for them to file an amended Schedule 13G on the proposed accelerated basis.⁴⁰¹ And, some commenters asserted that the costs of the proposed amendments to Rule 13d-2(c) and (d) would exceed their benefits.⁴⁰²

Commenters also made some recommendations regarding the proposed amendments. For example, one commenter that generally opposed the proposed amendment to Rule 13d-2(c) recommended that the Commission require that Schedule 13G amendments pursuant to that rule be filed within 45 days after the end of a quarter, consistent with the amendment frequency for Form 13F.⁴⁰³

Some commenters that opposed the proposed amendment to Rule 13d-2(d) recommended a two-business day deadline under that rule,⁴⁰⁴ with one commenter asserting that such a deadline would be less onerous for investors yet would ensure the accuracy and transparency of the information in their filings.⁴⁰⁵ One such commenter expressed the view that the Commission should require that Schedule 13G amendments under Rule 13d-2(d) be filed promptly, but within no more than some period of time (e.g., between two and four business days).⁴⁰⁶ Another opposing commenter suggested that the Commission require that Schedule 13G amendments pursuant to Rule 13d-2(d) be filed within 10 business days because Passive Investors “lack control intent and certify to that effect.”⁴⁰⁷

c. Final Amendments

We are amending Rule 13d-2(c) and (d) to revise the Schedule 13G amendment filing deadlines under those rules. In response to commenter concerns, however, we are making some changes from the proposed deadlines. Specifically, we are adopting a filing deadline of five business days⁴⁰⁸ after the end of the first month in which an amendment obligation is triggered under Rule 13d-2(c) and two business days after the date on which an amendment obligation is triggered under Rule 13d-2(d).

As noted above, Rule 13d-2(c) currently requires QIIs to file a Schedule 13G amendment within 10 days after the end of the first month in which their beneficial ownership exceeds 10 percent of a covered class and, once across the 10 percent threshold, within 10 days after the first month in which their beneficial ownership increases or decreases by more than five percent. Although the Commission proposed to revise Rule 13d-2(c) to shorten the filing deadline to five days after the date on which an amendment obligation arises under that rule, we are instead retaining the month-end-based filing deadline and shortening that deadline from 10 days after month-end to five business days after month-end. The Commission based its proposed deadline under Rule 13d-2(c), in large part, on the proposal to shorten the Schedule 13G amendment deadline under Rule 13d-2(b) from a calendar year-end-based deadline to a month-end-based deadline.⁴⁰⁹ Therefore, if we had adopted the Commission’s proposed amendment to Rule 13d-2(b), then Rule 13d-2(c), in its current form—which as noted above requires that QIIs file a Schedule 13G amendment within 10 days after the end of the first month in which the triggering event occurs—would not be of any value.

As discussed above, however, we did not adopt the Commission’s proposed month-end-based deadline under Rule 13d-2(b).⁴¹⁰ Instead, we revised Rule 13d-2(b) to require that a Schedule 13G amendment be filed within 45 days after the end of a calendar quarter in which a material change occurs to the information previously reported. Because Rule 13d-2(b) will have a quarter-end-based filing deadline, the month-end-based deadline in Rule 13d-2(c) will continue to have utility as a provision that provides the market with earlier notice of QIIs’ beneficial ownership exceeding 10 percent of a covered class and, thereafter, upon their beneficial ownership increasing or decreasing by more than five percent. In addition, we expect that retaining the month-end-based deadline in Rule 13d-2(c) will address the concerns that several commenters expressed about the burdens that the proposed amendment would impose on QIIs.⁴¹¹

Notwithstanding those commenters’ concerns, we believe it is appropriate to accelerate the filing deadline in Rule 13d-2(c) in order for investors to receive material information in a timely manner in light of the technological advancements and other developments in the financial markets⁴¹² in the more than 40 years since the 10-day deadline was adopted.⁴¹³ As such, we are shortening Rule 13d-2(c)’s filing deadline from 10 days after month-end to five business days after month-end. Because the deadline is being expressed in “business days” instead of “days,”⁴¹⁴ and given the size and sophistication of the persons eligible to file as QIIs, we do not expect that this new filing deadline under Rule 13d-2(c) will be unduly burdensome.

In addition, as discussed above, Rule 13d-2(d) currently requires that Passive Investors file a Schedule 13G amendment promptly upon acquiring beneficial ownership of more than 10 percent of a covered class and, once across the 10 percent threshold, promptly upon increasing or decreasing their beneficial ownership by more than five percent. As with the Schedule 13D amendment deadline under Rule 13d-2(a), the Commission proposed to change the deadline under Rule 13d-2(d) from the “promptly” standard to one business day.⁴¹⁵ For the same reasons that we changed the filing deadline for Schedule 13D amendments to two business days,⁴¹⁶ and to retain the historical consistency with that deadline, we also are amending Rule 13d-2(d) to change the amendment filing deadline from the current “promptly” standard to two business days after the date on which an amendment obligation arises.