[Federal Register Volume 87, Number 47 (Thursday, March 10, 2022)]
[Proposed Rules]
[Pages 13846-13899]
[FR Doc No: 2022-03222]

Vol. 87

Thursday,

No. 47

March 10, 2022

Part III

Securities and Exchange Commission

-----------------------------------------------------------------------

17 CFR Parts 232 and 240

Modernization of Beneficial Ownership Reporting; Proposed Rule

Federal Register / Vol. 87 , No. 47 / Thursday, March 10, 2022 /
Proposed Rules

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232 and 240

[Release Nos. 33-11030; 34-94211; File No. S7-06-22]
RIN 3235-AM93

Modernization of Beneficial Ownership Reporting

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend certain rules that govern beneficial ownership
reporting. The proposed amendments would modernize the filing deadlines
for initial and amended beneficial ownership reports filed on Schedules
13D and 13G. The proposed amendments also would deem holders of certain
cash-settled derivative securities as beneficial owners of the
reference equity securities and clarify the disclosure requirements of
Schedule 13D with respect to derivative securities. In addition, the
proposed amendments would clarify and affirm the operation of the
regulation as applied to two or more persons that form a group under
the Securities Exchange Act of 1934, and provide new exemptions to
permit such persons to communicate and consult with each other, jointly
engage issuers and execute certain transactions without being subject
to regulation as a group. We also are proposing to amend provisions
regarding the date on which Schedules 13D and 13G filings are deemed to
have been made. Finally, we are proposing to require that Schedules 13D
and 13G be filed using a structured, machine-readable data language.

DATES: Comments should be received on or before April 11, 2022.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-06-22. To help the
Commission process and review your comments more efficiently, please
use only one method of submission. The Commission will post all
submitted comments on its website (https://www.sec.gov/rules/proposed.shtml). Typically, comments also are available for website
viewing and printing in the Commission's public reference room, 100 F
Street NE, Washington, DC 20549, on official business days between the
hours of 10 a.m. and 3 p.m. Operating conditions may limit access to
the Commission's public reference room. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information. You should
submit only information that you wish to make publicly available.
    Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Nicholas Panos, Senior Special
Counsel, and Valian Afshar, Special Counsel, in the Office of Mergers
and Acquisitions, Division of Corporation Finance, at<PHONE_NUMBER>,
U.S. Securities and Exchange Commission, 100 F Street NE, Washington,
DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to 17 CFR
240.13d-1 (``Rule 13d-1''), 17 CFR 240.13d-2 (``Rule 13d-2''), 17 CFR
240.13d-3 (``Rule 13d-3''), 17 CFR 240.13d-5 (``Rule 13d-5''), 17 CFR
240.13d-6 (``Rule 13d-6'') and 17 CFR 240.13d-101 (``Rule 13d-101''),
under the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.]
(``Exchange Act'').\1\ We also are proposing amendments to 17 CFR
232.13 (``Rule 13 of Regulation S-T'') and 17 CFR 232.201 (``Rule 201
of Regulation S-T'') under 17 CFR part 232 (``Regulation S-T'').\2\
---------------------------------------------------------------------------

    \1\ Unless otherwise noted, when we refer to the Exchange Act,
or any paragraph of the Exchange Act, we are referring to 15 U.S.C.
78a of the United States Code, at which the Exchange Act is
codified, and when we refer to rules under the Exchange Act, or any
paragraph of these rules, we are referring to title 17, part 240 of
the Code of Federal Regulations [17 CFR part 240], in which these
rules are published.
    \2\ Unless otherwise noted, when we refer to Regulation S-T, or
any paragraph of the rules thereunder, we are referring to title 17,
part 232 of the Code of Federal Regulations [17 CFR part 232], in
which these rules are published.
---------------------------------------------------------------------------

Table of Contents

I. Introduction
II. Discussion of the Proposed Amendments
    A. Proposed Amendments to Rules 13d-1 and 13d-2 and Rules 13 and
201 of Regulation S-T To Revise Filing Deadlines and Filing Date
Assignment
    1. Rule 13d-1(a)
    2. Rules 13d-1(e), (f) and (g)
    3. Rules 13d-1(b), (c) and (d)
    4. Rules 13d-2(a) and (b)
    5. Rules 13d-2(c) and (d)
    6. Rules 13(a)(4) and 201(a) of Regulation S-T
    B. Proposed Amendment to Rule 13d-3 To Regulate the use of Cash-
Settled Derivative Securities
    1. Background
    2. Proposed Amendment
    C. Proposed Amendments to Rule 13d-5 To Affirm Its Application
and Operation
    1. Background
    2. The Commission's View of Group Formation
    3. Proposed Amendments
    D. Proposed Amendments to Rule 13d-6 To Create Certain
Exemptions
    1. Background
    2. Proposed Amendments
    E. Proposed Amendments to Schedule 13D To Clarify Disclosure
Requirements Regarding Derivative Securities
    1. Background
    2. Proposed Amendments
    F. Proposed Structured Data Requirements for Schedules 13D and
13G
    1. Background
    2. Proposed Amendments
    G. Implications of the Proposed Amendments on Section 16
III. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. Current Regulatory Framework
    2. Affected Parties
    C. Potential Benefits and Costs of the Proposed Amendments
    1. Proposed Amendments to Rules 13d-1 and 13d-2 and Rules 13 and
201 of Regulation S-T
    2. Proposed Amendment to Rule 13d-3
    3. Proposed Amendments to Rules 13d-5 and 13d-6
    4. Proposed Amendments to Item 6 of Schedule 13D
    5. Proposed Structured Data Requirement for Schedules 13D and
13G
    D. Anticipated Effects on Efficiency, Competition and Capital
Formation
    E. Reasonable Alternatives
1. Alternative Filing Deadlines
    2. Tiered Approach and Purchasing Moratorium
    3. Consolidate Beneficial Ownership Reporting
    4. Section 16 Rule Amendment
    5. Modify Scope of Structured Data Requirement
    F. Request for Comment
IV. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Incremental and Aggregate Burden and Cost Estimates for the
Proposed Amendments to Rules 13d-2, 13d-3, 13d-5 and 13d-101
V. Small Business Regulatory Enforcement Fairness Act
VI. Regulatory Flexibility Certification

VII. Statutory Authority

I. Introduction

    We are proposing comprehensive changes to 17 CFR 240.13d-1 through
240.13d-102 (``Regulation 13D-G'') and Regulation S-T to modernize the
beneficial ownership reporting requirements and improve their operation
and efficacy. Specifically, we are proposing to: (1) Revise the current
deadlines for Schedule 13D and Schedule 13G filings; (2) amend Rule
13d-3 to deem holders of certain cash-settled derivative securities as
beneficial owners of the reference covered class; (3) align the text of
Rule 13d-5, as applicable to two or more persons who act as a group,
with the statutory language in Sections 13(d)(3) and (g)(3) of the
Exchange Act; and (4) set forth the circumstances under which two or
more persons may communicate and consult with one another and engage
with an issuer without concern that they will be subject to regulation
as a group with respect to the issuer's equity securities. We also are
proposing certain related technical changes to Regulation S-T in
connection with these proposed amendments. Finally, we are proposing to
require that Schedules 13D and 13G be filed using a structured,
machine-readable data language.
    To address concerns that the current deadlines for Schedule 13D and
Schedule 13G filings are creating information asymmetries in today's
market, we are proposing to:
     Revise the Rule 13d-1(a) filing deadline for the initial
Schedule 13D to five days \3\ after the date on which a person acquires
more than 5% of a covered class of equity securities; \4\
---------------------------------------------------------------------------

    \3\ Consistent with the current ``10-day'' deadline in Rule 13d-
1(a), the proposed ``five-day'' deadline for filing the initial
Schedule 13D would be measured in calendar days. If the last day of
the initial Schedule 13D deadline falls on a Federal holiday, a
Saturday or a Sunday, then such filing may be made on the next
business day thereafter. 17 CFR 240.0-3 (``[I]f the last day on
which [a filing] can be accepted as timely filed falls on a
Saturday, Sunday or holiday, such [filing] may be [made] on the
first business day following.''). Any reference to ``days'' in
either this release or any of our proposed amendments means
``calendar days,'' and any reference to ``business days'' means
``business days,'' as we are proposing to define that term. See
infra note 5 for a discussion of our proposed definition of
``business days.''
    \4\ As used in this release, a ``covered class'' is a class of
equity securities described in Section 13(d)(1) of the Exchange Act
and Rule 13d-1(i) and generally means, with limited exception, a
voting class of equity securities registered under Section 12 of the
Exchange Act.
---------------------------------------------------------------------------

     Amend Rules 13d-1(e), (f) and (g) to shorten the filing
deadline for the initial Schedule 13D required to be filed by certain
persons who forfeit their eligibility to report on Schedule 13G in lieu
of Schedule 13D to five days after the event that causes the
ineligibility;
     Revise the filing deadline under Rule 13d-2(a) for
amendments to Schedule 13D to one business day \5\ after the date on
which a material change occurs;
---------------------------------------------------------------------------

    \5\ The term ``business day'' is not defined in Section 13(d) or
13(g) or any rule of Regulation 13D-G. Accordingly, we are proposing
to define ``business day'' for purposes of Regulation 13D-G to mean
any day, other than Saturday, Sunday or a Federal holiday, from 6
a.m. to 10 p.m. eastern time.
---------------------------------------------------------------------------

     Amend Rules 13d-1(b) and (d) to shorten the deadline for
the initial Schedule 13G filing for Qualified Institutional Investors
(``QIIs'') \6\ and Exempt Investors \7\ to within five business days
after the last day of the month in which beneficial ownership first
exceeds 5% of a covered class;
---------------------------------------------------------------------------

    \6\ The institutional investors qualified to report on Schedule
13G, in lieu of Schedule 13D and in reliance upon Rule 13d-1(b),
include a broker or dealer registered under Section 15(b) of the
Exchange Act, a bank as defined in Section 3(a)(6) of the Exchange
Act, an insurance company as defined in Section 3(a)(19) of the
Exchange Act, an investment company registered under Section 8 of
the Investment Company Act of 1940, an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, a parent
holding company or control person (if certain conditions are met),
an employee benefit plan or pension fund that is subject to the
provisions of the Employee Retirement Income Security Act of 1974, a
savings association as defined in Section 3(b) of the Federal
Deposit Insurance Act, a church plan that is excluded from the
definition of an investment company under Section 3(c)(14) of the
Investment Company Act of 1940, non-U.S. institutions that are the
functional equivalent of any of the institutions listed in Rules
13d-1(b)(1)(ii)(A) through (I), so long as the non-U.S. institution
is subject to a regulatory scheme that is substantially comparable
to the regulatory scheme applicable to the equivalent U.S.
institution, and related holding companies and groups (collectively,
``Qualified Institutional Investors'' or ``QIIs''). 17 CFR 240.13d-
1(b)(1)(ii).
    \7\ The term ``Exempt Investor'' as used in this release refers
to persons holding beneficial ownership of more than 5% of a covered
class at the end of the calendar year, but who have not made an
acquisition of beneficial ownership subject to Section 13(d). For
example, persons who acquire all their securities prior to the
issuer registering the subject securities under the Exchange Act are
not subject to Section 13(d) and persons who acquire not more than
two percent of a covered class within a 12-month period are exempted
from Section 13(d) by Section 13(d)(6)(B), but in both cases are
subject to Section 13(g). Section 13(d)(6)(A) exempts acquisitions
of subject securities acquired in a stock-for-stock exchange that is
registered under the Securities Act of 1933.
---------------------------------------------------------------------------

     Amend the deadline in Rule 13d-1(c), which permits Passive
Investors \8\ to file an initial Schedule 13G in lieu of Schedule 13D
within 10 days after acquiring beneficial ownership of more than 5% of
a covered class, to five days after the date of such an acquisition;
---------------------------------------------------------------------------

    \8\ The term ``Passive Investors'' as used in this release
refers to beneficial owners of more than 5% but less than 20% of a
covered class who can certify under Item 10 of Schedule 13G that the
subject securities were not acquired or held for the purpose or
effect of changing or influencing the control of the issuer of such
securities and were not acquired in connection with or as a
participant in any transaction having such purpose or effect. These
investors are ineligible to report beneficial ownership pursuant to
Rules 13d-1(b) or (d) but are eligible to report beneficial
ownership on Schedule 13G in reliance upon Rule 13d-1(c).
---------------------------------------------------------------------------

     Revise the filing deadlines required for amendments to
Schedule 13G in Rule 13d-2(b) to five business days after the end of
the month in which a reportable change occurs;
     Amend Rule 13d-2(c) to shorten the filing deadline for
Schedule 13G amendments filed pursuant to that provision to five days
after the date on which beneficial ownership first exceeds 10% of a
covered class, and thereafter upon any deviation by more than 5% of the
covered class, with these requirements applying if the thresholds were
crossed at any time during a month; and
     Amend Rule 13d-2(d) to revise the filing deadline for
Schedule 13G amendments filed pursuant to that provision from a
``promptly'' standard to one business day after the date on which
beneficial ownership exceeds 10% of a covered class, and thereafter
upon any deviation by more than 5% of the covered class.
    In addition, instead of an amendment obligation arising for
Schedule 13G filers upon the occurrence of ``any change'' in the facts
previously reported regardless of the materiality of such change, we
are proposing to revise Rule 13d-2(b) to require that an amendment to a
Schedule 13G be filed only if a ``material change'' occurs. Further, we
are proposing to amend Rule 13(a) of Regulation S-T to permit Schedules
13D and 13G, and any amendments thereto, that are submitted by direct
transmission on or before 10 p.m. eastern time on a given business day
to be deemed to have been filed on the same business day. This
amendment would provide additional time for beneficial owners to
prepare and submit their Schedule 13D or Schedule 13G filings.\9\
---------------------------------------------------------------------------

    \9\ See Rule 13(a)(2) of Regulation S-T. We also are proposing
to amend Rule 201(a) of Regulation S-T to make the temporary
hardship exemption set forth in that rule--which applies to
unanticipated technical difficulties preventing the timely
preparation and submission of an electronic filing--unavailable to
Schedules 13D and 13G, including any amendments thereto.
---------------------------------------------------------------------------

    The following table summarizes the changes we are proposing, as
described more fully in Section II.A:

----------------------------------------------------------------------------------------------------------------
                                   Current Schedule      Proposed New      Current Schedule      Proposed New
              Issue                       13D            Schedule 13D             13G            Schedule 13G
----------------------------------------------------------------------------------------------------------------
Initial Filing Deadline.........  Within 10 days      Within five days    QIIs & Exempt       QIIs & Exempt
                                   after acquiring     after acquiring     Investors: 45       Investors: Five
                                   beneficial          beneficial          days after          business days
                                   ownership of more   ownership of more   calendar year-end   after month-end
                                   than 5% or losing   than 5% or losing   in which            in which
                                   eligibility to      eligibility to      beneficial          beneficial
                                   file on Schedule    file on Schedule    ownership exceeds   ownership exceeds
                                   13G. Rules 13d-     13G. Rules 13d-     5%. Rules 13d-      5%. Rules 13d-
                                   1(a), (e), (f)      1(a), (e), (f)      1(b) and (d).       1(b) and (d).
                                   and (g).            and (g).
                                                                          Passive Investors:  Passive Investors:
                                                                           Within 10 days      Within five days
                                                                           after acquiring     after acquiring
                                                                           beneficial          beneficial
                                                                           ownership of more   ownership of more
                                                                           than 5%. Rule 13d-  than 5%. Rule 13d-
                                                                           1(c).               1(c).
Amendment Triggering Event......  Material change in  No amendment        All Schedule 13G    All Schedule 13G
                                   the facts set       proposed--materia   Filers: Any         Filers: Material
                                   forth in the        l change in the     change in the       change in the
                                   previous Schedule   facts set forth     information         information
                                   13D. Rule 13d-      in the previous     previously          previously
                                   2(a).               Schedule 13D).      reported on         reported on
                                                       Rule 13d-2(a).      Schedule 13G.       Schedule 13G.
                                                                           Rule 13d-2(b).      Rule 13d-2(b).
                                                                          QIIs & Passive      QIIs & Passive
                                                                           Investors: Upon     Investors: No
                                                                           exceeding 10%       amendment
                                                                           beneficial          proposed--upon
                                                                           ownership or a 5%   exceeding 10%
                                                                           increase or         beneficial
                                                                           decrease in         ownership or a 5%
                                                                           beneficial          increase or
                                                                           ownership. Rules    decrease in
                                                                           13d-2(c) and (d).   beneficial
                                                                                ownership. Rules
                                                                                13d-2(c) and (d).
Amendment Filing Deadline.......  Promptly after the  Within one          All Schedule 13G    All Schedule 13G
                                   triggering event.   business day        Filers: 45 days     Filers: Five
                                   Rule 13d-2(a).      after the           after calendar      business days
                                                       triggering event.   year-end in which   after month-end
                                                       Rule 13d-2(a).      any change          in which a
                                                                           occurred. Rule      material change
                                                                           13d-2(b).           occurred. Rule
                                                                                13d-2(b).
                                                                          QIIs: 10 days       QIIs: Five days
                                                                           after month-end     after exceeding
                                                                           in which            10% beneficial
                                                                           beneficial          ownership or a 5%
                                                                           ownership           increase or
                                                                           exceeded 10% or     decrease in
                                                                           there was, as of    beneficial
                                                                           the month-end, a    ownership. Rule
                                                                           5% increase or      13d-2(c).
                                                                           decrease in
                                                                           beneficial
                                                                           ownership. Rule
                                                                           13d-2(c).
                                                                          Passive Investors:  Passive Investors:
                                                                           Promptly after      One business day
                                                                           exceeding 10%       after exceeding
                                                                           beneficial          10% beneficial
                                                                           ownership or a 5%   ownership or a 5%
                                                                           increase or         increase or
                                                                           decrease in         decrease in
                                                                           beneficial          beneficial
                                                                           ownership. Rule     ownership. Rule
                                                                           13d-2(d).           13d-2(d).
Filing ``Cut-Off'' Time.........  5:30 p.m. eastern   10 p.m. eastern     All Schedule 13G    All Schedule 13G
                                   time. Rule          time. Rule          Filers: 5:30 p.m.   Filers: 10 p.m.
                                   13(a)(2) of         13(a)(4) of         eastern time.       eastern time.
                                   Regulation S-T.     Regulation S-T.     Rule 13(a)(2) of    Rule 13(a)(4) of
                                                                           Regulation S-T.     Regulation S-T.
----------------------------------------------------------------------------------------------------------------

    We also are proposing to add new paragraph (e) to Rule 13d-3 to
deem holders of certain cash-settled derivative securities as
beneficial owners of the reference covered class. Holders of derivative
securities settled exclusively in cash do not have enforceable rights
or any other entitlements with respect to the reference security under
the terms of the agreement governing the derivative. Under certain
circumstances described more fully below, however, holders of such
derivative securities may have both the incentive and ability to
influence or control the issuer of the reference securities.
Accordingly, the proposed amendment would ``deem'' holders of such
derivative securities to beneficially own the reference securities just
as if they held such securities directly.
    The new means of determining who is a beneficial owner proposed in
Rule 13d-3(e) would be applied separately from, and in addition to,
Rules 13d-3(a) and (b), which provisions may, depending upon the facts
and circumstances, apply independently from proposed Rule 13d-3(e) to
persons who purchase or sell cash-settled derivatives. The application
of proposed Rule 13d-3(e) would be limited to those persons who hold
cash-settled derivatives in the context of changing or influencing
control of the issuer of the reference security. By contrast, security-
based swaps, as defined by Exchange Act Section 3(a)(68) and the rules
and regulations thereunder, would not be included among the derivative
securities covered by proposed Rule 13d-3(e).
    We are proposing amendments that would align the text of Rule 13d-
5, as applicable to two or more persons who act as a group, with the
statutory language in Sections 13(d)(3) and (g)(3) of the Exchange
Act.\10\ By conforming the rule text to Sections 13(d)(3) and 13(g)(3),
the proposed amendments to Rule 13d-5 are intended to remove the
potential implication that an express or implied agreement among group
members is a necessary precondition to the formation of a group under
those provisions of the Exchange Act and, by extension, Regulation 13D-
G.\11\ In connection with those proposed amendments, we also are
proposing to add a new provision in Rule 13d-5 that would affirm that
if a person, in advance of filing a Schedule 13D, discloses to any
other person that such filing will be made and such other person
acquires securities in the covered class for which the Schedule

13D will be filed, then those persons are deemed to have formed a group
within the meaning of Section 13(d)(3).
---------------------------------------------------------------------------

    \10\ See 15 U.S.C. 78m(d)(3) and (g)(3) (``When two or more
persons act as a . . . group for the purpose of acquiring, holding,
or disposing of securities of an issuer, such . . . group shall be
deemed a `person' for the purposes of this subsection.''). The
determination of whether two or more persons act as a group under
these statutory provisions depends upon the particular facts and
circumstances and may vary on a case-by-case basis.
    \11\ Further, to reinforce that Rule 13d-5, which is currently
titled ``Acquisition of securities,'' is intended to set forth the
circumstances under which an acquisition is deemed to occur for
purposes of Section 13(d)(1) and Rule 13d-1, we also propose to
delete Rule 13d-5(b)(2)--which provides that, under certain
conditions, a group shall not be deemed to have made an acquisition
if persons take concerted action to make purchases in a covered
class directly from an issuer--and to redesignate it as new Rule
13d-6(b). Rule 13d-6, titled ``Exemption of certain acquisitions,''
exempts certain acquisitions from the scope of Section 13(d).
Because Rule 13d-5(b)(2) operates as the equivalent of an exemption,
moving Rule 13d-5(b)(2) to Rule 13d-6 would harmonize the subject
matter of those rules.
---------------------------------------------------------------------------

    In addition, we are proposing amendments that would revise Rule
13d-6 to set forth additional exemptions from Sections 13(d) and (g).
Specifically, new Rule 13d-6(c) would set forth the circumstances under
which two or more persons may communicate and consult with one another
and engage with an issuer without concern that they will be subject to
regulation as a group with respect to the issuer's equity securities.
New Rule 13d-6(d) would set forth the circumstances under which two or
more persons may enter into an agreement governing a derivative
security in the ordinary course of business without concern that they
will become subject to regulation as a group with respect to the
derivative's reference equity securities. These two exemptions are
designed to provide greater certainty regarding the application of
Sections 13(d)(3) and (g)(3), while ensuring that the proposed
amendments to Rules 13d-3 and 13d-5 will not have a chilling effect on
shareholder communications or engagement or impair certain financial
institutions' capacity to execute strictly commercial transactions in
the ordinary course of their business.
    In addition, we are proposing amendments that would revise Schedule
13D to clarify the disclosure requirements with respect to derivative
securities held by a person reporting on that schedule. Specifically,
we are proposing to amend Item 6 to Schedule 13D, codified at Rule 13d-
101, to remove any implication that a person is not required to
disclose interests in all derivative securities that use a covered
class as a reference security. This proposed amendment is intended to
eliminate any ambiguity regarding the scope of the disclosure
obligations of Item 6 of Schedule 13D as to derivative securities,
including with respect to derivatives not originating with the issuer,
such as cash-settled options not offered or sold by the issuer and
security-based swaps.
    Finally, we are proposing to require that Schedules 13D and 13G be
filed using a structured, machine-readable data language. Specifically,
we are proposing to require that all disclosures, including
quantitative disclosures, textual narratives, and identification
checkboxes, on Schedules 13D and 13G to be filed using an XML-based
language to make it easier for investors and markets to access, compile
and analyze information that is disclosed on Schedules 13D and 13G.
Only the exhibits to Schedules 13D and 13G would remain unstructured.
    We invite and encourage interested parties to submit comments on
any aspect of the proposed rule amendments. When commenting, please
include the reasoning in support of your position or recommendation and
provide any supporting documentation or data.

II. Discussion of the Proposed Amendments

A. Proposed Amendments to Rules 13d-1 and 13d-2 and Rules 13 and 201 of
Regulation S-T To Revise Filing Deadlines and Filing Date Assignment

    We are proposing a series of amendments that would revise the
deadlines for filing the initial and amended beneficial ownership
reports on Schedules 13D and 13G and expanding the timeframe within a
given business day in which such filings may be timely made.
Specifically, we are proposing amendments to the following rules:
     Rule 13d-1(a) to shorten the filing deadline for the
initial Schedule 13D;
     Rules 13d-1(e), (f), and (g) to shorten the filing
deadlines for the initial Schedule 13D for certain persons who forfeit
their eligibility to report on Schedule 13G in lieu of Schedule 13D;
     Rules 13d-1(b), (c), and (d) to shorten the filing
deadlines for the initial Schedule 13G;
     Rules 13d-2(a) and (b) to revise the filing deadline for
amendments to Schedule 13D and Schedule 13G, respectively, and to align
the legal standard that dictates when amendments to Schedule 13G are
required with the relevant statutory provision;
     Rules 13d-2(c) and (d) to revise the filing deadlines for
certain other amendments to Schedule 13G; and
     Rules 13(a) and 201(a) of Regulation S-T to revise the
time by which Schedule 13D and 13G filings, including amendments
thereto, must be submitted on a given business day in order to be
deemed to have been filed on the same business day and to make a
temporary hardship exemption unavailable to those filings.
    These proposed amendments are discussed in more detail below.
1. Rule 13d-1(a)
a. Background
    Section 13(d)(1) of the Exchange Act requires a disclosure
statement to be filed ``within ten days after [an] acquisition [of more
than 5% of a covered class] or within such shorter time as the
Commission may establish by rule.'' \12\ Consistent with this
provision, Rule 13d-1(a) sets forth the 10-day filing deadline for the
initial Schedule 13D.\13\ Although the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') amended
Section 13(d)(1) to grant the Commission the authority to shorten the
deadline for filing the initial Schedule 13D,\14\ the 10-day deadline
has not been updated since it was enacted more than 50 years ago.\15\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78m(d)(1).
    \13\ 17 CFR 240.13d-1(a) (requiring that a Schedule 13D be filed
``within 10 days after the acquisition'' of beneficial ownership of
more than 5% of a covered class).
    \14\ Public Law 111-203, 124 Stat. 1900 929R(a)(1)(A) (2010).
    \15\ Section 13(d)(1) of the Exchange Act was enacted by the
Ninetieth Congress in 1968 through the approval of Senate Bill 510.
---------------------------------------------------------------------------

    Technological advances since 1968, such as the ability to submit
filings electronically through the Commission's Electronic Data
Gathering, Analysis and Retrieval (``EDGAR'') system and the use of
modern information technology in today's financial markets, have led to
calls for a reassessment of the 10-day initial filing deadline,\16\
while others disagree that such advances warrant any change to the
deadline.\17\ For example,

the Commission currently requires all Schedule 13D filings to be
submitted electronically through its EDGAR system.\18\ Mandated
electronic submissions relieve filers of the need to arrange for
delivery in-person or through the U.S. mails. Furthermore, given the
advances in the information technologies used by market professionals
today, less time is needed to compile the necessary data and prepare
and transmit the Schedule 13D to the Commission than was required in
1968.
---------------------------------------------------------------------------

    \16\ See, e.g., Leo E. Strine, Jr., Who Bleeds When the Wolves
Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our
Strange Corporate Governance System, 126 Yale L.J. 1870, 1895, 1960-
61 (2017) (describing the ``disclosure regime under Section 13 of
the Securities Exchange Act'' as ``antiquated'' and stating that
``[i]t seems entirely clear to me that the idea of Section 13 was
that an investor should come public as soon as reasonably possible
after hitting the 5% threshold and that the reporting deadline was
due to what it took to type up, proof, and deliver to Washington the
required filing in 1968, when word processors and electronic filing
with a button push did not exist''); David Benoit, Congress Asked to
Act on Activist Investor Disclosures, The Wall Street Journal (Apr.
15, 2015), https://www.wsj.com/articles/congress-asked-to-act-on-activist-investor-disclosures-1429107089 (noting that Citizens for
Responsibility and Ethics in Washington, the Government
Accountability Project and New Rules for Global Finance sent a
letter to members of Congress requesting that the Schedule 13D
filing deadline be shortened from 10 days to one day); Adam O.
Emmerich et al., Fair Markets and Fair Disclosure: Some Thoughts on
the Law and Economics of Blockholder Disclosure, and the Use and
Abuse of Shareholder Power, 3 Harv. Bus. L. Rev. 135, 143 (2013)
(noting that the 10-day Schedule 13D filing deadline reflected
``commercial and technological realities that existed in 1968,
[which] would have included the time required to mail the Schedule
13D to the SEC's office''); letter from Wachtell, Lipton, Rosen &
Katz to Elizabeth M. Murphy, Sec'y, U.S. Sec. & Exch. Comm'n (Mar.
7, 2011) (``Wachtell Petition'') at 1-7, available at http://www.sec.gov/rules/petitions/2011/petn4-624.pdf (petitioning the
Commission to propose amendments to the beneficial ownership
reporting rules to, among other things, shorten the Schedule 13D
filing deadline from 10 days to one business day).
    \17\ See, e.g., Lucian A. Bebchuk et al., Pre-Disclosure
Accumulations by Activist Investors: Evidence and Policy, 39 J.
Corp. L. 1, 14-17 (2013) (noting that the authors ``are not familiar
. . . with any research establishing [the] claim'' that
technological developments and changes in the capital markets since
1968 have rendered the 10-day Schedule 13D filing deadline
obsolete); Ronald Gilson and Jeffery Gordon, The Agency Costs of
Agency Capitalism: Activist Investors and the Revaluation of
Governance Rights, 113 Colum. L. Rev. 863, 904 (2013) (explaining
that shortening the deadline would ``reduce the economic stake that
an activist shareholder can accumulate before mandatory disclosure
of its holding drives up the price of the target company's stock''
which would cause the ``activist sector [to] shrink, fewer firms
[to] be identified as targets for strategic initiatives, and the
activists [to] reduce costly campaign efforts''); Lucian A. Bebchuk
and Robert J. Jackson Jr., The Law and Economics of Blockholder
Disclosure, 2 Harv. Bus. L. Rev. 39, 44-47 (2012) (noting that
Schedule 13D's 10-day filing deadline ``reflects a careful balance
that Congress struck, after extensive debate, between the need to
provide information to investors and the importance of preserving
the governance benefits associated with outside blockholders'').
    \18\ In mandating that all Schedules 13D and 13G be filed
electronically, the Commission reasoned that such a transition was
necessary to facilitate ``more rapid dissemination of, and easier
access to, financial and other material information . . . than under
our current paper filing system'' while also citing to ``increased
efficiencies in the filing process, which will significantly reduce
the filing time required under traditional methods of paper
delivery.'' See Rulemaking for EDGAR System, Release No. 34-35113
(Dec. 19, 1994) [59 FR 67752 (Dec. 30, 1994)]; Mandated EDGAR Filing
for Foreign Issuers, Release No. 34-45922 (May 14, 2002) [67 FR
36678 (May 24, 2002)].
---------------------------------------------------------------------------

    The 10-day filing deadline raises concerns 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. The delay in reporting this material
information contributes to information asymmetries that could harm
investors.\19\ In enacting Section 13(d), including its original
mandate of a 10-day filing deadline in 1968, Congress considered the
need to strike an appropriate balance between, on the one hand,
providing adequate disclosures to investors and, on the other hand, not
unduly burdening those engaging in change of control transactions.\20\
In 2010, Congress reassessed the 10-day deadline established in 1968
and subsequently amended Section 13(d) to authorize the Commission to
shorten the 10-day deadline.\21\ This grant of statutory authority by
Congress to establish a shorter deadline clearly indicates that the
current 10-day deadline is not immutable and that the Commission is
empowered to shorten that deadline to address the needs of today's
investors and other market participants, particularly in light of the
technological advancements and other developments in the financial
markets that have occurred since 1968.\22\ In reassessing whether or
not the current 10-day deadline still serves the primary purposes of
Section 13(d), which are to provide information to the public and the
subject issuer about accumulations of a covered class by persons who
had the potential to change or influence control of such issuer \23\
and to regulate rapid accumulations of beneficial ownership that
occurred within a short period of time,\24\ we have determined that an
amendment to Rule 13d-1(a) is needed to adequately support those
regulatory objectives.
---------------------------------------------------------------------------

    \19\ See, e.g., John C. Coffee, Jr. and Darius Palia, The Wolf
at the Door: The Impact of Hedge Fund Activism on Corporate
Governance, 41 J. Corp. L. 545, 597 (2016) (``[T]he gains that
activists make in trading on asymmetric information--before the
Schedule 13D's filing--come at the expense of selling shareholders.
. . . Disclosure that is delayed ten days enables activists to
profit from trading on asymmetric information over that period . . .
.''); Adam O. Emmerich et al., supra note 17, at 142-46 (``[N]othing
in the words or legislative history of the Williams Act suggests
that the ten-day disclosure window established in 1968 was designed
to allow activists to accumulate large stakes at discounted prices,
unbeknownst to and to the detriment of counterparties and the
market. To the contrary, the purpose of the Williams Act was to
promptly arm market participants with information concerning
potential changes in corporate control in order to allow them to
make more informed investment decisions. The stealth accumulations
at below-market prices . . . transfer value from public investors to
activists . . . .''); Wachtell Petition, supra note 17, at 3
(``[T]he ten-day [Schedule 13D] reporting lag leaves a substantial
gap after the reporting threshold has been crossed during which the
market is deprived of material information and creates incentives
for abusive tactics on the part of aggressive investor prior to
making a filing.''). But see, e.g., Ronald J. Gilson and Jeffrey N.
Gordon, The Agency Costs of Agency Capitalism: Activist Investors
and the Revaluation of Governance Rights, 113 Colum. L. Rev. 863,
907-09 (2013) (``A shareholder's decision to sell results either
from liquidity needs or the shareholder's reservation price for the
security in question. Any asymmetry of information involved in the
transaction arises from the activist's private information about its
own intentions, which may include a forecast as to the likely target
firm response. Why does the selling shareholder have an entitlement
to share in the value of information created by the analysis of
other investors?''); Lucian A. Bebchuk et al., supra note 17, at 17-
19 (contending that shortening the Schedule 13D filing deadline
``would carry significant costs for public-company shareholders''
because ``requiring activist investors to disclose their ownership
in public companies more quickly will reduce these investors'
returns--thereby reducing the incidence and magnitude of outside
blockholdings in large public companies''); Lucian A. Bebchuk and
Robert J. Jackson Jr., supra note 17, at 47-51 (describing the
``substantial body of empirical evidence that is consistent with the
view that outside blockholders improve corporate governance and
benefit public investors'' and noting that shortening the Schedule
13D filing deadline could ``reduce the returns to outside
shareholders considering acquiring a block and, in turn, . . .
result in a reduction in the incidence and size of outside
blocks'').
    \20\ See, e.g., Full Disclosure of Corporate Equity Ownership
and in Corporate Takeover Bids: Hearing on S. 510 Before the
Subcomm. on Securities of the S. Comm. on Banking and Currency, 90th
Cong. 1 (1967) (statement of Manuel F. Cohen, Chairman, Securities
and Exchange Commission) (``It must be emphasized again that in
establishing requirements which will make this important information
available to stockholders, we must be careful not to tip the scales
to favor either incumbent management or those who would seek to oust
them. We believe that the provisions of the present bill . . .
reflect an appropriate balance among competing interests which, at
the same time, will fulfill the need of public stockholders to be
fully informed about the control and potential control of the
company in which they have invested.''); H.R. Rep. No. 1711, at 4
(1968) (``The bill avoids tipping the balance of regulation either
in favor of management or in favor of the person making the takeover
bid. It is designed to require full and fair disclosure for the
benefit of investors while at the same time providing the offeror
and management equal opportunity to fairly present their case.'');
S. Rep. No. 550, at 3 (1968) (same); see also infra note 35 and
accompanying text.
    \21\ See supra note 14 and accompanying text.
    \22\ At the same time, however, we recognize significant state
law changes have occurred since the enactment of the Williams Act
that have resulted in legal impediments being imposed upon
blockholders in the market for corporate control. See Lucian A.
Bebchuk and Robert J. Jackson Jr. supra note 17, at n.54 and
accompanying text. These state law impediments have decreased the
incidence of hostile takeover bids and, as a result, ``active
outside blockholders filing a Schedule 13D are commonly not expected
to seek to acquire control, but rather to monitor and engage with
management and fellow shareholders.'' Id. at 56.
    \23\ See Reporting of Beneficial Ownership in Publicly-Held
Companies, Release No. 34-26598 (Mar. 14, 1989) [54 FR 10552 at text
accompanying n.20 (Mar. 14, 1989)] (``Section 13(d) was intended to
provide information to the public and the subject company about
accumulations of its equity securities in the hands of persons who
then would have the potential to change or influence control of the
issuer.'') (citing S. Rep. No. 550, 90th Cong., 1st Sess. 7 (1967);
H.R. Rep. No. 1711, 90th Cong., 2nd Sess. 8 (1968); Hearings on S.
510 before the Subcomm. on Securities of the Senate Comm. on Banking
and Currency, 90th Cong., 1st Sess. (1967)).
    \24\ H.R. Rep. No. 90-1711 (1968) (``The purpose of section
13(d) is to require disclosure of information by persons who have
acquired a substantial interest, or increased their interest in the
equity securities of a company by a substantial amount, within a
relatively short period of time.''); see also Filing and Disclosure
Requirements Relating to Beneficial Ownership, Release No. 34-17353
(Dec. 4, 1980) [45 FR 81556 at text accompanying n.5 (Dec. 11,
1980)] (``The legislative history of [Section 13(d)] indicates that
it was intended to provide information to the public and the
affected issuer about rapid accumulations of its equity securities
by persons who would then have the potential to change or influence
control of the issuer.'') (citing S. Rep. No. 550, 90th Cong., 1st
Sess. 7 (1967); Hearings on S.510 before the Subcomm. on Securities
of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess.
(1967)).

---------------------------------------------------------------------------

b. Proposed Amendments
    We believe the 10-day filing deadline for the initial Schedule 13D
filing should be revised in light of advances in technology and
developments in the financial markets. Our proposal to shorten 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.\25\ For example, 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.'' \26\
---------------------------------------------------------------------------

    \25\ For example, the Sarbanes-Oxley Act of 2002 amended Section
16(a) to require that change of beneficial ownership reports under
Section 16(a) of Exchange Act be filed by officers, directors and
beneficial owners of more than 10% of a covered class ``before the
end of the second business day following the day on which the
subject transaction has been executed.'' On August 27, 2002, the
Commission adopted amendments to implement the accelerated deadline
for Form 4 filings. See Ownership Reports and Trading by Officers,
Directors and Principal Security Holders, Release No. 34-46421 (Aug.
27, 2002) [67 FR 56461 (Sept. 3, 2002)]. On March 16, 2004, the
Commission amended Form 8-K to generally require that such filings
be made within four business days of a triggering event. In adopting
the accelerated timeline, the Commission explained the amended
requirement ``should enhance investor confidence in the financial
markets.'' Additional Form 8-K Disclosure Requirements and
Acceleration of Filing Date, Release No. 34-49424 (Mar. 16, 2004)
[69 FR 15593 at 15611 (Mar. 25, 2004)]. The Commission further
explained that ``[t]he requirement of enhanced, timely disclosure
should raise investors' expectations regarding the amount and timing
of information that reporting companies must make available to the
public'' and that ``[c]onfidence in the expectation of such enhanced
disclosure should provide more certainty to those investors that
they are making investment decisions in a more transparent market,
which should reduce market volatility as a result of uncertainty of
the availability of accurate timely information about public
companies.'' Id.
    \26\ Acceleration of Periodic Report Filing Dates and Disclosure
Concerning website Access to Reports, Release No. 34-46464 (Sept. 5,
2002) [67 FR 58479 (Sept. 16, 2002)]. We recognize that these
accelerated deadlines applied to periodic filings made by issuers,
whereas Sections 13(d) and (g) relate to filings made by investors.
We also recognize that the acceleration of these deadlines was
prompted, in part, by Section 409 of the Sarbanes-Oxley Act of 2002,
which ``added Section 13(l) of the Exchange Act . . . [to] require[
] disclosure on a rapid and current basis of such additional
information concerning material changes in the financial condition
or operations of the issuer,'' id. at n.15 and accompanying text
(emphasis added), whereas no such ``rapid and current'' language
exists in Sections 13(d) and 13(g). Nonetheless, the technological
advances that have increased both the market's demand for more
timely disclosure and the ability of issuers to file more rapidly
are equally applicable to the information disclosed on Schedule 13D
and available to investors making Schedule 13D filings. For example,
Congress recognized the market's demand for more timely disclosure
of non-issuer filings by accelerating deadline for Section 16
filings in the Sarbanes-Oxley Act. See supra note 25. As such, we
believe that these technological advances also support accelerating
the initial Schedule 13D filing deadline.
---------------------------------------------------------------------------

    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.'' \27\ Nonetheless, the deadline for filing an initial
Schedule 13D has remained unchanged for over 50 years.\28\ We continue
to appreciate the need for a balance to be struck between the
requirement that material information be timely disseminated and the
competing interest that undue burdens not be imposed in the change of
control context.\29\ We recognize the chilling effect that a shortening
of the initial Schedule 13D filing deadline could have on a
shareholder's ability and incentive to effect changes at companies that
may benefit all shareholders, particularly where the shortened deadline
may increase the costs and reduce the incentives for those shareholders
attempting such change of control efforts.\30\ We do not believe,
however, that a shortening of the deadline would unduly disrupt that
balance, as many Schedule 13D filers currently do not avail themselves
of the full 10-day filing period.\31\ In recognition of the need to
strike the appropriate balance between these interests, however, we
also solicit public comment on this point in Section III.F below.
---------------------------------------------------------------------------

    \27\ Id.; see also H.R. Rep. 90-550 (1967) (``The persons
seeking control, however, have information about themselves and
about their plans which, if known to investors, might substantially
change the assumptions on which the market price is based. The bill
is designed to make relevant facts known so that shareholders have a
fair opportunity to make their decision.'').
    \28\ Although the initial Schedule 13D deadline has not been
changed, the idea of shortening the deadline for beneficial
ownership reports has been previously recommended. For example,
then-Chairman David S. Ruder recommended to Congress that the filing
deadline for an initial beneficial ownership report be reduced from
ten days to five business days and that the filing person be
prohibited from acquiring additional securities until the filing was
made. See Statement of David S. Ruder, Chairman of the Securities
and Exchange Commission, Before the House Subcommittee on
Telecommunications and Finance, Sept. 17, 1987; Statement of Charles
C. Cox, Acting Chairman of the Securities and Exchange Commission,
Before the Senate Committee on Banking, Housing and Urban Affairs,
June 23, 1987 (``[The] Commission could also support legislation to
require that a Schedule 13D be filed within five business days of
crossing the 5 percent threshold, and that a prohibition on further
purchases be imposed until the filing requirement is satisfied.'').
    \29\ See supra note 20 and accompanying text; see also 113 Cong.
Rec. 24,664 (1967) (noting that ``takeover bids should not be
discouraged, since they often serve a useful purpose by providing a
check on entrenched but inefficient management'') (statement of Sen.
Harrison A. Williams, Jr.).
    \30\ Academic research indicates that large blockholders may
improve the share price and the corporate governance of the
companies in which they invest, and these benefits are enjoyed by
all of the company's shareholders. See infra Section III.C.b.i. This
research also suggests that if the initial Schedule 13D filing
deadline is shortened, it could reduce the profitability of such
investments to large blockholders, making them less inclined to make
those investments or engage with the companies in ways that produce
such share price and corporate governance benefits. Id.
    \31\ See infra notes 203-205 and accompanying text (noting that
22.97% of the initial Schedule 13D filings in the data set were
filed on the 10th day).
---------------------------------------------------------------------------

    As noted above, Rule 13d-1(a) currently requires the initial
Schedule 13D to be filed within 10 days after the date on which a
person acquires beneficial ownership of more than 5% of a covered
class.\32\ We are proposing to amend Rule 13d-1(a) to require a
Schedule 13D to be filed within five days after the date of such
acquisition. For purposes of determining the filing deadline under this
proposed amendment, the Commission must receive the filing on the fifth
day after the date of the acquisition in order for the filing to be
considered timely. Under the current rules, the Commission would have
to receive that filing on or before 5:30 p.m. eastern time on the due
date.\33\ As described in Section II.A.6

below, however, we also are proposing to extend that cut-off time to 10
p.m. eastern time for Schedule 13D and 13G filings, including
amendments thereto.\34\
---------------------------------------------------------------------------

    \32\ Failure to comply with this deadline, as well as other
deadlines for beneficial ownership filings, could lead to
significant penalties. Under Section 21 of the Exchange Act, the
Commission has the authority to investigate and enforce violations
of Section 13(d)(1) and Rule 13d-1(a), and may seek to impose
various remedies for late filings, such as injunctive relief, cease-
and-desist orders or civil monetary penalties. The Commission also
may assert and refer criminal violations for prosecutions under
Section 32(a) of the Exchange Act. Importantly, no state of mind
requirement exists for violations of Section 13(d)(1) and
corresponding Rule 13d-1(a). See SEC v. Levy, 706 F. Supp. 61, 63-69
(D.D.C. 1989) (holding a defendant liable notwithstanding the
defendant's assertion that his attorney ``misinformed defendant
about his obligation to disclose'' information on Schedule 13D
because scienter is not an element of such violations). In addition,
a Schedule 13D filing obligation is not dependent on the investor
intending to gain control of the company, but instead is based on a
numerical beneficial ownership threshold. See SEC v. Savoy Indus.,
Inc., 587 F.2d 1149, 1167 (D.C. Cir. 1978) (``Indeed, the plain
language of section 13(d)(1) gives no hint that intentional conduct
need be found, but rather, appears to place a simple and affirmative
duty of reporting on certain persons. The legislative history
confirms that Congress was concerned with providing disclosure to
investors, and not merely with protecting them from fraudulent
conduct.''); see also Oppenheimer & Co., Inc., 47 SEC 286, 1980 WL
26901, at *1-2 (May 19, 1980) (``We have previously held that the
failure to make a required report, even though inadvertent,
constitutes a willful violation.'').
    \33\ See Rule 13 of Regulation S-T, titled ``Date of filing;
adjustment of filing date.'' 17 CFR 232.13. Rule 13(a)(2) provides
that ``all filings submitted by direct transmission commencing on or
before 5:30 p.m. [eastern time] shall be deemed filed on the same
business day, and all filings submitted by direct transmission
commencing after 5:30 p.m. [eastern time] shall be deemed filed as
of the next business day.'' Id.
    \34\ See infra Section II.A.6.
---------------------------------------------------------------------------

    In proposing to establish new timeframes for filing reports, we are
mindful of the need to balance the market's demand for timely
information against the administrative burden placed upon a filer to
adequately and accurately prepare that information. We also recognize
that when enacting Section 13(d)(1), Congress considered the interests
of both issuers of securities and the large shareholders who sought to
exert influence or control over issuers, and took an even-handed
approach.\35\ The proposed five-day deadline reflects our attempt to
maintain that balance and similarly undertake an even-handed approach,
especially when compared with considerably shorter initial filing
deadlines some parties have recommended.\36\ However, in light of the
technological advances and the rapid pace with which trading activities
and large accumulations of beneficial ownership can occur in the
financial markets today as compared to when the deadline was enacted in
1968, we are concerned that the current delay in reporting market-
moving information on Schedule 13D raises investor protection
concerns.\37\ Under current Rule 13d-1(a), large shareholders may
acquire more shares without contemporaneously disclosing their
beneficial ownership during the 10-day period that follows the date
that a Schedule 13D filing obligation arises. Although the 10-day
period may facilitate opportunities for certain shareholders to acquire
stakes large enough to incentivize them to engage in corporate activism
that could benefit all shareholders,\38\ the informational imbalance
between a buyer and seller during that period may result in
transactions being consummated based on mispriced securities.\39\
---------------------------------------------------------------------------

    \35\ In discussing the Williams Act, one Senator stated that
``the committee has carefully weighed both the advantages and
disadvantages to the public of the cash tender offer. We have taken
extreme care to avoid tipping the scales either in favor of
management or in favor of the person making the takeover bids. S.
510 is designed solely to require full and fair disclosure for the
benefit of investors.'' 113 Cong. Rec. S12557 (daily ed. Aug. 30,
1967) (statement of Sen. Harrison A. Williams, Jr.). The Senator
further stated that ``[t]he bill will at the same time provide the
offeror and management with equal opportunity to present their
case.'' Id.; see also Full Disclosure of Corporate Equity Ownership
and in Corporate Takeover Bids: Hearing on S. 510 Before the
Subcomm. on Securities of the S. Comm. on Banking and Currency, 90th
Cong. 1 (1967) (statement of Manuel F. Cohen, Chairman, Securities
and Exchange Commission) (``But the principal point is that we are
not concerned with assisting or hurting either side. We are
concerned with the investor who today is just a pawn in a form of
industrial warfare.'').
    \36\ See, e.g., supra note 17.
    \37\ The Commission has long recognized that additional
purchases made after a filing obligation arises under Section
13(d)(1) and corresponding Rule 13d-1(a) constitutes 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 . . . .'' Report of the
Securities and Exchange Commission on Beneficial Ownership Reporting
Requirements pursuant to Section 13(h) of the Securities Exchange
Act of 1934 (June 27, 1980); see also supra note 17. Following a
review of the effectiveness of Section 13(d) conducted more than
four decades ago, the Commission evaluated the then ``increasingly
prevalent practice of [large blockholders] acquiring additional
securities of [a covered] class during the 10-day period after the
acquisition which results in the beneficial ownership of more than 5
percent and before the disclosure statement is required to be, and
normally is, filed . . . .'' Securities and Exchange Commission
Report on Tender Offer Laws, Printed for the use of the Committee on
Banking, Housing and Urban Affairs--United States Senate (Mar.
1980). The Commission provided multiple illustrative examples in
which ``the existing notification system often does not provide
shareholders with relevant information in a timely manner.'' Id.
    \38\ See supra notes 17 and 19.
    \39\ H.R. Rep. 90-1711 (1968) (``But where no information is
available about persons seeking control, or their plans, the
shareholder is forced to make a decision on the basis of a market
price which reflects evaluation of the company based on the
assumption that the present management and its policies will
continue.'').
---------------------------------------------------------------------------

    Congress enacted Section 13(d) as a means of requiring timely
disclosures needed for informed investment decisions that ultimately
could contribute to the accurate valuation of securities.\40\ The
proposed shortening of the initial Schedule 13D filing deadline is
consistent with those legislative objectives while holding the
potential to benefit investors and improve the efficiency of U.S.
capital markets. Market-moving information, such as the accumulation of
a significant equity stake,\41\ would be made available more quickly,
improving opportunities for more efficient and more accurate price
discovery.\42\ In addition to more closely aligning the initial
Schedule 13D filing deadline with the reporting deadline on Form 8-K
for issuers and Form 4 for officers, directors and beneficial owners of
more than 10% of a covered class, a shorter filing deadline for the
initial Schedule 13D also would be consistent with the filing deadlines
for similar beneficial ownership reports in foreign jurisdictions.\43\
The increase in transparency and corresponding assurance given to
investors that transactions are not being made based on mispriced
securities caused by a prolonged lag in the dissemination of market-
moving information should increase investor confidence. By increasing
the certainty offered to shareholders that their trades are not being
made on the basis of incomplete or outdated information, the proposed
amendment to Rule 13d-1(a) could in turn enhance market efficiency and
liquidity.
---------------------------------------------------------------------------

    \40\ See GAF Corp. v. Milstein, 453 F.2d 709, 717 (2d. Cir.
1971), cert. denied, 406 U.S. 910 (1972) (noting that without prompt
disclosure, ``investors cannot assess the potential for changes in
corporate control and adequately evaluate the company's worth'').
    \41\ The materiality of such information is supported by
academic literature indicating that economically significant price
changes occur in response to news about changes in corporate
control, including the filing of a Schedule 13D. See infra note 215
and accompanying text.
    \42\ See Takeover Bids: Hearing on H.R. 14475 and S. 510 Before
the H. Subcomm. on Commerce and Finance of the H. Comm. on
Interstate and Foreign Commerce, 90th Cong. 10 (1968) (statement of
Manuel F. Cohen, Chairman, Securities and Exchange Commission)
(``Now it is argued by some that the basic factor which influences
shareholders to accept a tender offer is the adequacy of the price.
But, I might ask, how can an investor evaluate the adequacy of the
price if he cannot assess the possible impact of a change in
control? Certainly without such information he cannot judge its
adequacy by the current or recent market price. That price
presumably reflects the assumption that the company's present
business, control and management will continue. If that assumption
is changed, is it not likely that the market price might change?'').
The potential gains in market efficiency and price discovery that
could be achieved with a shorter initial reporting deadline,
however, could be offset by the costs imposed upon shareholders who
seek to influence or change management. See supra note 38 and
accompanying text.
    \43\ For example, Australia requires disclosure of any position
of 5% or more within two business days if any transaction affects or
is likely to affect control or potential control of the issuer. See
Corporations Act 2001 (Cth) sec. 671B (Austl.). The United Kingdom
imposes a two-trading-day deadline for disclosure of acquisitions in
excess of 3% of an issuer's securities. See Disclosure Rules and
Transparency Rules, Ch. 5 (U.K.). Germany requires a report
``immediately,'' but in no event later than four days after crossing
the acquisition threshold. See Securities Trading Act, Sept. 9,
1998, BGBL. I at 2708, as amended, pt. 5 (Ger.). Hong Kong
securities laws require a report within three business days of the
acquisition of a ``notifiable interest'' under the law. See Part XV
of the Securities and Futures Ordinance (promulgated by the
Securities and Futures Commission, effective Apr. 1, 2003) (H.K.).
This comparative analysis suggests that a shortened deadline is
workable based on the experience of these foreign jurisdictions. We
note, however, that this comparative analysis may be imperfect given
the relevant differences in the legal systems in the U.S. and these
foreign jurisdictions, including anti-takeover devices that are
legal under certain states' corporate laws (e.g., low-threshold
poison pills that are permitted under Delaware law) that may not be
legal in these foreign jurisdictions.

---------------------------------------------------------------------------

Request for Comment
    1. Should we amend Rule 13d-1(a) as proposed?
    2. How has the market for corporate control changed since the
enactment of the Williams Act? To the extent those changes are
significant, how should we consider them in our analysis of shortening
the reporting window?
    3. Should we amend Rule 13d-1(a), but have the initial Schedule 13D
due within a different number of days than proposed (e.g., five
business days rather than five days) after the date of acquisition?
Should we use business days instead of days for purposes of the Rule
13d-1(a) deadline for the initial Schedule 13D filing?
    4. Rather than shorten the deadline under Rule 13d-1(a) in all
instances, should we offer a tiered approach, such as maintaining the
10-day deadline for acquisitions of greater than 5% but no more than
10% while instituting a shorter deadline if beneficial ownership
exceeds 10%? Should a person who ``stands still'' (i.e., chooses to
make no further acquisitions of beneficial ownership) after crossing
the 5% threshold be subject to a longer filing deadline than those
persons who continue to make acquisitions after crossing the 5%
threshold? If so, how much extra time to file should such person be
given? In addition, if a tiered deadline is recommended, should any
limit be placed upon the amount that can be acquired during the day on
which the 5% threshold is crossed? If any acquisition limits should be
imposed on the day the 5% threshold is crossed under a scenario where
we move to adopt tiered deadlines, what should be the maximum amount
that a person could acquire and still be eligible for an extended
filing deadline?
    5. Should the deadline for the initial Schedule 13D filing vary
based on a particular characteristic of the issuer (such as its market
capitalization or trading volume)? If so, please explain the
justification for why the deadline for reporting beneficial ownership
in certain types of issuers should be either shorter or longer based on
any such characteristic.
    6. Would the costs associated with preparing and filing an initial
Schedule 13D within the proposed five-day deadline substantially differ
from current costs of filing, and if so, why?
    7. Would the proposed amendments improve price discovery of a
covered class, and, in turn, reinforce investors' confidence in the
integrity of the capital markets?
    8. Are there costs other than routine filing and preparation costs
that we should consider in setting the initial Schedule 13D filing
deadline, and if so, what are those costs and can they be quantified?
For example, would shortening the deadline necessarily limit the amount
of a covered class that a beneficial owner could acquire before the
initial Schedule 13D filing is due? If so, please identify such limit
or limitations. To the extent that any limit or limitations exist on
the amount of beneficial ownership in a covered class that can be
acquired on the same day on which the 5% reporting threshold is
crossed, how would any such limit or limitations impose actual or
anticipated costs upon shareholders in the covered class, including
those who would be acquiring reportable positions for the first time?
    9. Other than administrative burden or liquidity concerns, what
other potential drawbacks should be considered in setting a new filing
deadline? For example, would there be observable decreases in
shareholder activism?
    10. As a means of offsetting any incremental cost increases
associated with the proposed change, should we amend Schedule 13D,
codified at Rule 13d-101, to include pre-populated disclosure fields
under each line item disclosure requirement that reduce the amount of
narrative that the filer would be required to prepare and review? For
example, rather than requiring filers to describe any plans or
proposals that would result in the issuer undertaking an extraordinary
transaction (e.g., a sale or transfer of a material amount of assets of
the issuer or any of its subsidiaries), such a transaction type would
be listed along with a box that could be ``checked'' by the filer to
indicate the existence of any plan or proposal for the issuer to engage
in such a transaction.
    11. Have any change of control transactions followed large
accumulations of beneficial ownership that occurred after the 5%
threshold was crossed but before the initial Schedule 13D was filed,
and if so, what were those transactions?
    12. Is there evidence of shareholder harm that occurred as a result
of purchases made by a large shareholder after the 5% threshold was
crossed but before the Schedule 13D was filed? If so, please describe
the impact of such accumulations (including any quantifiable harms).
    13. Have any corporate actions been prevented from occurring, or
been forced to occur, as a result of the current 10-day filing deadline
for an initial Schedule 13D? If so, what were those instances and how
did the delay in reporting interfere with or otherwise impact the
normal operation of the corporation? For example, were any issuers
coerced or pressured to execute a settlement agreement or undertake a
buyback of their securities as a direct consequence of the initially
undisclosed amount of a covered class acquired once the 5% threshold
was crossed? Aside from transactions that occur based upon an imbalance
of information, are there any other specific difficulties that arise
from information asymmetries in the days leading up to a Schedule 13D
filing?
    14. Shares purchased during the 10-day window in advance of a
Schedule 13D filing are purchased from shareholders who already have
made the decision to exit or reduce their investment. It is possible
that some or all of those shareholders would have sold their shares
regardless of whether a Schedule 13D had been filed earlier. Is there
evidence that a Schedule 13D filing impacts the liquidity of an
issuer's shares or otherwise indicates that a Schedule 13D filing
impacts shareholders' decisions to sell their shares?
2. Rules 13d-1(e), (f), and (g)
a. Background
    Rules 13d-1(e), (f), and (g) were adopted in 1998.\44\ Those rules
are designed to ensure that initial Schedule 13D filing obligations are
identical, regardless of whether the beneficial owners were previously
eligible to file a Schedule 13G in lieu of the Schedule 13D.
Specifically, Rules 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) \45\ or (c).\46\ Rules 13d-1(b) and
(c) permit investors to file a comparatively abbreviated Schedule 13G
in lieu of the longer-form Schedule 13D and to have more time to make
amended filings.
---------------------------------------------------------------------------

    \44\ Amendments to Beneficial Ownership Reporting Requirements,
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)].
    \45\ 17 CFR 240.13d-1(b).
    \46\ 17 CFR 240.13d-1(c).
---------------------------------------------------------------------------

    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). Rules 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. Institutional and non-institutional beneficial
owners who are unable to certify that they do not hold beneficial
ownership with the intent to change or influence 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.'' \47\ Rule 13d-1(e)(1) currently requires that such persons
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.
---------------------------------------------------------------------------

    \47\ Whether investors are engaged in activity with the purpose
or effect of changing or influencing control of an issuer, and thus
holding beneficial ownership with a disqualifying purpose or effect,
ordinarily is a determination that would be based upon the specific
facts and circumstances. For that reason, the Commission has not
provided extensive guidance on this issue. The Commission has
previously opined that most solicitations in support of a proposal
specifically calling for a change of control of the company (e.g., a
proposal to seek a buyer for the company or a contested election of
directors or a sale of a significant amount of assets or a
restructuring of a corporation) would clearly have that purpose and
effect. For a more expansive discussion of the Commission's
reasoning and factors to consider when making this determination,
see Amendments to Beneficial Ownership Reporting Requirements,
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)].
---------------------------------------------------------------------------

    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% 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% 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.
    Rules 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) to indefinitely suspend
application of Rule 13d-1(a) and its attendant 10-day initial Schedule
13D filing deadline. Under Rules 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 Rules 13d-1(b)
and (c). Due to the importance of Schedule 13D's disclosure
requirements and the regulatory purposes served by the timely
dissemination of that material information, we have preliminarily
concluded that no compelling reason exists to treat persons who become
ineligible to file on Schedule 13G differently from persons who
initially have no option other than to file on Schedule 13D.
b. Proposed Amendments
    For largely the same reasons that we are proposing to amend Rule
13d-1(a) to shorten the initial Schedule 13D filing deadline
thereunder, we also are proposing to amend the initial Schedule 13D
filing deadline under Rules 13d-1(e)(1), (f)(1), and (g). Specifically,
we are proposing to make conforming revisions to Rules 13d-1(e), (f),
and (g) so that the Schedule 13D required to be filed by persons who
initially elected to report beneficial ownership on Schedule 13G but
subsequently lost their eligibility are treated no differently from
persons who make a Schedule 13D their initial filing. Accordingly, we
propose to amend Rules 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.
Request for Comment
    15. Given the proposed amendment to Rule 13d-1(a), should we make
conforming changes to Rules 13d-1(e), (f), and (g) as proposed?
    16. Should we amend Rules 13d-1(e), (f), and (g) but have the
initial Schedule 13D due within a different number of days than
proposed (e.g., five business days rather than five days)? Should we
use business days instead of days for purposes of the deadlines in
Rules 13d-1(e), (f), and (g)?
    17. Are there any reasons why Schedule 13G filers submitting an
initial Schedule 13D pursuant to Rules 13d-1(e), (f), and (g) should be
required to file on a different timetable from those investors who file
an initial Schedule 13D pursuant to the deadline in the proposed
amendment to Rule 13d-1(a)?
    18. Rather than make conforming changes to Rules 13d-1(e), (f), and
(g), should the Commission rescind Schedule 13G and rely on Section
13(g)(5) of the Exchange Act to consolidate beneficial ownership
reporting on a single form, Schedule 13D, with different disclosure
requirements applicable to beneficial owners who can certify that they
did not acquire and do not hold the beneficial ownership with a
disqualifying purpose or effect?
    19. With respect to the proposed amendment to Rule 13d-1(g), if a
filer who is no longer eligible to rely on Rule 13d-1(b) may instead
rely on Rule 13d-1(c), should the deadline for filing an amended
Schedule 13G in this instance differ from the deadline for filing an
initial Schedule 13D pursuant to Rule 13d-1(g) given that the filer
would continue to be able to certify that it does not hold beneficial
ownership with a disqualifying purpose or effect? Would five business
days after the month-end in which such change occurred be appropriate
and consistent with our proposed change to Rule 13d-2(b)?
3. Rules 13d-1(b), (c), and (d)
a. Background
    Section 13(g) was added to the Exchange Act in 1977.\48\ Congress
enacted Section 13(g) to address the absence of beneficial ownership
reporting by persons who had accumulated large amounts of stock in a
public issuer but who were not required to file a beneficial ownership
report under Section 13(d).\49\ Section 13(g) was intended to
``supplement the current statutory scheme by providing legislative
authority for certain additional disclosure requirements that in some
cases could not be imposed administratively.'' \50\ Beneficial owners
who currently report on Schedule 13G pursuant to Section 13(g) and
corresponding Rule 13d-1(d) are not subject to Section 13(d) because
they either made an exempt acquisition or an acquisition otherwise not
covered by the statute. Section 13(d), in contrast to Section 13(g),
applies only to beneficial owners who make non-exempt acquisitions of
more than 5% of a

covered class. Section 13(g) was intended to close this gap.
---------------------------------------------------------------------------

    \48\ Domestic and Foreign Investment Improved Disclosure Act of
1977, Public Law 95-214, sec. 203, 91. Stat. 1494.
    \49\ S. Rep. No. 114, 95th Cong. 1st Sess. 13 (1977).
    \50\ S. Rep. No. 95-114, at 13 (1977), reprinted in 1977 U.S.
Code Cong. & Admin. News. 4098, 4111.
---------------------------------------------------------------------------

    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).\51\ 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 5% of a covered class.\52\
---------------------------------------------------------------------------

    \51\ Filing and Disclosure Requirements Relating to Beneficial
Ownership, Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 (Apr.
28, 1978)].
    \52\ Id. at 18486; see also Senate Report No. 114, 95th Cong.
lst Sess. 14 (1977).
---------------------------------------------------------------------------

    The deadline for the initial Schedule 13G filing depends on whether
the person is a QII, Exempt Investor or Passive Investor. Rule 13d-1(b)
currently provides that a QII must file an initial Schedule 13G only if
such QII beneficially owns more than 5% of a covered class at the end
of a calendar year.\53\ A person relying upon Rule 13d-1(b) is
obligated under current 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. If the QII
beneficially owns more than 10% 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 5% during the
calendar year without incurring a filing obligation unless the QII
beneficially owns more than 10% of a covered class at the end of any
month during the calendar year.
---------------------------------------------------------------------------

    \53\ First adopted as Rule 13d-5 in 1977 and subsequently
redesignated as Rule 13d-1(b)(1) in 1978, the predecessor to current
Rule 13d-1(b)(2) established that an institution eligible to report
on the newly adopted Schedule 13G had until 45 days after the end of
the calendar year to report beneficial ownership to the extent the
amount held exceeded 5% at the end of the last day of the calendar
year. See Filing and Disclosure Requirements Relating to Beneficial
Ownership, Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 at
18486 (Apr. 28, 1978)] (explaining that ``the first provision in new
Rule 13d-1(b) has been added to make clear that the obligation to
file a Schedule 13G need be determined only on the last day of the
calendar year'' and that ``filing [a] Schedule 13G to disclose a
beneficial ownership interest of more than five but not more than
ten percent will be required forty-five days after the end of the
calendar year''); see also Adoption of Beneficial Ownership
Disclosure Requirements, Release No. 34-13291 (Feb. 24, 1977) [42 FR
12342 (Mar. 3, 1977)] (describing the Commission's adoption of new
Rule 13d-5 and related new Form 13D-5, which permitted brokers,
dealers, banks, investment companies, investment advisers, and
employee benefit plans to utilize an abbreviated disclosure notice).
---------------------------------------------------------------------------

    Rule 13d-1(d),\54\ 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.\55\
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).\56\
---------------------------------------------------------------------------

    \54\ 17 CFR 240.13d-1(d).
    \55\ The Commission has explained that certain ``persons who are
not required to file under Rule 13d-1(a) . . . would be required to
file a Schedule 13G pursuant to the amendments herein proposed.''
Filing and Disclosure Requirements Relating to Beneficial Ownership,
Release No. 34-14693 (Apr. 21, 1978) [43 FR 18501 at 18502 (Apr. 28,
1978)]. Such persons may include ``persons who acquired not more
than two percent of a class of securities within a twelve month
period, who are exempt from Rule 13d-1(a) by Section 13(d)(6)(B).''
Id. The Commission also stated that ``Regulation 13D-G . . . would
require any person `otherwise' not required to report pursuant to
Section 13(d), but who is a beneficial owner of more than five
percent of a specified class of equity securities to report on
Schedule 13G.'' Id.
    \56\ Filing and Disclosure Requirements Relating to Beneficial
Ownership, Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 at
18486 (Apr. 28, 1978)] (stating that ``the enactment of [S]ection
13(g) has rendered moot the issue of whether obtaining'' disclosure
from institutional investors in the ordinary course of their
business and without any control intent ``under [S]ection 13(d)(5)
is within the primary purpose of [S]ection 13(d)''). The Commission
also emphasized ``the importance of disclosing to the public the
location of rapidly accumulated blocks of stock, even though they
have been acquired not with the purpose or with the effect of
changing or influencing control'' as a predicate for its position.
Id.
---------------------------------------------------------------------------

    Finally, Rule 13d-1(c) was adopted by the Commission on January 12,
1998.\57\ The rulemaking created a new class of investor, commonly
referred to as ``Passive Investors,'' eligible to report on a Schedule
13G in lieu of the Schedule 13D that is otherwise required to be filed
given that the person has made an acquisition subject to Section 13(d).
Passive Investors are required under current Rule 13d-1(c) to file a
Schedule 13G within 10 days after acquiring beneficial ownership of
more than 5% of a covered class. Passive Investors electing to report
on Schedule 13G in lieu of Schedule 13D are required under current Rule
13d-1(c) to file within 10 days after acquiring beneficial ownership of
more than 5% of a covered class. A person is only eligible to file on
Schedule 13G under Rule 13d-1(c) if such person is not seeking to
acquire or influence control of an issuer and beneficially owns less
than 20% 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.
---------------------------------------------------------------------------

    \57\ Amendments to Beneficial Ownership Reporting Requirements,
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)].
---------------------------------------------------------------------------

b. Proposed Amendments
    We believe that the current initial Schedule 13G filing deadlines
for all three types of Schedule 13G filers warrant reassessment. 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 Section 13(d) and Section
13(g). Investors reporting pursuant to current Rules 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%.
Amendments to the filing deadlines for initial Schedule 13G submissions
required to be made by QIIs and Exempt Investors may therefore be
needed to improve transparency consistent with the intent of Congress
when enacting Section 13(d) and Section 13(g). The existing deadlines
and manner of applicability not only could give rise to a gap in
reporting for persons who possess the potential to change control of an
issuer--or, in the case of Exempt Investors, may already control an
issuer--but also risk devaluing the importance of the disclosures when

made, if made at all.\58\ The very gap in reporting that Congress
sought to close by enacting Section 13(g) may now be effectively just
as wide given that large, undisclosed accumulations could be occurring
and may be reported considerably later than is useful to investors and
the market, if reported at all.\59\
---------------------------------------------------------------------------

    \58\ See infra note 221 and accompanying text (noting the
importance to the market of information regarding beneficial
ownership, regardless whether it is disclosed on Schedule 13D or
13G, based on evidence that the initial filing of Schedule 13G, like
that of Schedule 13D, generates a positive stock price reaction,
albeit smaller in magnitude).
    \59\ See, e.g., Kristin Giglia, A Little Letter, a Big
Difference: An Empirical Inquiry into Possible Misuse of Schedule
13G/13D Filings, 116 Colum. L. Rev. 105, 115-16 (2015) (explaining
that the availability of Schedule 13G may allow investors to
``intentionally structure their acquisition strategies to exploit
the gaps created by the current reporting regime, to their own
short-term benefit and to the overall detriment of market
transparency and investor confidence'' (internal quotations
omitted)); In the Matter of Perry Corp., Release No. 34-60351 (July
21, 2009) (illustrating how an institutional investor improperly
relied upon Rule 13d-1(b) to defer reporting its beneficial
ownership of nearly 10% of a covered class). QIIs in particular may
be able to amass sizeable amounts of beneficial ownership without
reporting such positions. Rule 13d-1(b)(2) provides in relevant part
that ``it shall not be necessary to file a Schedule 13G unless the
percentage of [a covered class] beneficially owned as of the end of
the calendar year is more than five percent.'' As such, a QII may
beneficially own in excess of 5% of a covered class for the entire
year, sell down its position to 5% or below on the last day of the
calendar year and bypass having to report at all under the current
regulatory framework assuming that its beneficial ownership
continues to be held in the ordinary course of business, without a
disqualifying purpose or effect, and does not exceed 10% of a
covered class.
---------------------------------------------------------------------------

    In addition, at the time Rule 13d-1(c) was first adopted, Passive
Investors may not have had reasonable access to advanced technologies
to make more immediate filings possible. Consistent with our
justification for proposing to shorten the initial Schedule 13D filing
deadline under Rule 13d-1(a), we believe Passive Investors today not
only have gained valuable experience complying with these reporting
provisions, but also have ready access to the necessary filing
technology. As such, while the 10-day filing deadline in Rule 13d-1(c)
may have been appropriate in 1998, technological advancements in the
intervening two decades, as well as our proposed amendment to the
analogous filing deadline in Rule 13d-1(a), support a reconsideration
and recalibration of that deadline.
    Accordingly, we propose to amend Rules 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 \60\ after the end of the
month in which beneficial ownership exceeds 5% of a covered class. The
proposed acceleration of these deadlines is expected to result in more
timely disclosures while minimizing any additional burdens. We believe
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. For example, compliance
operations at QIIs currently need to monitor beneficial ownership
levels at least on a monthly basis in case their holdings exceed more
than 10% at the end of the month and trigger an initial Schedule 13G
filing pursuant to Rule 13d-1(b)(2). Similarly, Exempt Investors
already need to monitor the level of their beneficial ownership
continuously or periodically to ensure that the amount of their
beneficial ownership does not unintentionally exceed 2% in a 12-month
period and trigger application of Section 13(d).\61\
---------------------------------------------------------------------------

    \60\ Our proposed definition of ``business day'' would be
consistent with how that term is defined under other rule provisions
adopted under the Exchange Act, such as 17 CFR 240.14d-1 (``Rule
14d-1(g)(3)''), which defines the term ``business day'' to mean
``any day, other than Saturday, Sunday or a Federal holiday, and
shall consist of the time period from 12:01 a.m. through 12:00
midnight Eastern time.'' Unlike Rule 14d-1(g), which defines the
term for purposes of Regulations 14D and 14E, the proposed
amendments to Rules 13d-1 and 13d-2 that use the term ``business
day'' are indifferent as to whether or not the date of the event
that triggers a Schedule 13D or Schedule 13G filing obligation falls
on a Saturday, Sunday or Federal holiday versus a business day. For
example, under the proposed amendments to Rules 13d-1(b) and (d),
the initial Schedule 13G would be due the fifth business day after
the last day of the month in which beneficial ownership exceeds 5%
of a covered class. In addition, as stated at the outset of
Regulation 13D-G, Regulation S-T governs the preparation and
submissions of filings in electronic format and should be read in
conjunction with the rules contained within Regulation 13D-G,
including Rules 13d-1 and 13d-2.
    \61\ Exempt Investors can jeopardize their eligibility to report
on Schedule 13G by voluntarily or involuntarily making an
acquisition, or acquisitions, by purchase or otherwise as determined
under Rule 13d-5(a), that exceed(s) 2% of a covered class in a
consecutive 12-month period and thus render unavailable the Section
13(d)(6)(B) exemption.
---------------------------------------------------------------------------

    Given the proposal to shorten the initial reporting deadline to
five business days after the end of the month, the current provision of
Rule 13d-1(b)(2) that operates to accelerate that initial filing
deadline if beneficial ownership exceeds 10% at the end of any month
would be unnecessary in light of Rule 13d-2(c)'s overlapping Schedule
13G amendment requirement.\62\ Accordingly, we propose to further amend
Rule 13d-1(b)(2) to delete the language that imposes an initial
reporting obligation on QIIs after exceeding 10% of a covered class.
---------------------------------------------------------------------------

    \62\ Specifically, current Rule 13d-2(c) would still require
QIIs to file an amendment to their Schedule 13G within 10 days after
the end of the first month in which their beneficial ownership
exceeds 10% of a covered class, calculated as of the last day of the
month. If the proposed amendment to Rule 13d-2(c) is adopted,
however, QIIs would be required to make such disclosure within five
days after the date on which the person's direct or indirect
beneficial ownership exceeds 10%.
---------------------------------------------------------------------------

    We also are proposing 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 and amendment thereto, respectively, under those
two provisions. We believe it is 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 regulatory consistency between the deadlines in
Rules 13d-1(c) and (a) and to facilitate the overall goal of increasing
transparency in beneficial ownership.
Request for Comment
    20. Should we amend Rules 13d-1(b), (c), and (d) as proposed?
    21. Should we amend Rules 13d-1(b) and (d) but require a different
deadline for an initial Schedule 13G filing than we proposed? For
example, should we require a shorter or longer deadline than our
proposed deadline of within five business days after the end of the
month in which beneficial ownership exceeded 5% in a covered class?
Alternatively, should the deadline be expressed in days rather than
business days to conform to the proposed deadlines in Rules 13d-1(a),
(e), (f), and (g)?
    22. Do costs other than routine filing and preparation costs exist
that we should consider in setting the initial Schedule 13G filing
deadlines? If any such costs exist, please identify and quantify to the
extent practicable. For example, would shorter deadlines inhibit
beneficial owners' opportunities to verify the number of outstanding
securities of a covered class for purposes of determining whether their
beneficial ownership exceeds 5%? Such verification could include any
internal processes that a beneficial owner may have in place to
independently corroborate the accuracy of the number of shares
disclosed in an issuer's most recent annual, quarterly or current
report notwithstanding the absence of such an affirmative obligation
under Rule 13d-1(j).\63\
---------------------------------------------------------------------------

    \63\ Rule 13d-1(j) provides that a beneficial owner may rely
upon information in an issuer's most recent periodic or current
report unless the beneficial owner knows or has reason to believe
that the information contained in the report is inaccurate. 17 CFR
240.13d-1(j).

---------------------------------------------------------------------------

    23. Our proposed amendment to Rule 13d-1(b)(2) would only require
QIIs to determine the amount of their beneficial ownership as of the
last day of a month for purposes of their initial Schedule 13G filing
obligation under that rule. Should QIIs be required to determine the
amount of their beneficial ownership as of any day during a month
rather than only as of the last day of a month, and if so, what
practical challenges or other burdens are associated with monitoring
the level of beneficial ownership on a daily basis?
    24. Should we treat the initial Schedule 13G reporting deadline
applicable to QIIs differently from the deadline applicable to Exempt
Investors, and if so, why? For example, would any ``front running''
concerns exist with the proposed amendments for reporting deadlines
applicable to QIIs?
    25. Section 13(g)(5) requires the Commission to ``achieve
centralized reporting of information regarding ownership'' and ``avoid
unnecessarily duplicative reporting.'' As a means of pursuing these
goals, should the Commission eliminate Schedule 13G and consolidate
beneficial ownership reporting into one form, Schedule 13D? Under this
alternative, beneficial owners that previously would have been eligible
to report on Schedule 13G could, for example, be required to satisfy
less burdensome disclosure requirements on a new, consolidated form.
    26. Although Passive Investors certify that they did not acquire
and do not hold beneficial ownership with a disqualifying purpose or
effect, they are currently required to file their initial Schedule 13G
by the same deadline as Schedule 13D filers. If we adopt our proposed
amendment to the initial Schedule 13D filing deadline under Rule 13d-
1(a), are there any reasons why we should not make a corresponding
change to the initial Schedule 13G filing deadline under Rule 13d-1(c)
given that the same technological advancements equally enable Passive
Investors to make a Schedule 13G filing on an accelerated basis?
4. Rules 13d-2(a) and (b)
a. Background
    Section 13(d)(2) requires that an amendment must be filed to the
statement required under Section 13(d)(1) if any material change occurs
in the facts set forth in the statement filed, but does not identify a
specific deadline by which such amendment must be filed. Instead, Rule
13d-2(a) provides, as its predecessor Rule 13d-2 did when first adopted
in 1968,\64\ that such amendment must be filed with the Commission
``promptly.'' \65\ The initial adopting release did not provide an
explanation as to why ``promptly,'' as opposed to a specified deadline,
was chosen. As a factual matter, the ``promptly'' standard may, under
certain conditions, allow for more time to report a complex disclosure
issue or material development based on an involuntary change in
circumstances that nevertheless triggers an amendment obligation. The
obligation to file an amendment under current Rule 13d-2(a) is not
limited to acquisitions. Instead, changes in the disclosure narrative
that are material also have to be reported in an amendment, as do
material changes in the level of beneficial ownership caused by an
involuntary change in circumstances, such as a reduction in the amount
of beneficial ownership caused solely by an increase in the number of
shares outstanding.\66\
---------------------------------------------------------------------------

    \64\ Acquisitions, Tender Offers, and Solicitations, Release No.
34-8370 (July 30, 1968) [33 FR 11015 (Aug. 2, 1968)].
    \65\ 17 CFR 240.13d-2(a).
    \66\ See id. (requiring an amendment ``[i]f any material change
occurs in the facts set forth in the Schedule 13D'' including ``any
material increase or decrease in the percentage of the class
beneficially owned'').
---------------------------------------------------------------------------

    Section 13(g)(2) requires that an amendment be filed to the
statement required under Section 13(g)(1) if any material change occurs
in the facts set forth in the statement filed, but like Section
13(d)(2), does not identify a deadline by which such amendment must be
filed. Rule 13d-2(b), however, does specify a deadline and provides
that for all persons who report beneficial ownership on Schedule 13G,
an amendment shall be filed ``within forty-five days after the end of
each calendar year if, as of the end of the calendar year, there are
any changes in the information reported in the previous filing on that
Schedule [13G].''
b. Proposed Amendments
    We propose to amend Rule 13d-2(a) to require that all amendments to
Schedule 13D be filed within one business day after the material change
that triggers the amendment obligation. This change from the current
``promptly'' standard would establish a specified filing deadline,
remove any uncertainty as to the date on which an amendment is due and
help ensure that beneficial owners amend their filings in a more
uniform and consistent manner. In light of the technological advances
discussed in Section II.A.1 above, and for many of the same reasons we
are proposing to shorten the initial Schedule 13D filing deadline, we
do not believe that requiring Schedule 13D amendments to be filed
within one business day after the date on which a material change
occurs will place those filers at a disadvantage.\67\ Further, because
an amendment to a Schedule 13D only requires that the material change
be reported and not a complete set of new narrative responses to each
of the disclosure form's individual line items,\68\ those amendments
should present a lower administrative burden than the initial Schedule
13D filing.
---------------------------------------------------------------------------

    \67\ Our proposed amendment also would be consistent with the
Commission's existing view that, under the current ``promptly''
standard in Rule 13d-2(a), ``[a]ny delay beyond the date the filing
reasonably can be filed may not be prompt'' and that an amendment to
a Schedule 13D reasonably could be filed in as little as one day
following the material change. In re Cooper Laboratories, Release
No. 34-22171 (June 26, 1985).
    \68\ Under Rule 13d-2(a), the Schedule 13D filer only has an
obligation to ``file or cause to be filed with the Commission an
amendment disclosing that [material] change.'' See also 17 CFR
240.12b-15, titled ``Amendments,'' which explains that
``[a]mendments filed pursuant to this section must set forth the
complete text of each item as amended.''
---------------------------------------------------------------------------

    We also are proposing to amend Rule 13d-2(b) to require a Schedule
13G to be amended within five business days of the end of the month in
which a material change occurs in the information previously reported.
Accelerating the deadline for amendments from the current standard of
45 days after the end of the calendar year would help ensure that the
information reported is timely and useful. In addition, this proposed
deadline would be consistent with the proposed five business day
deadline from the end of the month applicable to QIIs' and Exempt
Investors' initial Schedule 13G filing obligations arising under Rules
13d-1(b) and (d). To partially mitigate the time pressures resulting
from the reduction of the current 45-day deadline and the need to meet
these new deadlines, if adopted, we have proposed a ``business day''
standard in specifying the date on which the Schedule 13G filing would
be due after an event that triggers a reporting obligation.\69\
---------------------------------------------------------------------------

    \69\ For a discussion of our proposed definition of ``business
day'' for purposes of Regulation 13D-G, see supra note 5.
---------------------------------------------------------------------------

    We further believe the text of Rule 13d-2(b) regarding the legal
standard that triggers an amendment obligation should be conformed to
the statutory language. Sections 13(d)(2) and 13(g)(2) require such an
amendment if a ``material change'' occurs to the facts in the statement
previously filed. Unlike Sections 13(d)(2) and 13(g)(2), Rule

13d-2(b) does not include an express materiality qualifier for Schedule
13G amendments and simply requires an amendment for ``any change.'' At
the time Rule 13d-2(b) was adopted, however, the Commission stated that
there is a materiality standard inherent in the provisions governing
Schedule 13G filings. This inherent materiality standard is based on
the fact that any disclosure provided by a Schedule 13G filer, in light
of the infrequency of the reports and comparatively minimal statements
required to be made, is effectively material.\70\ Our proposed change
would, therefore, merely codify this view in the text of Rule 13d-2(b).
As such, we are proposing to amend Rule 13d-2(b) to substitute the term
``material'' in place of the term ``any'' to serve as the standard for
determining the type of change that will trigger an amendment
obligation under Rule 13d-2(b).
---------------------------------------------------------------------------

    \70\ Filing and Disclosure Requirements Relating to Beneficial
Ownership, Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 at
18489 (Apr. 28, 1978)] (stating the Commission's belief that because
``the information required by Schedule 13G has been reduced to the
minimum necessary to satisfy the statutory purpose, . . . a
materiality standard is inherent in those requirements'' and ``it is
unnecessary to further minimize it by the insertion of an express
materiality standard'').
---------------------------------------------------------------------------

Request for Comment
    27. Should we amend Rules 13d-2(a) and (b) as proposed?
    28. Should we amend the filing deadlines contained within Rules
13d-2(a) and (b) but specify filing deadlines other than the ones which
have been proposed? For example, should we specify a filing deadline of
two or three business days from the date of a material change for
Schedule 13D amendments and 10 or 15 business days from the end of the
month in which a material change occurs for Schedule 13G amendments?
Instead of using ``business day'' as the standard for calculating these
filing deadlines, should we instead use a certain number of days as we
have proposed for revisions to Rules 13d-1(a), (c), (e)(1), (f)(1), and
(g) and 13d-2(c)? Should all reporting deadlines for Schedule 13D and
Schedule 13G filings be uniformly expressed in days, the standard in
use now, or should we express the filing deadlines uniformly in terms
of business days?
    29. Will the costs associated with preparing and filing an amended
Schedule 13D or Schedule 13G within the proposed deadlines
substantially differ from those costs now, and if so, why?
    30. Should we amend the filing deadline in Rule 13d-2(b) as
proposed but instead retain the rule text that requires a Schedule 13G
amendment to be filed if ``any change'' exists in the information
previously reported, rather than a ``material change,'' as proposed?
Under this alternative, the changes reported would continue to be
viewed as material disclosures given their inherent materiality as the
Commission described in the release adopting Rule 13d-2(b).\71\
---------------------------------------------------------------------------

    \71\ See supra note 70 and accompanying text.
---------------------------------------------------------------------------

5. Rules 13d-2(c) and (d)
a. Background
    Rule 13d-2(c) governs the amendment obligation for QIIs whose
beneficial ownership exceeds 10% of a covered class. Under Rule 13d-
2(c), QIIs are required to file an amendment to their Schedule 13G
within 10 days after the end of the first month in which their
beneficial ownership exceeds 10% of a covered class, calculated as of
the last day of the month. Once across the 10% threshold, QIIs are
further required under current Rule 13d-2(c) to file additional
amendments 10 days after the first month in which they increase or
decrease their beneficial ownership by more than 5% of the covered
class, calculated as of the last day of the month.
    Rule 13d-2(d) governs the amendment obligation for Passive
Investors whose beneficial ownership exceeds 10% 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% of a covered class. Once across the 10% threshold,
Passive Investors are further required under current Rule 13d-2(d) to
file additional amendments ``promptly'' if they increase or decrease
their beneficial ownership by more than 5% of the covered class.
    The amendment obligations arising under Rules 13d-2(c) and (d) are
in addition to the requirement in Rule 13d-2(b) that a Schedule 13G be
amended within 45 days after each calendar year end if, as of the end
of the calendar year, any changes occur to the information previously
reported on the Schedule 13G. As such, Rules 13d-2(c) and (d)
supplement the amendment obligation under Rule 13d-2(b), which only
arises if the person's beneficial ownership exceeds 5% of a covered
class at the end of a calendar year. To comply with Rules 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.
b. Proposed Amendments
    In connection with our proposed amendment to Rule 13d-2(b), we are
proposing 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% of a covered class, rather than the
current requirement of 10 days after the end of the month. Similarly,
once across the 10% threshold, QIIs would be required to file
additional amendments five days after the date on which they increase
or decrease their beneficial ownership by more than 5% of the covered
class, rather than the current requirement of 10 days after the end of
the month. These amendments, when considered in the context of our
proposed amendment to Rule 13d-2(b), preserve the utility of Rule 13d-
2(c) as a provision that provides the market with earlier notice of
QIIs' beneficial ownership exceeding 10% of a covered class and,
thereafter, upon their beneficial ownership of the covered class
increasing or decreasing by more than 5%. We believe 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% beneficial ownership of a covered class and any subsequent 5%
increase or decrease in beneficial ownership--warrant that the
amendment be rapidly disseminated to the market. Consistent with our
rationale for proposing to shorten the other deadlines, we believe QIIs
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.
    We also are proposing to amend Rule 13d-2(d) to change the
amendment filing deadline from the current ``promptly'' standard to one
business day after the date on which an amendment obligation arises. We
are proposing to amend the ``promptly'' standard used in Rule 13d-2(d)
for substantially the same reasons we are proposing to shorten the
filing deadline for the initial Schedule 13G \72\ and change the filing
deadline for Schedule 13D amendments.\73\
---------------------------------------------------------------------------

    \72\ See supra Section II.A.3.
    \73\ See supra Section II.A.4.
---------------------------------------------------------------------------

Request for Comment
    31. Should we amend the filing deadlines in Rules 13d-2(c) and (d)
as proposed?

    32. Should we amend the filing deadlines in Rules 13d-2(c) and (d)
but specify filing deadlines other than those we have proposed? For
example, should the deadline in Rule 13d-2(c) be expressed in business
days rather than days (and vice versa for the deadline in Rule 13d-
2(d))?
    33. If we adopt our proposed amendment to Rule 13d-2(b), should we
retain Rule 13d-2(c)'s amendment obligation for QIIs as proposed? Or
does the proposed shortened filing deadline in Rule 13d-2(b) obviate
the need for Rule 13d-2(c)'s additional amendment obligation, even with
the proposed shorter filing deadline?
    34. Should the amendment filing deadline applicable to Passive
Investors differ from the amendment filing deadline applicable to QIIs
and Exempt Investors, as well as persons who must make their initial
filing on Schedule 13D? If so, why?
6. Rules 13(a)(4) and 201(a) of Regulation S-T
a. Background
    Regulation 13D-G states that Schedules 13D and 13G should be
prepared in accordance with Regulation S-T, which governs the
preparation and submission of documents filed electronically on the
Commission's EDGAR system. In accordance with 17 CFR 232.12, EDGAR
accepts electronic submissions Monday through Friday, except Federal
holidays, from 6 a.m. to 10 p.m. eastern time.\74\ Under Rule 13(a)(2)
of Regulation S-T, however, most filings not accepted by 5:30 p.m. will
not be credited with having been received by the Commission on that
business day.\75\ Instead, filings accepted after 5:30 p.m. but on or
before 10 p.m. will be reflected on EDGAR as having been received on
the next business day.\76\ Rule 13(a)(4) of Regulation S-T, however,
sets forth certain exceptions from that 5:30 p.m. ``cut-off'' time.
Specifically, it provides that certain filings--namely, Forms 3, 4 and
5 and Schedule 14N--``submitted by direct transmission on or before 10
p.m. [eastern time] shall be deemed filed on the same business day.''
\77\ Rule 13(a)(4), therefore, effectively extends the ``cut-off'' time
for these filings from 5:30 p.m. to 10 p.m.
---------------------------------------------------------------------------

    \74\ 17 CFR 232.12(a). When we refer to ``eastern time'' in this
release, we mean eastern standard time or eastern daylight saving
time, whichever is currently in effect.
    \75\ 17 CFR 232.13(a)(2).
    \76\ Id.
    \77\ 17 CFR 232.13(a)(4). Rule 13(a)(3) also provides the same
accommodation for registration statements or any post-effective
amendment thereto filed pursuant to Rule 462(b). See 17 CFR
232.13(a)(3).
---------------------------------------------------------------------------

    In addition, Rule 201 of Regulation S-T and 17 CFR 232.202 (``Rule
202 of Regulation S-T'') address hardship exemptions from EDGAR filing
requirements, and Rule 13(b) of Regulation S-T addresses the related
issue of filing date adjustments. A filer may obtain a temporary
hardship exemption under Rule 201 of Regulation S-T if it experiences
unanticipated technical difficulties that prevent the timely submission
of an electronic filing by submitting a properly formatted paper copy
of the filing under cover of Form TH.\78\ Alternatively, instead of
pursuing a hardship exemption, a filer may request a filing date
adjustment under Rule 13(b) of Regulation S-T. This rule addresses
circumstances in which a filer attempts in good faith to file a
document with the Commission in a timely manner, but the filing is
delayed due to technical difficulties beyond the filer's control.\79\
In those instances, the filer may request a filing date adjustment.\80\
The staff may grant the request if it appears that the adjustment is
appropriate and consistent with the public interest and the protection
of investors.\81\
---------------------------------------------------------------------------

    \78\ 17 CFR 232.201(a).
    \79\ 17 CFR 232.13(b).
    \80\ Id.
    \81\ Id.
---------------------------------------------------------------------------

b. Proposed Amendments
    We recognize the administrative challenges that could arise if we
accelerate the Schedules 13D and 13G filing deadlines. Specifically,
Schedule 13D and 13G filers would be required to prepare their filings
in a more compressed timeframe while maintaining the accuracy and
completeness of the information set forth in those filings. These
challenges would be more acute for filers located in different time
zones whose business hours do not overlap with the Commission's. In
addition, institutional filers with more complex business
organizations, including those with sub-advisory relationships common
in the investment management industry, may have difficulty assembling
all of the required data within the timeframe that will be necessary in
order to comply with the proposed filing deadlines. We also recognize
that if the proposed changes to those reporting deadlines are
implemented, under the current rules, a Schedule 13D or 13G must be
filed on and accepted by EDGAR by no later than 5:30 p.m. on a business
day on which such a report would be due in order to have the submission
be considered timely. We propose, therefore, to amend Rule 13(a)(4) of
Regulation S-T to provide that any Schedule 13D or Schedule 13G,
including any amendments thereto, submitted by direct transmission on
or before 10 p.m. eastern time on a given business day will be deemed
filed on the same business day.\82\ Conversely, any Schedule 13D or 13G
submission not accepted by 10 p.m. on its due date will be assigned a
filing date of the next business day, and for purposes of compliance
with the applicable reporting requirements, would be considered
late.\83\ Given the accelerated filing deadlines we propose for
Schedule 13D and 13G filings, we anticipate the proposed extension in
the ``cut-off'' time would ease filers' administrative burdens,
including those located in different time zones, by giving them an
additional four and a half hours during which they could timely file
their Schedules 13D and 13G.
---------------------------------------------------------------------------

    \82\ Notwithstanding the proposed extension of the time period
in which accepted Schedule 13D and 13G filings may be made and still
be considered timely, filer support hours would not be extended.
Filer support would continue to remain available only until 6 p.m.
eastern time as is currently the case notwithstanding EDGAR's
availability for the submission of Section 16 filings through 10
p.m.