711), would likely yield different campaign counts and percentages
in Table 3.
---------------------------------------------------------------------------

b. Schedule 13G Filings
    During calendar year 2022, the Commission received a total of
26,523 Schedule 13G filings, including 8,433 initial filings and 18,090
amendments.\725\ Overall, the initial filings and amendments involved
4,321 unique lead filers.\726\ Additional details specific to the
initial filings, including their breakdown and characteristics by filer
type, are presented in Table 4.\727\
---------------------------------------------------------------------------

    \725\ These estimates are based on staff analysis of EDGAR
filings. The Proposing Release reported that the Commission received
44,059 Schedule 13G filings (12,838 initial filings and 31,221
amendments) in calendar year 2020. As noted in the DERA Memorandum,
based on further staff review of these reported statistics, we
believe they included duplicate records, and that the actual number
of unique Schedule 13G filings received in 2020 was 22,080 filings
(6,436 initial filings and 15,644 amendments), which are similar to
the counts provided for 2022 above.
    \726\ This estimate is based on staff analysis of EDGAR filings.
``Lead filer'' indicates the filer that submits a filing to the
Commission, though the same filing may include information about
additional co-filers.
    \727\ These estimates are based on staff analysis of EDGAR
filings. Information about the number of days from the trigger date
to the filing date of the Schedule 13G and the beneficial ownership
percentage reported in the Schedule 13G, respectively, are based on
a subset of filings (about 95% of the filings) for which staff was
able to extract the required information. We note that staff's
methodology for identifying the filer type associated with a given
filing has been refined since the publication of similar statistics
for 2021 in the DERA Memorandum. The Proposing Release reported
that, at that time, it was impracticable to produce statistics on
the median days to file for different types of filers. Our staff has
since structured the underlying data into a more readily analyzable
format and we have included these statistics in the table. See supra
note 692 for details on the extraction of percentage beneficial
ownership data from filings.

                           Table 4--Initial Schedule 13G Filings in 2022 by Filer Type
----------------------------------------------------------------------------------------------------------------
                                                                      Exempt          Passive
                                                        QII          investor        investor          Total
----------------------------------------------------------------------------------------------------------------
Number of unique lead filers *..................             567           1,340             793           2,633
Number of initial filings *.....................           4,660           1,508           2,222           8,433
Median calendar days from trigger date ** to                  40              45              10              39
 filing date....................................
Median ownership reported in filing.............              6%             15%              6%              7%
% filers also filing Form 13F...................             84%             10%             31%             30%
----------------------------------------------------------------------------------------------------------------
* The total numbers of unique lead filers and of initial filings reported in the table each differ from the sum
  across columns because the same filer may fall into multiple categories and filer type could not be determined
  for about 0.5% of the filings.
** For Passive Investors, the trigger date is the date on which the investor has acquired beneficial ownership
  of more than 5% of a covered class. QIIs and Exempt Investors each have different initial Schedule 13G filing
  trigger dates and filing deadlines. See section II.A.2 above for more detail.

    Table 4 demonstrates that initial Schedule 13G filings are somewhat
concentrated among QIIs, who represent about one fifth of the filers
but are responsible for over half of the filings.\728\ Per the second
row of the table, QIIs are also more likely to report their ownership
of securities on a quarterly basis on Form 13F, with 84 percent of QIIs
filing a Form 13F (compared to 30 percent for all initial Schedule 13G
filers).\729\
---------------------------------------------------------------------------

    \728\ Per the first row of the table, QIIs represent 567 out of
2,633 unique lead filers, or about 22% (567/2,633) of the unique
lead filers. Per the third row of the table, QIIs are responsible
for 4,660 out of 8,433 initial filings, or about 55% (4,660/8,433)
of the initial filings.
    \729\ Institutional investment managers that use the United
States mail (or other means or instrumentality of interstate
commerce) in the course of their business and that exercise
investment discretion over $100 million or more in section 13(f)
securities must file Form 13F.

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

C. Economic Effects of the Final Rules

    In this section, we discuss the anticipated benefits and costs of
the final rules, some of which cannot be quantified for reasons
discussed below. We considered all of these costs and benefits in their
entirety. We have integrated our discussion of potential effects on
efficiency, competition, and capital formation within our discussion of
the other benefits and costs of the final amendments. Our analysis of
the economic effects includes certain quantifiable elements based on
historical data.\730\ These elements may provide insights into certain
benefits and costs--including with quantitative data and also with non-
quantifiable benefits and costs--but those insights are conditional on,
and constrained by, the reactions of market participants to the final
amendments. Finally, we have indicated where quantitative data
discussed in our analysis do not represent the Commission's cost or
benefit estimates of the final amendments.
---------------------------------------------------------------------------

    \730\ See infra section IV.C.1.a.iii, Table 5 and section
IV.C.1.b.i, Table 6.
---------------------------------------------------------------------------

1. Shortened Initial Schedule 13D Filing Deadline
    The final amendment to Rule 13d-1(a) shortens the initial Schedule
13D filing deadline from 10 calendar days to five business days after
the date of the acquisition that results in a person's beneficial
ownership of a covered class exceeding five percent of that class. The
final amendments to Rule 13d-1(e), (f), and (g) similarly shorten the
initial Schedule 13D filing deadline for investors who are no longer
eligible to file Schedule 13G in lieu of Schedule 13D.
a. Benefits
    The disclosures required under Schedule 13D consist, among other
matters, of information related to significant shareholders and
potential changes of corporate control. An earlier filing deadline for
Schedule 13D will allow information to be incorporated into securities
prices sooner and allow market participants to make better-informed
investment decisions. Shortened filing deadlines may lessen the
opportunity for what we have termed ``informed bystanders'' to gain
advantages over the average selling shareholder, as further discussed
below, which could ultimately enhance trust in markets and thereby
capital formation. Finally, we expect that shortening the deadline will
reduce overall informational asymmetries in the market, thereby
improving liquidity, which benefits all market participants, including
activists. While we think the benefits to market participants arising
from the final amendments will be significant, these benefits are not
quantifiable.
i. Extent of Earlier Disclosure of Information
    This subsection provides some data about the extent of information
that may be revealed to the market more quickly under the final
amendments, as support for the discussion of benefits in the
subsections that follow.\731\ As discussed in section IV.B.3 above,
among initial Schedule 13D filings that were timely filed in 2022 in
accordance with the existing filing deadline, roughly 41 percent were
already filed within the amended filing deadline.\732\ The final
amendments may thus result in earlier filing for about 59 percent of
timely Schedule 13D reports.
---------------------------------------------------------------------------

    \731\ See infra sections IV.C.1.a.ii through iv.
    \732\ About 71% of initial Schedule 13D filings are timely filed
in accordance with the existing filing deadline. See section
IV.B.3.a above. Our analyses of costs and benefits generally exclude
the remaining roughly 29% of filings, which are filed late based on
the existing filing deadline, because it is difficult to predict how
filers that are not in compliance with the current filing deadline
will react to a change in this deadline.
---------------------------------------------------------------------------

    For those initial Schedule 13D filings that would be filed earlier
under the amended filing deadline, the amount of market-moving
information that could be revealed more quickly under the final rules
varies across filings. To better understand the extent of information
that could be more quickly incorporated into market prices under a
shortened filing deadline, we explore how the stock market reacts on
and around Schedule 13D filing dates for different types of filings.
Figure 4 presents the average pattern in abnormal returns \733\ for
filings from 2011 through 2021 that we classify as ``non-corporate-
action filings,'' using the methodology described in section
IV.B.3.ii.\734\ In order to align the trigger and filing dates across
the filings reflected in the graph, we limit the filings included in
the figure to those that used the full 10-day filing window to
file.\735\
---------------------------------------------------------------------------

    \733\ Throughout this subsection (and sections IV.C.1.a.iii and
IV.C.1.b.i below, as well as statements in other sections
referencing the results of the data analyses presented in these
sections), an issuer's ``abnormal return'' represents the difference
between the issuer's market stock return and the Center for Research
in Security Prices (``CRSP'') value-weighted market index. We
acknowledge that abnormal returns for a given issuer may be
sensitive to the choice of benchmark and affected either positively
or negatively by other market or issuer events during the horizon of
the analysis, though the impact of such confounding effects may be
reduced when looking at the average abnormal returns across many
issuers. References in other subsections to ``abnormal returns'' in
the context of academic studies reflect the definitions of this term
in each individual study (which may use different models to compute
benchmark or ``normal'' returns for the purpose of isolating the
``abnormal'' portion of the returns).
    \734\ These estimates are based on staff analysis of EDGAR
filings through programmatic text analysis as well as data from the
CRSP database.
    \735\ Figure 4 reflects a total of 534 filings, in all of which
filers used the full 10-day filing window to file. To arrive at this
figure from the total 3,067 non-corporate-action filings in Table 2,
we retained only one filing when multiple filings were made for the
same issuer on the same day and limited the sample to filings for
which stock return data is available. These restrictions led to a
sample of 2,553 non-corporate-action filings. The additional
requirement that the filer used the full 10-day filing window to
file results in the figure reflecting about 21% of this sample of
2,553 filings. If we instead consider the subset of the 2,553 non-
corporate-action filings that were filed after the amended filing
deadline but not after the current filing deadline (i.e., the
subsample that would be more likely to be affected by a change in
the filing deadline), the figure reflects about 37% of this
subsample of filings. Data on the abnormal returns between five
business days after the trigger date to the actual filing date for
additional subsets of non-corporate-action filings is presented in
Table 5 below.

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

[GRAPHIC] [TIFF OMITTED] TR07NO23.005

    Figure 4 demonstrates that the stocks of issuers that are the
subject of these filings experience an abnormal return of roughly three
percent from day seven--the approximate number of calendar days
corresponding to five business days--following the trigger date to the
day after the filing date.\736\ This pattern of returns suggests that,
for this group of filings, there is market-moving information that is
currently not fully incorporated into market prices as of the amended
filing deadline, and which would be likely to be revealed earlier if
similar filings were made under the amended filing deadline.\737\ We
estimate that about 43 percent of timely non-corporate-action filings
are currently filed by the amended filing deadline, such that the
remaining 57 percent of timely non-corporate-action filings would be
subject to earlier disclosure under the final amendments and are
expected to generate the benefits discussed in the following
subsections.\738\
---------------------------------------------------------------------------

    \736\ The amended deadline corresponds to approximately 7.25
calendar days: (365.25 calendar days per year / 252 business days
per year) x (5 business days).
    \737\ One commenter stated that the DERA Memorandum included
``no discussion of what may cause [the gains after the filing date
in the figure], or, importantly, whether, if the filing period is
shortened, the gains that the Commission labels as `abnormal' in the
five-day window prior to filing will simply shift to the period
after the amended filing deadline.'' See letter from EIM IV. We note
that the pattern of some additional positive price movement, or
price drift, after the filing date is consistent with what has been
found in academic studies and that researchers generally use an
event window including a period after the filing date (such as from
20 days prior to 20 days after a Schedule 13D filing date) to
capture what is believed to be the full abnormal return associated
with a Schedule 13D filing. See, e.g., Brav et al. 2022 Study. Such
post-disclosure abnormal return patterns have been found to be
associated with a wide variety of types of corporate news. See,
e.g., David Hirshleifer et al., Driven to Distraction: Extraneous
Events and Underreaction to Earnings News, 64 J. Fin. 2289 (2009)
(stating that ``[i]n several kinds of tests, there is on average a
delayed price reaction to news that has the same sign as the
immediate response''). However, we continue to believe that it is
reasonable to expect that, all else equal, an accelerated filing
date would be likely to accelerate the returns between the amended
filing date and the day after the current actual filing date (which,
per Figure 4, is concentrated around the actual filing date itself)
rather than the returns shifting to the period after the amended
filing deadline because this abnormal return likely reflects the
immediate market reaction to the filing.
    \738\ These estimates are based on staff analysis of EDGAR
filings. The estimates are based on the same sample of non-
corporate-action filings from 2011 through 2021 used in Figures 2,
3a, and 3b above (i.e., the sample refined to exclude late filers
and filers with no beneficial ownership reported as of the filing
date and to adjust for multiple filings on the same date). See supra
note 718 and accompanying text.
---------------------------------------------------------------------------

    We next consider the filings that we classify as ``corporate action
filings.'' The average pattern in abnormal returns for these filings
from 2011 through 2021 is presented in Figure 5.\739\ In order to align
the trigger and filing dates across filings reflected in the graph, we
again limit the filings included in the figure to those that used the
full 10-day filing window to file.\740\
---------------------------------------------------------------------------

    \739\ These estimates are based on staff analysis of EDGAR
filings through programmatic text analysis (to categorize filings,
as discussed in section IV.B.3.a.ii above, and to extract the
required dates) as well as data from the CRSP database.
    \740\ Figure 5 reflects a total of 1,492 filings, in all of
which filers used the full 10-day filing window to file. To arrive
at this figure from the total 12,657 corporate action filings in
Table 2, as in the case of Figure 2, we retained only one filing in
cases where multiple initial Schedule 13D filings were made on the
same day for the same issuer. The figure is also limited to filings
for which stock return data is available (generally, issuers listed
on the NYSE, NYSE American, NASDAQ, and NYSE Arca exchanges). These
restrictions led to a sample of 6,125 corporate action filings. The
additional requirement that the filer used the full 10-day filing
window to file resulted in the figure reflecting about 24% of this
sample of 6,125 filings. If we instead consider the subset of the
6,125 corporate action filings that were filed after the amended
filing deadline but not after the current filing deadline (i.e., the
subsample that would be more likely to be affected by a change in
the filing deadline), the figure reflects about 41% of this
subsample of filings.

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

[GRAPHIC] [TIFF OMITTED] TR07NO23.006

    Figure 5 demonstrates that, in contrast to the pattern observed for
non-corporate-action filings, the vast majority of the market stock
price reaction to corporate action filings occurred close to the day on
which the filers crossed the five percent ownership threshold,
triggering the requirement for a Schedule 13D filing. The limited
market reaction between the amended deadline--five business days after
the trigger date (or approximately seven calendar days)--and the day
after the actual filing date implies that little market-moving
information is revealed during this period. We did not conduct a
systematic analysis to investigate potential explanations for this
pattern of abnormal returns. However, it is possible that this pattern
may reflect the existence of other disclosures about the associated
events (outside of the Schedule 13D filing) that are made public on or
close to the trigger date.\741\ To the extent that the most value-
critical information contained in the filing is already known to the
market prior to the amended filing date (through legal means, such as
other disclosures made outside the Schedule 13D), we do not expect the
amended filing deadline to result in the earlier revelation of
significant new information for corporate action filings.
---------------------------------------------------------------------------

    \741\ Staff reviewed a small number of individual filings and
confirmed the existence of such disclosures, such as a Form 8-K
disclosure on or within a day of the trigger date of a merger
agreement or a bankruptcy, in the cases that were reviewed. However,
we did not conduct more comprehensive or systematic analysis of such
disclosures or other potential explanations for why the vast
majority of the market stock price reaction for this group of
filings occurred close to the trigger date and before the Schedule
13D was filed.
---------------------------------------------------------------------------

ii. Improved Information Content of Stock Prices
    The amended Schedule 13D initial filing deadline will get material
information to investors faster. This will allow new information
contained in Schedule 13D filings to be incorporated into market prices
earlier,\742\ allowing investors and issuers to make better-informed
decisions.
---------------------------------------------------------------------------

    \742\ One commenter stated that our use of the term ``market
efficiency'' to describe the earlier incorporation of information in
market prices were in fact references to ``strong-form market
efficiency wherein share prices fully reflect all public and private
information'' which is viewed ``as an idealized and unobtainable
standard'' in contrast to semi-strong market efficiency (wherein
prices reflect all public information). The commenter noted that
``defining mispricing in terms of private information that is not
currently reflected in share price is a misleading characterization
of price formation that serves as an impractical basis for
regulation.'' See Lewis Study I (exhibit to letter from EIM I). Some
commenters similarly questioned whether a delay in market prices
reflecting a significant shareholder's investment constituted a
mispricing that warranted correction. See letters from AIMA; CIRCA
I; Dodge & Cox; EIM I; Prof. Gordon; Profs. Schwartz and Shavell I.
To avoid confusion, we no longer use the term ``market efficiency''
in this context, focusing instead on the earlier updating of market
prices and resulting effects on decision-making (and thereby
efficiency of resource allocation). We also no longer refer to
prices that do not yet reflect the information in a Schedule 13D
filing before it is filed as ``mispricing.''
---------------------------------------------------------------------------

    Commenters agreed that the acceleration of filing deadlines would
allow market prices to incorporate the information contained in a
filing earlier,\743\ investors to make better-informed decisions,\744\
and issuers to make better-informed decisions in responding to the
presence of a new significant shareholder.\745\ On the other hand, some
commenters questioned whether a shortened filing deadline would enhance
market efficiency or requested further evidence or analysis of the
effects on market efficiency.\746\
---------------------------------------------------------------------------

    \743\ See letters from AFREF; Nasdaq; TIAA.
    \744\ See letters from AFREF; HMA I; Hoak; Nasdaq; TIAA.
    \745\ See letters from NIRI; SCG.
    \746\ See letters from AIMA; Dodge & Cox; EIM I; Rice
Management.
---------------------------------------------------------------------------

    As suggested by a commenter,\747\ we have considered patterns in
abnormal returns around Schedule 13D filings to better assess the
potential effect of the accelerated filing deadline on market prices
(and, thereby, on decision-making by market participants). We note that
decision-making and the efficiency of resource allocation are unlikely
to materially improve with a shortened deadline for corporate action
filings because, as discussed in the previous section, the vast
majority of any market price reaction around the time of these filings
seems, on average, to occur well before the amended deadline.\748\
---------------------------------------------------------------------------

    \747\ See Lewis Study I (exhibit to letter from EIM I) (stating
that ``the Commission could have analyzed equity trading activity
and abnormal returns around triggering and announcement dates to
properly assess potential gains to market efficiency'').
    \748\ See supra section IV.C.1.a.i.
---------------------------------------------------------------------------

    By contrast, we documented that for non-corporate-action filings
there are, on average, meaningful abnormal

returns between the amended filing deadline and the day after the
filing date. \749\ These abnormal returns patterns suggest that market-
moving information is revealed during this period. A shortened deadline
will accelerate the remaining market price reaction with respect to
non-corporate-action filings, as investors incorporate the new
information into their buying and selling decisions. Investors and
issuers, with earlier access to the information and an updated stock
price, may then be able to make better-informed investment and resource
allocation decisions. At the level of the economy as a whole, better
investment and resource allocation decisions by individual issuers and
investors under the amended filing deadline may improve the efficiency
of resource allocation overall.
---------------------------------------------------------------------------

    \749\ See id.
---------------------------------------------------------------------------

    As discussed in the previous section, about 57 percent of timely
non-corporate-action initial Schedule 13D filings, or about 122 filings
of this type per year, are currently filed after the amended
deadline.\750\ Based on this historical filing behavior, we expect the
amended deadline may give rise to an earlier market reaction than would
otherwise have been experienced for approximately this number of
filings per year. Thus, investors, issuers, and other market
participants may have access to updated stock prices and the
information disclosed in a Schedule 13D up to three days earlier for
over 120 such events per year according to current estimates, allowing
them to make better-informed decisions in each of those periods.
---------------------------------------------------------------------------

    \750\ See supra section IV.C.1.a.i.
---------------------------------------------------------------------------

    Some commenters stated that the market cannot impound new
information into a price if that information has not been developed, or
more generally indicated that the benefits of a shortened deadline were
predicated on investors not forgoing investments that may give rise to
a Schedule 13D filing in response to the amended deadline.\751\ We
continue to believe that, holding the content of the filings constant,
amending the deadline will allow for more informed decision-making and
improve the information content of stock prices, with associated
benefits for investors, issuers, and other market participants. We
acknowledge that the improvement in the efficiency of resource
allocation at the economy level could be mitigated to the extent that
some of the research and/or investment activities giving rise to these
filings are reduced or otherwise change after the adoption of the final
amendments (see section IV.C.1.b).
---------------------------------------------------------------------------

    \751\ See letters from CIRCA I; EIM I; Profs. Schwartz and
Shavell I; Profs. Schwartz and Shavell II.
---------------------------------------------------------------------------

iii. Transfers From Selling Shareholders and Trust in Markets
    In the days between the trigger date for an initial Schedule 13D
and the filing date of that Schedule 13D under the current 10-day
deadline, various investors may buy and sell shares of the subject
issuer. The resulting trading losses and gains (whether or not the
trading is based on information from or about the Schedule 13D filer)
generally represent wealth transfers \752\ among individual investors,
not net costs to investors (and market makers) as a group. However, the
possession of an informational advantage regarding the future control
or potential strategic or operational changes at an issuer, together
with the knowledge of the precise date of informational revelation,
creates a near-arbitrage opportunity. The incentives to gain access to
such information, and thus profit from it, can be strong. An extended
window of time between the trigger date and the date on which the
filer's beneficial ownership and plans are made public on Schedule 13D
may increase the likelihood of information leakage to ``informed
bystanders'' \753\ who may then buy shares during the window of time
just before the filing of the Schedule 13D. Such informed bystanders
can thus profit from access to this information rather than from their
own fundamental research or effort to improve the issuer's performance.
We acknowledge, however, that some of these informed bystanders may be
associated with shareholder value creation to the extent they may
represent the entry of additional ``activism-friendly'' shareholders,
which academic researchers have associated with greater returns to
activism.\754\
---------------------------------------------------------------------------

    \752\ We use the term ``transfer'' to distinguish the trading
losses and gains from costs and benefits that may result from rule.
See Current Guidance on Economic Analysis in SEC Rulemakings (Mar.
16, 2012) (available at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf) at n.32.
    \753\ In a similar analysis in the DERA Memorandum, staff used
the term ``opportunistic traders'' to reference these parties. We
have revised the term used in response to a comment that this term
seemed pejorative as well as comment letters that appeared to
presume that the term was inclusive of the filer. See, e.g., letters
from CIRCA IV; EIM IV.
    \754\ See, e.g., Simi Kedia et al., Institutional Investors and
Hedge Fund Activism, 10 Rev. Corp. Fin. Stud. 1 (2021) (``Kedia et
al. 2021 Study'') (finding that a one-standard-deviation increase in
the pre-existing ``activism-friendly'' ownership is associated with
an increase in the 36-month buy-and-hold returns of 7.8% to 15.5%);
Wong 2020 Study (finding that a proxy for a dispersed group of
investors aligned with the activist buying shares before the
Schedule 13D filing, measured based on abnormal trading volume on
the date the activist exceeds 5% ownership, is associated with an
increase in the buy-and-hold return over the course of an activist
campaign of 5.5% to 8.4%).
---------------------------------------------------------------------------

    Investors may possess information regarding activism for a variety
of reasons. Some may emerge from fundamental research. For example,
some investors may use research to identify companies that are likely
to be targeted by activists. These investors may be able to glean
information about the likelihood of an activist campaign from, for
example, unexpected increases in trade volume. However, information
leakage that creates a near-arbitrage opportunity for some investors
(who themselves have not performed fundamental research to generate the
information) is likely to erode trust in markets, reducing
participation and capital formation.\755\ We would expect that amending
the filing deadline would increase perceptions of fairness in the
markets, which could, in turn, lead to benefits in participation and
liquidity. These benefits cannot be quantified but are nonetheless
important.
---------------------------------------------------------------------------

    \755\ See, e.g., Luigi Guiso et al., Trusting the Stock Market,
63 J. Fin. 2557 (2008).
---------------------------------------------------------------------------

    Academic research provides evidence consistent with informed
bystanders buying shares just prior to Schedule 13D filings. For
example, studies have identified unusual EDGAR search activity during
the 10 days prior to a Schedule 13D filing \756\ and abnormally high
trading volume on the same day the filer crosses the five percent
threshold \757\ as evidence of certain traders other than the filer
being aware of the filer's intentions. While the researchers note that
some of the trading behavior investigated in these studies may simply
reflect the reaction of sophisticated investors to unusual, public
market data (such as that associated with the filer's purchases) in
advance of a Schedule 13D filing, further evidence led them to suggest
that at least some of the increased trading is by informed
parties.\758\
---------------------------------------------------------------------------

    \756\ See Ryan Flugum et al., Shining a Light in a Dark Corner:
Does EDGAR Search Activity Reveal the Strategically Leaked Plans of
Activist Investors?, J. Fin. Quant. Analys. (forthcoming 2023),
available at https://ssrn.com/abstract=3612507 (``Flugum et al. 2023
Study'').
    \757\ See, e.g., Wong 2020 Study.
    \758\ For example, the researchers found that institutions
unusually accessing EDGAR filings for issuers prior to Schedule 13D
filings each appeared to engage in this activity primarily for
Schedule 13D filings pertaining to a particular filer, rather than
predicting Schedule 13D filings in general. See Flugum et al. 2023
Study. Also, both this study and the abnormal volume study discussed
above found evidence of abnormal trading activity even in the case
of Schedule 13D filings made by previous Schedule 13G filers, which
are less likely to be accompanied by unusual market activity
associated with trades by the filer. See Flugum et al. 2023 Study;
Wong 2020 Study.

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

    Other research identifies specific types of informed bystanders or
more direct evidence of those traders' source of information. For
example, one study presented evidence suggesting that the broker of a
filer may leak information about the filer's trades to other traders
before the Schedule 13D filing.\759\ Another study observed a
correlation between purchases by insiders and by the filer before the
Schedule 13D filing, and suggested this trading reflected inside
information and insiders' surveillance of trading volume and ownership
data for the issuer's stock.\760\
---------------------------------------------------------------------------

    \759\ See Marco Di Maggio et al., The Relevance of Broker
Networks for Information Diffusion in the Stock Market, 134 J. Fin.
Econ. 419 (2019) (finding that the ``best clients'' of the broker
used by a filer, i.e., those generating a large share of the
broker's business, buy more of the target stock than other
institutional investors in the 10 days prior to a Schedule 13D
filing).
    \760\ See Georgy Chabakauri et al., Trading Ahead of Barbarians'
Arrival at the Gate: Insider Trading on Non-Inside Information
(Colum. Bus. Sch. Rsch. Paper, Jan. 2022), available at https://ssrn.com/abstract=4018057 (finding a significant concurrence between
purchases of stock by insiders of the issuer and purchases by an
activist in the 60 days, and particularly in the last 10 days,
preceding a Schedule 13D filing).
---------------------------------------------------------------------------

    Several commenters indicated that the economic analysis in the
Proposing Release lacked evidence or quantitative analysis with respect
to potential effects on selling shareholders under the current Schedule
13D filing deadline.\761\ Others questioned the magnitude of any
effects with respect to selling shareholders.\762\ To better understand
the potential effects of a shortened deadline on the type of activity
discussed in these studies, we designed a quantitative analysis
intended to estimate the wealth transfers, under the current rules,
from selling shareholders to potential informed bystanders between the
amended filing deadline and the actual filing dates.
---------------------------------------------------------------------------

    \761\ See, e.g., Lewis Study I (exhibit to letter from EIM I)
(stating that the Commission could have attempted to quantify the
intended benefits of the rule change to selling shareholders by
``[e]stimat[ing] losses to selling shareholders with one of the
trading models used to estimate damages in shareholder 10b-5
actions,'' wherein ``[h]igh end estimates of costs could assume that
all shares sold (after adjusting for estimates of dealer activity)
during this period came from sales made by investors that would have
benefited from having the information on Schedule 13D earlier'');
letter from Profs. Swanson, Young, and Yust (discussing investors
that sell prior to a Schedule 13D filing and related statistics and
stating that ``the forgone returns seem too small in of themselves
to justify a change''); Profs. Bishop and Partnoy I (stating that
``an intuitive concern about investors who might be disadvantaged by
selling during the window before such filings'' is unsupported by
evidence).
    \762\ For example, some commenters stated that any cost borne by
selling shareholders is minor relative to benefits to other
shareholders of the Schedule 13D filer's actions. See letters from
AIMA; CIRCA I; EIM I; ICM; Profs. Schwartz and Shavell II; S. Lorne.
We consider the potential benefits to shareholders from a filer's
actions in section IV.C.1.b.i below.
---------------------------------------------------------------------------

    Our analysis focuses on those initial Schedule 13D filings that we
classify as ``non-corporate-action filings,'' which represent about 20
percent of initial Schedule 13D filings (per the first row of Table
2).\763\ For filings that we classify as ``corporate action filings,''
we found that there was limited stock price movement, on average,
between the amended deadline and the day after the actual filing
date.\764\ We therefore expect that it is unlikely that there would
have been material wealth transfers from selling shareholders to
informed bystanders just prior to the actual filing date of these
filings.
---------------------------------------------------------------------------

    \763\ We make the same exclusions from the full sample of non-
corporate-action filings as in the case of Figures 2, 3a, 3b, and
Table 3 above (excluding late filers and filers with no beneficial
ownership reported as of the filing date and retaining only one
filing among multiple filings on the same date), resulting in a
sample of non-corporate-action filings consisting of 2,370 filings
from 2011 through 2021. See supra note 718 and accompanying text for
more information on the sample restrictions in the analysis.
    \764\ See supra section IV.C.1.a.i.
---------------------------------------------------------------------------

    For the sample of non-corporate-action filings, we first examine
abnormal \765\ trading volumes in the days prior to an initial Schedule
13D filing to identify trading activity that could be curtailed by a
shortened filing window. We focus on trading before the filing date to
exclude trading in reaction to the information in the filing and use
information on the filer's trades from Schedule 13D to exclude their
trading activity from this analysis.
---------------------------------------------------------------------------

    \765\ We focus on abnormal trading volume rather than total
trading volume because it is likely that the trades comprising the
normal amount of trading volume represent investors making an
exchange based on the same information set, even though ex post it
may appear that the buyer turned out to be ``lucky'' and the seller
``unlucky,'' as would be the case before the revelation of other
positive news.
---------------------------------------------------------------------------

    For non-corporate-action filings from 2011 to 2021, Figure 6
compares the average trading volume excluding the filer's accumulations
(``Total Non-Filer Trading Volume'') to the filers' average pattern of
accumulations (``Filer Trading Volume'').\766\ Both measures are scaled
by the normal level of daily trading volume in the issuer's stock such
that a value of one for ``Total Non-Filer Trading Volume'' would mean
there is zero abnormal trading volume outside of the filer's trades
while a value of two for ``Total Non-Filer Trading Volume'' would mean
that trading volume is double the usual level (i.e., there is an amount
of abnormal trading volume equal to the amount of normal trading
volume). Because we exclude trading on or after the filing date, the
graph ends before day 10.
---------------------------------------------------------------------------

    \766\ The estimates in the figure are based on staff analysis of
EDGAR filings through programmatic text analysis (to categorize
filings, as discussed in section IV.B.3.a.ii above, and to extract
the required dates) as well as data from the CRSP database. The
figure reflects the 1,686 non-corporate-action filings out of the
total 2,370 filings in our analysis that had trading volume data
available (generally reflecting issuers listed on the NYSE, NYSE
American, NASDAQ, and NYSE Arca exchanges). Abnormal trading volume
is computed as the excess of trading volume over the average daily
trading volume in the 60-day period beginning 120 days prior to the
given date.

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

[GRAPHIC] [TIFF OMITTED] TR07NO23.007

    Abnormal trading volume in an issuer's stock by traders other than
the filer peaks on the same day the filer's trading peaks (i.e., on the
trigger date, when the filer crosses the five percent threshold).
However, abnormal trading volumes continue to remain elevated for the
rest of the 10-day filing window, including after the amended filing
deadline, which occurs at approximately day seven after the trigger
date, which may represent purchases by informed bystanders that were
aware of the impending campaign. We note that there is also abnormal
trading well in advance of the trigger date, and that this and other
abnormal trading volume in the graph could reflect trading by informed
bystanders, but could also reflect other traders simply reacting to the
same news, market conditions, or trends in issuer performance that may
have attracted the filer to engage in its transactions.
    To understand the potential transfers from selling shareholders to
informed bystanders that may be prevented or reduced by a shortened
deadline, we focus on abnormal trading volume by traders other than the
filer in the days between the fifth business day after the filer
crosses the five percent threshold and the actual filing date. As in
the case of Figure 6, we exclude trading on the actual filing date
because there is typically significant trading volume in reaction to
the filing on that date. While it is possible that there is additional
trading by informed bystanders on the actual filing date but before the
actual time that the filing becomes public, we are unable to
distinguish any such trading from trading in reaction to the filing.
For this reason, we exclude this trading, and our analysis will not
include the transfers between informed bystanders and selling
shareholders on the filing date.\767\
---------------------------------------------------------------------------

    \767\ Given that the measured abnormal trading volume trends
down over the filing window, as demonstrated in Figure 6, we expect
that the effect of excluding this potential intra-day abnormal
trading volume is relatively small.
---------------------------------------------------------------------------

    In order to estimate potential transfers from selling shareholders
to informed bystanders, we also collected information on abnormal
returns to understand the amount of appreciation obtained by potential
informed bystanders by trading prior to the filing becoming public
information. The pattern of abnormal returns \768\ varies across
scenarios in which the filer completed accumulating their reported
stake by five business days after the trigger date but submitted their
Schedule 13D filing later, and those in which the filer was still
accumulating shares after five business days. Figures 7a and 7b present
the average pattern of abnormal returns for these two scenarios
separately. In order to align the trigger and filing dates across
filings in the graph, we limit the filings in the figure to those that
used the full 10-day filing window to file.\769\
---------------------------------------------------------------------------

    \768\ As discussed above, throughout this section (as well as
section IV.C.1.a.i above and section IV.C.1.b.i below), an
``abnormal return'' represents the difference between an issuer's
market stock return and the CRSP value-weighted market index. See
supra note 733.
    \769\ Besides the sample restrictions described supra note 763,
Figures 7a and 7b are also limited to filings for which stock return
data is available (generally, issuers listed on the NYSE, NYSE
American, NASDAQ, and NYSE Arca exchanges). This restriction leads
to a sample of 2,097 non-corporate-action filings. Filers of 1,669
of these filings completed acquiring their reported stake by the
amended deadline, while the filers of the remaining 428 filings
continued to accumulate part of their reported stake afterwards. The
additional requirement in Figure 7a that the filer used the full 10-
day filing window to file results in Figure 7a reflecting 294 non-
corporate-action filings, or 18% of the subsample that completed
acquiring their stake by the amended deadline. The similar
requirement in Figure 7b results in this figure reflecting 205 non-
corporate-action filings, or 48% of the subsample that continued to
accumulate part of their reported stake after the amended deadline.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TR07NO23.008

[GRAPHIC] [TIFF OMITTED] TR07NO23.009

BILLING CODE 8011-01-C
    The transfers from a selling shareholder to a potential informed
bystander between the amended filing deadline and the current filing
date would consist of the stock return between the day that they sell
and the day after the filing date, when the information previously
known to their trading counterparty is known to the whole market. Based
on Figures 7a and 7b, there are meaningful abnormal returns between the
amended filing deadline (which occurs around day -3 in the figure, as
five business days generally corresponds to seven calendar days) and
the day after the actual filing date for both subsamples of the filers
in our analysis, with a greater abnormal return when the filer is still
accumulating shares after five business days (i.e., Figure 7b).
    To estimate transfers from selling shareholders to informed
bystanders that may be occurring between the amended filing deadline
and actual filing dates, and thus might be avoided

under the final rules, we used the data discussed above to conduct the
analysis presented in Table 5.\770\ As discussed in detail in section
IV.C.1.b below, the extent of filer share accumulation after the
amended deadline may be associated with the likelihood that filers may
modify or forgo these types of campaigns after the effective date of
the final amendments. We therefore estimate the transfers separately
for filings with the different patterns of filer share accumulation
from Table 3.\771\
---------------------------------------------------------------------------

    \770\ The estimates in the table are based on staff analysis of
EDGAR filings through programmatic text analysis (to categorize
filings, as discussed in section IV.B.3.a.ii above, to extract the
data necessary to determine share accumulation patterns, as
discussed supra note 719, and to extract the required dates) as well
as data from the CRSP database. Estimates of abnormal returns and
abnormal trading volumes (Rows 2 and 3) are based on the campaigns
for which the required data was available. The estimate of transfers
assumes trades on a given day are executed at the average of the
closing price on that day and the closing price on the previous day
and that the wealth transfer per share traded is the abnormal return
experienced based on that starting price until one day after the
filing date. For the aggregate estimate of the transfers from
selling shareholders, the estimated average transfers from selling
shareholders per campaign (in Row 5) is used as a proxy for the
transfers from selling shareholders in campaigns for which the data
required to produce this estimate was unavailable (about 19% to 49%
of campaigns in any given category). Abnormal trading volume is
computed as the excess of trading volume over the average daily
trade volume in the 60-day period beginning 120 days prior to the
given date. We note that one commenter stated that, based on the
description of the estimate of transfers in the DERA Memorandum, a
more accurate estimate would ``account for abnormal price changes by
adjusting for overall stock market variations.'' See Lewis Study II
(exhibit to letter from EIM IV). The description in the DERA
Memorandum was imprecise on this point. The estimates of transfers
in the memorandum as well as the estimates presented here are based
on abnormal returns that do in fact adjust for market variations.
See supra notes 733 and 768. Another commenter stated that ``CRSP
volume is known to be inaccurate for NYSE-listed stocks because the
CRSP data source rounds volume to the nearest hundred.'' See letter
from Profs. Bishop and Partnoy III. We acknowledge this potential
issue in CRSP volume data but note that the average and aggregate
statistics that we present in the table should not be meaningfully
affected by such rounding error.
    \771\ The columns of Table 5 reflect the same subsamples of
filings as the corresponding columns of Table 3 with the additional
restriction that filings are only included if there would have been
an opportunity to trade on a day between the amended deadline and
the actual filing date.

  Table 5--Analysis of Potential Transfers from Selling Shareholders to Informed Bystanders by Degree of Filer
                               Accumulation by Amended Filing Deadline, Annualized
                                                   [2011-2021]
----------------------------------------------------------------------------------------------------------------
                                                 Percent of stake accumulated by filer by amended deadline
                                         -----------------------------------------------------------------------
                                           (1) 100% (full                      (3) <90% subset   (4) <75% subset
                                               stake)           (2) <100%          of (2)            of (3)
----------------------------------------------------------------------------------------------------------------
(1) Average number of campaigns/year                    54                41                 7                 1
 with potential transfers between
 amended deadline and filing date*......
Filer/Campaign Characteristics:
    (2) Median abnormal return from                    .5%              1.9%              3.1%              6.9%
     amended deadline to day after
     filing.............................
Analysis of Transfers:
    (3) Average total abnormal trading                 .8%               .7%              1.5%              2.6%
     volume other than filer's trades
     between amended deadline and filing
     date (% shares outstanding)........
    (4) Average transfers from selling               $425K             $640K             $1.8M             $5.1M
     shareholders, per campaign **......
    (5) Aggregate transfers from selling         $23M/year         $26M/year         $13M/year          $7M/year
     shareholders for this category.....
----------------------------------------------------------------------------------------------------------------
* These campaigns represent the subset of the filings in Table 3 for which there are trading days between the
  fifth day after the trigger date and the filing date.
** Transfers are computed as the sum across days of the abnormal trading volume (less the filer's trades) in
  shares on a given day between the amended and actual filing date times the abnormal return from that day to
  the day after the filing date. See note 770 for additional details.

    Rows 2 and 3 of Table 5 present information on the abnormal returns
and abnormal trading volume between five business days after the
trigger date (the amended deadline) and the filing date in each subset
of campaigns. Both the abnormal returns (which would drive the extent
of wealth transferred by trading with an informed bystander in this
timeframe) and the abnormal volume (which characterizes the potential
number of such trades) are higher for campaigns in which the filer is
still accumulating a significant portion of their stake after five
business days following the trigger date.
    The estimates in Row 5 of Table 5 represent potential transfers
from selling shareholders to informed bystanders after five business
days following the trigger date for each subset of campaigns based on a
day-by-day analysis of the abnormal volume and the potential forgone
return for each underlying campaign.\772\ For example, the aggregate
estimate of potential transfers to informed bystanders that could be
avoided by shortening the filing deadline to five business days if no
filers forgo campaigns (and filers do not adapt in such a way that
these transfers may still occur) is about $49 million per year ($23
million from Column 1 plus $26 million from Column 2). Alternatively,
if we assume that filers accumulating 25 percent or more of their stake
after five business days forgo such campaigns, the aggregate estimate
of potential transfers to informed bystanders that could be avoided
would be about $42 million per year ($49 million, as computed above,
minus $7 million from Column 4).\773\ We note that the wealth transfer
estimates in Table 5 do not represent estimates of the benefit of the
final rule amendments. Rather, the estimates provide insight into an
informational disparity that could weaken trust in the market and

consequently market participation and capital formation.
---------------------------------------------------------------------------

    \772\ We acknowledge that the estimates in Row 5 of Table 5 are
approximate and may be sensitive to the methodology for estimating
abnormal returns. See supra note 733.
    \773\ Similarly, if we assume that filers accumulating 10
percent or more of their stake after five business days forgo such
campaigns, the aggregate estimate of potential wealth transfers that
could be avoided would be about $36 million per year ($49 million,
as computed above, minus $13 million from Column 3).
---------------------------------------------------------------------------

    The estimates in Table 5 assume that abnormal trading volume on the
days between the amended deadline and the actual filing date, other
than that representing the filer's own trades, represents trades by
informed bystanders. It is possible that the abnormal trading volume
represents other traders' reactions to similar news, market conditions,
and trends as those to which the filer was reacting.\774\ For example,
researchers have found that filers time their accumulations to coincide
with significant selling by institutions, so it is possible that some
of this abnormal volume may represent the extent of the institutional
selling pressure.\775\ We also acknowledge that informed bystanders,
like filers,\776\ may adapt to the final amendments by condensing their
trades to five business days following the trigger date.
---------------------------------------------------------------------------

    \774\ One commenter addressing a similar analysis in the DERA
Memorandum stated that ``there is no attempt to exclude from this
analysis any returns that accrued because the Schedule 13D filer
publicly disclosed its intent after the trigger date but before
filing the Schedule 13D--which is not an uncommon occurrence.'' See
letter from EIM IV; see also Lewis Study II (exhibit to letter from
EIM IV). We acknowledge that a press release by a filer disclosing a
campaign in advance of a Schedule 13D filing could provide an
alternate explanation for abnormal trading volume (and/or abnormal
returns) between the trigger date and filing date of an initial
Schedule 13D. However, staff reviewed one year of filings and
concluded that such disclosures are relatively rare and are thus not
likely to meaningfully affect the estimates presented in Table 5. In
particular, staff used EDGAR's full text search function to identify
initial Schedule 13D filings made in 2021 that included the term
``press release,'' and then reviewed the resulting filings to
determine whether the filer disclosed its plans or proposals between
the trigger date and filing date of the initial Schedule 13D. (The
instructions to Item 7 of Schedule 13D specify that the filer shall
file as exhibits to the Schedule 13D, among other things, ``copies
of all written . . . plans or proposals relating to . . . the
acquisition of issuer control, liquidation, sale of assets, merger,
or change in business or corporate structure, or any other matter as
disclosed in Item 4 [of Schedule 13D].'') Staff identified three
initial Schedule 13D filings in 2021 for which the filer disclosed
the campaign in a press release between the trigger date and filing
date (all of which involved a press release made by the filer on the
trigger date). None of these filings was included in the sample of
Schedule 13D filings analyzed in Table 5 (which includes 101 filings
from 2021) based on the sample restrictions that apply to this
analysis. Specifically, in two cases, the filings were made on or
before the first business day after the amended filing deadline, and
in one case the requisite financial information to be included in
the analysis was not available for the filing. Overall, given the
limited number of filings for which earlier disclosure was
identified, we do not believe that identifying and removing such
filings from the full eleven-year sample would meaningfully affect
the results.
    \775\ See, e.g., Nickolay Gantchev & Chotibhak Jotikasthira,
Institutional Trading and Hedge Fund Activism, 64 Mgmt. Sci. 2930
(2018) (``Gantchev & Jotikasthira 2018 Study'') (finding that the
timing of Schedule 13D share accumulations is closely tied to
institutional liquidity shocks, in that activist purchases closely
track institutional sales at the daily frequency).
    \776\ See section IV.C.1.b.i below for a discussion of how
filers may adapt to the amended deadline.
---------------------------------------------------------------------------

    Staff presented a similar quantitative analysis with respect to
potential transfers from selling shareholders to informed bystanders
under the current rule in the DERA Memorandum. Some commenters stated
that the analysis in the DERA Memorandum demonstrated that a shortened
filing window would reduce ``harms'' or ``costs'' to selling
shareholders.\777\ Others stated that the DERA Memorandum's
characterization of selling shareholders as ``harmed'' was
inappropriate and did not account for the benefits these selling
shareholders experienced in terms of, for example, price improvement
and improved liquidity as a result of the impending activist
campaign.\778\
---------------------------------------------------------------------------

    \777\ See letters from AFREF II; Better Markets II; SCG & NIRI.
    \778\ See letters from CIRCA IV; EIM IV; Profs. Bishop and
Partnoy III. In the economic analysis of the Proposing Release, the
Commission made somewhat broader statements about effects on selling
shareholders, suggesting that all investors who sell their shares
during the 10-day window may be harmed. Commenters addressing the
Proposing Release made similar statements regarding the
characterization of ``harm'' being inappropriate and selling
shareholders benefiting from the activity underlying the filing. See
letters from AIMA; CIRCA I; EIM I; ICM; Pershing Square; Profs.
Schwartz and Shavell I; Profs. Schwartz and Shavell II; Profs.
Swanson, Young, and Yust; S. Lorne; TRP. Further, some commenters
asserted that the notion that these selling shareholders should be
able to sell at prices that reflect information in the Schedule 13D
filings would entail an unjustified windfall to those selling
shareholders, and a transfer of valuable information from the
Schedule 13D filer, who expended the effort to research and develop
that information. See letters from Dodge & Cox; EIM I; ICM; Prof.
Gordon.
---------------------------------------------------------------------------

    We acknowledge, as mentioned by commenters, that most investors
selling shares during the filing window seem to benefit from the
impending activist campaign. In particular, as demonstrated in Figures
7a and 7b, we observe a meaningful amount of stock price appreciation
during the filing window for non-corporate-action filings, some of
which would accrue to selling shareholders. Despite the assertions of a
commenter,\779\ the analysis in the DERA Memorandum and the similar
analysis in this economic analysis do not characterize the trading
between the Schedule 13D filer and a selling shareholder as harmful; in
both cases, the analyses focus only on trading between informed
bystanders (who are not the filer) and selling shareholders. We also
acknowledge concerns that it may be inappropriate to construe the
failure to benefit from future stock appreciation when selling shares
to the filer as a harm to the selling shareholders, given that the
stock appreciation in question results from the actions of the filer
and, if there is a more limited opportunity to receive some of the
economic benefits resulting from their actions, the filer may have a
more limited incentive to initiate a campaign. We do not include sales
to the filer in this analysis. Our analysis quantifies the transfer
between selling shareholders and informed bystanders that results from
the price change between the day of the sale and the day after the
filing date. That is, an earlier deadline would potentially benefit
these selling shareholders to the detriment of the informed bystanders.
---------------------------------------------------------------------------

    \779\ See letter from CIRCA IV.
---------------------------------------------------------------------------

    Some commenters addressing the DERA Memorandum indicated that staff
provided insufficient evidence of the existence of informed
bystanders.\780\ One of these commenters added that activists have
significant incentives to maintain the confidentiality of their
strategies until they are ready to make a public disclosure.\781\ We
believe the academic studies discussed above support the conclusion
that informed bystanders purchase shares in issuers shortly before the
filing of Schedule 13D reports pertaining to such issuers. Some of the
researchers suggest that filers themselves, in some cases, may leak
information about their impending filing; others specifically identify
other channels for information leakage unbeknownst to the
activist.\782\ However, the methodologies used in these studies to
identify informed bystanders in specific cases cannot be expanded to
reliably identify trades by all informed bystanders in a broad sample.
One comment letter suggested that we use Consolidated Audit Trail
(``CAT'') data in the analysis of ``informed'' trading but did not
specify what methodology we should use.\783\ We do not believe this
data would allow us to identify which trades may involve a counterparty
that benefited from information leakage. We recognize that

our own analysis does not directly identify informed bystanders, and
may, for example, represent buyers who have learned of the probability
of activism through fundamental research. However, we acknowledge those
limitations and are unaware of approaches that would allow us to obtain
a better estimate of trades by informed bystanders.
---------------------------------------------------------------------------

    \780\ See letters from EIM IV (stating that the presence of
harmful conduct is assumed, not demonstrated); Profs. Bishop and
Partnoy III (stating that the memorandum provides no support ``for
the assertion that purchasers other than the 13D filer are more
informed than sellers during the relevant period'').
    \781\ See letter from EIM IV; see also Lewis Study II (exhibit
to letter from EIM IV) (stating that the analysis ``assumes that the
activist has informed select investors about the upcoming campaign
before its public announcement'').
    \782\ See supra notes 756-760 and accompanying text.
    \783\ See Lewis Study II (exhibit to letter from EIM IV)
(stating that ``DERA could have used consolidated audit trail
(`CAT') data that contains information on which traders were
participating in the market to estimate a precise measure of the
impact but did not do so'' and that ``the analysis of `informed'
trading is an obvious setting to utilize CAT data''); letter from
EIM IV.
---------------------------------------------------------------------------

    Some commenters criticized the DERA Memorandum for failing to
describe the likely characteristics or nature of the selling
shareholders and their reasons for selling.\784\ Some commenters
responding to the Proposing Release indicated that it was likely that
the selling shareholders were not retail investors but rather
sophisticated institutions who could appropriately weigh the
possibility that an activist investor may be buying up shares,\785\
with one providing an analysis supporting this assertion.\786\ We
acknowledge that the potential effects of reducing transfers from
selling shareholders may be tempered somewhat to the extent the
counterparties of the potential informed bystanders are, for example,
institutions with liquidity needs, and that there is some evidence that
this may be common.\787\ However, gains by informed bystanders may be
viewed by some market participants as unfair regardless of the
counterparties bearing the other side of these transfers.
---------------------------------------------------------------------------

    \784\ See letters from CIRCA IV (stating that ``it is possible
that any such shareholder is selling because it needs cash and thus
may be helped and not harmed by the availability of activist
buyers''); Profs. Bishop and Partnoy III; see also Lewis Study II
(exhibit to letter from EIM IV) (stating that the analysis
``overlook[s] market makers and day traders (trading participants
who open and close their position between the proposed deadline and
the filing date)'' and that such traders ``would not be impacted'').
    \785\ See letters from Profs. Bishop and Partnoy I; CIRCA III;
see also letter from 65 Professors (suggesting that the Commission
could examine whether particular categories of investors are net
sellers, and therefore are not harmed in aggregate, during the
period prior to the filing of Schedule 13Ds).
    \786\ See letter from Profs. Bishop and Partnoy I; see also
Ekkehart Boehmer et al., Tracking Retail Investor Activity, 76 J.
Fin. 2249 (2021) (introducing the algorithm for identifying retail
order flow used in the cited comment letter). We note that questions
have recently been raised as to the reliability of this algorithm
for producing an unbiased estimate of retail order flow. See, e.g.,
Yashar Barardehi et al., Uncovering the Liquidity Premium in Stock
Returns Using Retail Liquidity Provision (Working Paper, 2023),
available at https://ssrn.com/abstract=4057713.
    \787\ Studies have found that Schedule 13D filer accumulations
are timed, on average, coincident with institutional selling
pressure. See, e.g., Gantchev & Jotikasthira 2018 Study.
---------------------------------------------------------------------------

    Some commenters raised concerns related to the statement in the
DERA Memorandum that lessening an informational advantage that some
market participants may perceive to be unfair could enhance trust in
the securities markets and promote capital formation.\788\ In
particular, one commenter indicated a lack of evidence that activism is
contributing to an erosion of trust in the markets,\789\ while another
requested evidence that the acceleration of filing deadlines in other
contexts changed the investors' behavior or enhanced their level of
trust in the market.\790\ This commenter did not suggest how we might
gather such evidence, however, and trust has been shown to be an
important determinant of participation.\791\
---------------------------------------------------------------------------

    \788\ See letters from CIRCA IV; EIM IV.
    \789\ See letter from EIM IV.
    \790\ See letter from CIRCA IV.
    \791\ See L. Guiso, P. Sapienza, and L. Zingales, Trusting the
Stock Market, J. of Fin., 63 (6) (Dec. 2008), at 2557-2600.
---------------------------------------------------------------------------

    One comment letter presented an alternative analysis of the effects
on selling shareholders based on the computation of abnormal net
selling activity, which they state better ``separates any allegedly
`harmed' selling . . . from other trading'' than the analysis in the
DERA Memorandum.\792\ In particular, these commenters categorize trades
as either seller-initiated or buyer-initiated in order to compute
abnormal net selling. The commenters concluded that there is no
statistically significant evidence of systematic net selling during the
five days preceding the filing \793\ such that they ``cannot
meaningfully infer that any alleged `harm' has occurred.''
---------------------------------------------------------------------------

    \792\ These commenters used an algorithm from academic studies
to categorize trades in the New York Stock Exchange Trade and Quote
(``NYSE TAQ'') dataset as either seller-initiated or buyer-
initiated. They then computed abnormal net selling (seller-initiated
volume minus buyer-initiated volume, scaled by total trading volume
and converted into a percentage by adjusting for lagged net selling
volume and the logarithm of market capitalization) for the days
around Schedule 13D filing for a sample of activist events from 2011
to 2021. See letter from Profs. Bishop and Partnoy III (further
explaining that ``if, for every seller-initiated trade, there is an
equal and opposite sized buyer-initiated trade, then we cannot
meaningfully infer that any alleged `harm' has occurred. However, if
there is a net order imbalance, with more selling activity than
buying activity, then we may be able to infer alleged `harm.' '').
    \793\ This analysis in the comment letter focused on the
proposed amendment to the filing deadline--five calendar days--
rather than five business days. We note that this analysis appears
to focus on the five days before a Schedule 13D filing date
regardless of the number of days that have elapsed since the trigger
date. As such, the window analyzed varies relative to the trigger
date rather than consistently representing the sixth to tenth days
after the trigger date.
---------------------------------------------------------------------------

    We note that signing trades as seller- and buyer-initiated is
generally intended to reflect which side of the trade is demanding
liquidity, as opposed to providing liquidity. Net order imbalances
therefore provide information about which type of traders (sellers or
buyers) are demanding liquidity on a given day, while the opposite side
of any order imbalance is borne by liquidity providers (historically,
these would be market makers, but today other investors including high-
frequency traders typically play this role). An analysis of net order
imbalances in the days around Schedule 13D filings can therefore
provide information about wealth transfers on these days between those
investors that are demanding liquidity versus those providing
liquidity.\794\ However, we do not believe that trades that are signed
as seller-initiated versus buyer-initiated provides sufficient
information about which trades are more likely to involve a buyer that
has a one-sided informational advantage because of their knowledge of
another investor's share accumulations, which is the focus of our
analysis.
---------------------------------------------------------------------------

    \794\ That is, we would interpret a lack of systematic net
selling in the days before a Schedule 13D filing to indicate that
there are no significant transfers between investors demanding
liquidity and those providing liquidity as a result of trades during
this period and the subsequent price changes. The commenters
describe the analysis as identifying the effect on ``natural
buyers'' as opposed to market makers. See letter from Profs. Bishop
and Partnoy III. We note that the positive but statistically
insignificant abnormal net selling these commenters identified on
nine out of the 10 days preceding a filing is consistent with
academic research cited above finding that Schedule 13D filers time
their accumulations coincident with institutional selling pressure.
See supra note 775.
---------------------------------------------------------------------------

    In summary, informed bystanders may profit, as a result of
information leakages rather than from their own fundamental research or
effort to improve the issuer's performance, from a near-arbitrage
opportunity during the window of time between the trigger date and the
date on which the filer's beneficial ownership and plans are made
public on a Schedule 13D. In this section, we have presented a
quantitative analysis based on historical data that, subject to certain
assumptions and limitations, provides a reasonable basis to believe
that wealth transfers from selling shareholders to potential informed
bystanders can be significant under the current rules.

iv. Information Asymmetries and Liquidity
    Shortening the Schedule 13D filing deadline and thereby more
quickly resolving an information asymmetry between some market
participants and the rest of the market is likely to enhance liquidity.
    Some commenters to the Proposing Release agreed that a shortened
filing deadline would reduce information asymmetries.\795\ Others
stated that the academic paper cited in the Proposing Release to
support the relation between information asymmetry and liquidity is not
applicable to the setting at hand,\796\ or more generally questioned
the basis of statements in the economic analysis of the Proposing
Release indicating that the shortened deadline would result in
increased liquidity.\797\ In response to these comments, we have
expanded the literature that we review. We continue to believe that the
amendments will reduce information asymmetries and improve liquidity.
---------------------------------------------------------------------------

    \795\ See letters from ABA; AFREF; Better Markets I;
FreeportMcMoRan; NIRI.
    \796\ See letters from Profs. Bishop and Partnoy; Profs.
Schwartz and Shavell II (referring to Lawrence Glosten and Paul
Milgrom, Bid, Ask, and Transaction Prices in a Specialist Market
with Heterogeneously Informed Investors, 14 J. FIN. ECON. 71-100
(1985)).
    \797\ See Lewis Study I (exhibit to letter from EIM I); letters
from 65 Professors; AIMA; Profs. Bishop and Partnoy.
---------------------------------------------------------------------------

    Specifically, empirical and theoretical work point to a linkage
between information asymmetry and measures of liquidity such as bid-ask
spreads and price impact.\798\ Generally, a greater proportion of
strategic information-based trading (i.e., trading based on private, or
non-public, information) in contrast to ``noise trading'' (i.e.,
trading based on, for example, liquidity needs rather than private
information) lowers liquidity in an issuer's securities, as other
market participants adjust their behavior in light of the risk of
adverse selection (i.e., a situation in which the buyer of an issuer's
security has more information than the seller, or vice versa, about the
true value of the security).\799\ In contrast, liquidity should
generally increase when there is a lower proportion of information-
based trading to noise trading. For example, a reduced risk of trading
with the informed bystanders discussed in the previous section may lead
liquidity providers to charge lower bid-ask spreads, resulting in
higher liquidity.\800\
---------------------------------------------------------------------------

    \798\ See, e.g., Albert S. Kyle, Continuous Auctions and Insider
Trading, 53 Econometrica 1315 (1985) (theoretically modeling a
market with informed trading to investigate, among other things, the
liquidity characteristics of a speculative market); David Easley et
al., Liquidity, Information, and Infrequently Traded Stocks, 51 J.
Fin. 1405 (1996) (investigating, empirically, the economic
importance of information-based trading on bid-ask spreads); see
also Order Competition Rule, Release No. 34-96495 (Dec. 14, 2022)
[88 FR 128 (Jan. 3, 2023)] (for further discussion and analysis on
the relationship between adverse selection risk and bid-ask
spreads).
    \799\ Id.
    \800\ See supra section IV.C.1.a.iii.
---------------------------------------------------------------------------

    We would expect the amended deadline to improve liquidity by
lowering information asymmetry. While one study finds theoretically
mixed results of shortening the filing deadline with respect to
liquidity and efficiency during the period prior to the filing, this
study does not address the period subsequent to the now-earlier
date.\801\ Another study shows that empirical proxies for liquidity are
higher than otherwise on days that the activist is accumulating shares,
concluding that this is so both because activists submit limit orders
and because activists strategically trade when liquidity is
higher.\802\ This study also does not address the period subsequent to
the now-earlier filing date. Reducing the number of days prior to the
filing should reduce information asymmetry in the period after the
filing (through the date the disclosure would otherwise have been made)
because after the filing is made the information about a filer's
holdings and intentions is public. Thus, liquidity should improve in
this period.\803\
---------------------------------------------------------------------------

    \801\ See Kerry Back et al., Activism, Strategic Trading, and
Liquidity, 86 Econometrica 1431 (2018) (presenting a model of a
specialist market with an activist trader and finding that the
association between liquidity and a reduced number of days for the
activist to trade based on their asymmetric information--which in
their model is equivalent to reducing the rate of ``noise trading''
or uniformed trading during the same trading window--may be
indeterminate during the filing window because of competing effects
related to, for example, the potentially increased proportion of
informed to uninformed trades in a shorter filing window versus the
decreased information asymmetry regarding the activist's
shareholding resulting from less noise trading).
    \802\ See Collin-Dufresne & Fos 2015 Study (finding that
illiquidity and measures of adverse selection are lower on days that
the activist trades, due to market timing and the use of limit
orders--i.e., liquidity provision--by activists).
    \803\ See supra note 798.
---------------------------------------------------------------------------

    We expect that liquidity benefits are more likely to be associated
with the types of filings that we classify as ``non-corporate-action
filings,'' and not with ``corporate action filings.'' Indeed, the
abnormal stock return patterns presented in Figures 4 and 5 above
demonstrate that the latter are, on average, not associated with a
meaningful stock price reaction between the amended deadline and the
day after the actual filing date. Because only the non-corporate-action
filings seem to be associated with significant new information that is
not already incorporated in market prices earlier in the filing window,
these are the filings that are likely to be associated with meaningful
information asymmetries whose duration could be reduced by the
shortened filing deadline. As noted above, about 68 percent of timely
non-corporate-action filings, or about 152 initial Schedule 13D filings
of this type per year, are currently filed after the amended deadline.
Based on this historical filing behavior, we expect that the amended
filing deadline to result in earlier public disclosure, and thus an
earlier stock price reaction and resolution of the related asymmetric
information than would otherwise have been experienced, for
approximately this number of filings per year, thus enhancing
liquidity.
    Some commenters stated that an information asymmetry between the
filer and the market should not be viewed as problematic,\804\ with
some referring to such information asymmetries as simply a feature of a
functioning market.\805\ Some commenters responding to the DERA
Memorandum raised similar concerns about the usage of ``information
asymmetries'' in that document and a potential implication that these
information asymmetries were problematic.
---------------------------------------------------------------------------

    \804\ See letters from AIMA; CIRCA I; Dodge & Cox; EIM I; ICM;
Prof. Gordon; Profs. Schwartz and Shavell I; Profs. Schwartz and
Shavell II; S. Lorne.
    \805\ See letters from EIM I; Profs. Schwartz and Shavell I.
---------------------------------------------------------------------------

    We acknowledge that benefits may stem from the information
asymmetry between a Schedule 13D filer and the market. The
informational advantage of Schedule 13D filers results, in general,
from their own expenditures on research and analysis or from their
efforts and expenditures to pursue changes at the issuers in which they
accumulate these shareholdings. With a reduced ability to receive some
of the economic benefits of their actions, the filer may have reduced
incentives to initiate a campaign.\806\ Consistent with this view, we
have expanded our analysis of the potential costs with respect to
reduced activism in section IV.C.1.b below. We have also narrowed the
consideration of selling shareholders in the previous section vis-
[agrave]-vis the Proposing Release to focus on those trading with
informed bystanders who are not the filer and yet may profit from the
advance knowledge or suspicion of a filer's potential actions, rather
than from their own fundamental research or

effort to improve the issuer's performance.\807\ We have also expanded
our consideration of the literature regarding liquidity beyond what was
considered in the Proposing Release to reflect additional findings
pertinent to the setting of activist campaigns.\808\ We believe that
the literature cited in the Proposing Release still has relevance in
considering, for example, the potential impacts of trading by informed
bystanders.\809\
---------------------------------------------------------------------------

    \806\ See, e.g., Sanford Grossman & Oliver Hart, Takeover Bids,
the Free-Rider Problem, and the Theory of the Corporation, 11 Bell
J. Econ 42 (1980)
    \807\ See supra section IV.C.1.a.iii.
    \808\ See supra note 801 and accompanying text.
    \809\ See Lawrence Glosten & Paul Milgrom, Bid, Ask, and
Transaction Prices in a Specialist Market with Heterogeneously
Informed Investors, 14 J. Fin. Econ. 71 (1985) (presenting a
theoretical model of a specialist market with trading by insiders,
and describing generally how a specialist must recoup the losses
suffered in trades with the well informed by gains in trades with
noise traders, and that these gains are achieved by setting a
spread).
---------------------------------------------------------------------------

b. Costs
    An earlier filing deadline for Schedule 13D may affect significant
shareholders seeking to affect control of an issuer. There may be
indirect effects as well, as we describe below. We also expect the
final amendments to impose relatively minor compliance costs on all
Schedule 13D filers.
i. Potential Effects on Activism
    By shortening the initial Schedule 13D filing deadline, the final
amendments may increase costs of activist campaigns. Commenters
expressed mixed views as to whether a shortened filing deadline would
reduce activism. Some commenters stated that a shortened filing
deadline would not significantly impair activism.\810\ Others, however,
stated that a shortened filing deadline was likely to reduce the number
of activist campaigns,\811\ and expressed disagreement with statements
in the Proposing Release as to why such a reduction or the impact of
any reduction would be limited.\812\ Some commenters indicated that the
economic analysis in the Proposing Release could have been enhanced by
further consideration of the potential effects on activist campaigns,
including a quantitative analysis.\813\
---------------------------------------------------------------------------

    \810\ See letters from ABA; AFL-CIO; Better Markets I; Labor
Unions; SCG; Sen. Baldwin, et al.; see also infra note 818 and
accompanying text.
    \811\ See letters from AIMA; C. Penner and Prof. Eccles; CIRCA
I; Dodge & Cox; EIM I; ICM; M. Frampton; MFA; Prof. Gordon; Profs.
Schwartz and Shavell II; Profs. Swanson, Young, and Yust; Profs.
Eccles and Rajgopal; Rep. Torres, et al.; Rice Management; S. Lorne;
STB; TRP.
    \812\ See, e.g., letter from AIMA (stating that the fact that
some filers already file within five days ``does not justify
accelerating the reporting timeline'' because it may merely reflect
variation in when filers happen to satisfy their ``aggregate
purchasing goal'').
    \813\ See letters from 65 Professors; AIMA; B. Sharfman; EIM I;
ICM; MFA; Profs. Bishop and Partnoy I; Prof. Hu; Prof. Webber; Rep.
Torres, et al.; SIFMA; SIFMA AMG; STB.
---------------------------------------------------------------------------

A Quantitative Analysis of Historical Activist Campaigns: Assumptions,
Findings, and Limitations
    We use the data presented in section IV.B.3.a.iii above on filers'
current patterns of share purchases to provide some insight into the
number and type of filings that have historically involved trading
between the amended deadline and their actual filing date.\814\
---------------------------------------------------------------------------

    \814\ We also considered investigating the effects of alternate
deadlines for reporting the acquisition of meaningful ownership
stakes in other countries, as suggested by several commenters. See,
e.g., Lewis Study I (exhibit to letter from EIM I); and letters from
Sen. Baldwin, et al.; WLRK II. However, we concluded that
significant differences in rules and practices in other countries as
compared to the United States limit our ability to draw direct
inferences from the experience of these other countries. Further, we
found that confounding events would limit our ability to draw
conclusions about the effects of rule changes in these other
countries. For example, revisions to Japan's substantial
shareholding reporting rules took effect in 2006 and 2007,
coincident with the rise of poison pills and the emergence of bear
market conditions in Japan. Thus, while activist engagements in
Japan declined after 2007, it is difficult to identify the specific
role any one of these factors played in this decline. See, e.g.,
Yasushi Hamao & Pedro Matos, U.S.-Style Investor Activism in Japan:
The First Ten Years?, 48 J. Jpn. Int. Econ. 29 (2018).
---------------------------------------------------------------------------

    Our analysis focuses on those 3,067 Schedule 13D filings from 2011
through 2021 that we classify as ``non-corporate-action filings'' (as
opposed to ``corporate action filings''),\815\ which represent about 20
percent of initial Schedule 13D filings during the sample period, per
the first row of Table 2.
---------------------------------------------------------------------------

    \815\ As discussed in section IV.B.3.a.iii above, we found that
corporate action filings typically reflect one or two off-market
transfers of share ownership, very few of which currently occur
after the fifth day following the trigger date. We also anticipate
that the terms of these transfers are likely agreed upon in advance.
We therefore believe that a shortened filing deadline would not
significantly impact the investment activities of the filers of
corporate action filings. As discussed in section IV.C.1.viii below,
we acknowledge that adjusting to an accelerated deadline could
somewhat increase the compliance costs for such filers under the
final amendments. As discussed in section IV.C.1.a, the benefits of
a shortened initial Schedule 13D filing deadline are expected to be
relatively limited for corporate action filings.
---------------------------------------------------------------------------

    As in Figures 2, 3a, and 3b and Table 3 above, we further refine
the sample of non-corporate-action filings to exclude late filers and
filers with no beneficial ownership reported as of the filing date and
to adjust for multiple filings on the same date, resulting in a sample
size of 2,370 non-corporate-action filings.\816\ Our analysis,
presented in Table 6, provides information about the characteristics of
current campaigns delineated by filers' degree of accumulation of
shares as of the amended deadline.\817\
---------------------------------------------------------------------------

    \816\ We exclude late filers from this analysis because it is
difficult to predict how filers that are not in compliance with the
current filing deadline will react to a change in this deadline. See
supra note 718 and accompanying text for more detail on the sample
refinements.
    \817\ These estimates are based on staff analysis of EDGAR
filings through programmatic text analysis (to categorize filings,
as discussed in section IV.B.3.a.ii above, to extract the data
necessary to determine share accumulation patterns, as discussed
supra note 719, and to extract the required dates) as well as data
from the Audit Analytics, CRSP, and Compustat databases. Estimates
of average issuer characteristics (Rows 2 through 5) and campaign-
level profit and value measures (Rows 9 through 11) are based on the
campaigns for which the required data was available. While data
availability varies by row and column of the table, every statistic
in the table reflects data for at least 81% of the respective sample
of filings. The Amihud illiquidity ratio (in Row 4) is computed as
in the Gantchev & Jotikasthira 2018 Study. See supra note 692
regarding how we identify the ``Prominent Activists'' category (for
the purpose of computing Row 6). A filer's unrealized gains on the
reported equity stake (used to compute the percentages in Row 9) are
based on information on their actual purchases and purchase prices
for the 60 days prior to the filing as reported in the Schedule 13D
filing, as well as the remainder of ownership acquired before those
60 days, which is assumed to be acquired at the average purchase
price reported in the Schedule 13D filing excluding any purchases
after the trigger date. Unrealized gains are estimated by comparing
these purchase prices to the share price the day after the filing
from the CRSP database. Abnormal returns (in Row 10) are computed as
the difference between an issuer's stock market return and the CRSP
value-weighted market index and are presented for the period
extending from 20 business days prior to 20 business days after the
filing date. Basing the horizon over which the abnormal returns are
computed on business days, rather than calendar days, is consistent
with existing studies but differs from the graphs presented in
Figures 7a and 7b, which present returns based on calendar days
around the filing date (and which thus reflect slightly different
estimates). For the aggregate estimate of the increase in
shareholder value (in Row 12), the estimated average increase in
shareholder value per campaign (in Row 11) is used as a proxy for
the shareholder value impact of campaigns for which the data
required to produce this estimate was unavailable (about 10% to 19%
of campaigns in any given category). We may slightly overestimate
the number of campaigns falling in Columns 3 and 4 due to the
algorithm by which total reported ownership is extracted from
filings. See supra note 722. As discussed above, we reviewed all of
the filings categorized in Column 4 (i.e., in the light grey bars of
Figure 3b) manually and determined that 6% of the filings in this
column would not have been categorized in this group if our
algorithm to extract total reported ownership from the filing was as
precise as our manual review of the documents. However, because the
average increase in shareholder value for these filings was
relatively low, excluding these filings from Column 4 would not have
a meaningful impact on our estimate of the aggregate increase in
shareholder value for this category.

       Table 6--Campaign Characteristics by Degree of Accumulation by Amended Filing Deadline, Annualized
                                                   [2011-2021]
----------------------------------------------------------------------------------------------------------------
                                                     Percent of Stake accumulated by amended deadline
                                         -----------------------------------------------------------------------
                                           (1) 100% (full                      (3) <90% subset   (4) <75% subset
                                               stake)           (2) <100%          of (2)            of (3)
----------------------------------------------------------------------------------------------------------------
(1) Average number of campaigns/year....               173                42                 7                 1
Targeted Issuer Characteristics:          ................  ................  ................  ................
    (2) Average issuer size (market                  $916M             $1.5B             $1.8B             $1.8B
     cap.)..............................
    (3) Average issuer liquidity                      1.2%              1.2%              1.5%              1.5%
     (turnover) *.......................
    (4) Average issuer illiquidity                    0.13              0.11              0.09              0.08
     (Amihud illiquidity ratio) **......
    (5) Percent issuers in S&P 1500.....              9.7%             14.3%             15.6%             12.5%
Filer/Campaign Characteristics:           ................  ................  ................  ................
    (6) Percent by a Prominent Activist.             29.8%             36.3%             43.6%             56.3%
    (7) Average beneficial ownership                  9.1%              7.3%              8.7%              9.5%
     reported in filing.................
    (8) Average percentage of reported                  0%              5.9%             19.2%             35.3%
     ownership stake accumulated after
     amended deadline...................
    (9) Average percentage of filer's                   0%              4.1%              9.1%              22.6
     unrealized gains on reported equity
     stake, as of day after filing date,
     attributable to shares accumulated
     after amended deadline ***.........
Campaign Value Implications:
    (10) Average return around filing                 5.7%              8.1%             17.2%             14.4%
     date (cumulative abnormal return,
     day -20 to 20).....................
    (11) Average increase in shareholder              $36M             $151M             $222M             $208M
     value per campaign.................
    (12) Average aggregate increase in            $6.3B/yr          $6.3B/yr          $1.6B/yr          $302M/yr
     shareholder value across all
     campaigns combined (based on
     average number of campaigns per
     year)..............................
----------------------------------------------------------------------------------------------------------------
* Turnover is the average daily trading volume as a percentage of the issuer's shares outstanding, computed over
  the six-month period before the trigger date.
** The Amihud illiquidity ratio is intended to capture the stock price impact of trading and is computed over
  the six-month period before the trigger date. See note 817 for more details.
*** Unrealized gains estimated for this purpose reflect estimated gains only on the equity stake reported in the
  Schedule 13D filing (i.e., excludes unrealized gains from any cash-settled derivative instruments, including
  swaps, to the extent such instruments did not result in beneficial ownership) and are computed as of the day
  after the filing (i.e., excludes any impact of changes in stock price or additional stock purchases
  thereafter). See note 817 for more details.

    The columns of Table 6 reflect the same subsamples of filings as
the corresponding columns of Table 3 above. A similar analysis with
respect to the potential effects of a shortened initial Schedule 13D
filing deadline on activism was presented in the DERA Memorandum.
Whereas the analysis in the DERA Memorandum was based on the proposed
five-calendar day deadline, the analysis summarized in Table 6 is based
on the five-business day deadline. One commenter stated that the
analysis demonstrated that ``shortening the deadline should not
significantly impede activist campaigns'' because ``[t]he overwhelming
majority of past filers have acquired at least 75% of their reported
stake'' by the amended deadline.\818\ Another commenter questioned
whether the data supporting the findings with respect to the percentage
of past filers that completed their share accumulations by the amended
deadline is ``representative of the broader market.'' \819\ This
commenter recommended that the analysis be expanded to focus on
campaigns where the activist filer continued its purchases throughout
the 10-day window and reported initial beneficial ownership of 10
percent or more.\820\
---------------------------------------------------------------------------

    \818\ See letter from Better Markets II.
    \819\ See letter from CIRCA IV.
    \820\ Id.
---------------------------------------------------------------------------

    We acknowledge that the campaigns in our non-corporate-action
sample are heterogeneous, and that the percentage of filers that
continued to accumulate shares after the amended deadline would vary
across subsamples. For example, Row 6 of Table 6 demonstrates that
``prominent activists'' were somewhat more likely than others to
continue to accumulate a significant fraction of their reported
beneficial ownership after the amended deadline. Per the commenter's
suggestion to focus on filers reporting beneficial ownership of 10
percent or more, we note that Row 7 of Table 6 indicates that the
reported initial beneficial ownership was not systematically higher for
filers that continue to accumulate shares after the amended deadline in
comparison to those that do not. Per the commenter's other suggestion,
we note that both Table 6 and Table 5 above do isolate (in Column 2 of
each table) the results for those filings that continue to accumulate
shares after the amended deadline.
    Other commenters, referencing the dollar estimates in the DERA
Memorandum, asserted that the analyses demonstrated that the costs of
the proposed Schedule 13D filing deadline amendments related to effects
on activist campaigns exceed the benefits of the proposed
amendments.\821\ One commenter stated that the DERA Memorandum
``fail[ed] to adequately quantify the benefits to long-term
shareholders of the target issuer in the form of substantially higher
share prices.'' \822\ In response to these commenters, we note that the
dollar campaign values in rows 11 and 12 of Table 6 do not represent
cost estimates of the final amendments. Rather, the values reflect the
value creation from the historical campaigns.\823\ Interpreting these
figures as a cost would require assuming all of these campaigns would
have been abandoned under a five-

business day filing deadline. Instead, we expect that a five-business
day deadline would not have deterred the vast majority of campaigns.
Accordingly, we believe that the costs of the final amendments would be
significantly less than any of the figures in Table 6 or identified by
commenters because we expect that activists will adapt to the amended
deadline rather than forgo campaigns. We acknowledge that some activist
investors have indicated that the proposed amendments would make them
less likely to carry out activist campaigns.\824\ Nonetheless, we
expect that the vast majority of the value creation reflected in the
table above would continue unabated. Results in Row 1 show that 80
percent of campaigns (173 out of 215 campaigns per year) over the
period from 2011 to 2021 would not have been affected by a five-
business day filing deadline. While the remaining 20 percent (42 out of
215 campaigns per year) could have been affected to some degree, we
expect most of these campaigns would still have occurred, as there are
several ways activists can adapt to the amended deadline.\825\ In
particular, as we discuss below in this section, activists can adapt to
a shorter deadline using strategies such as (a) accumulating a smaller
stake in the issuer's shares; (b) accumulating shares more quickly; or
(c) accumulating an economic stake using other instruments, such as
cash-settled swaps or other derivatives. We expect that in most if not
all cases, they will do so.
---------------------------------------------------------------------------

    \821\ See Lewis Study II, at 8 (exhibit to letter from EIM IV
observing that, historically, ``the average rise in shareholder
value for a campaign that requires more than five days to develop a
position is $128 million''); letters from CIRCA IV; EIM IV.
    \822\ See letter from CIRCA IV.
    \823\ The values also do not account for the costs activists
incur to conduct the campaigns.
    \824\ See, e.g., letters from CIRCA IV; EIM IV.
    \825\ See supra note 724.
---------------------------------------------------------------------------

A Literature Review
    In considering the implications of a potential reduction in
activist campaigns, we have expanded our consideration of the existing
literature on activist campaigns, as suggested by commenters.\826\
There is a large body of literature finding that activist campaigns
are, on average, associated with an economically significant increase
in shareholder value (i.e., positive abnormal stock returns) around the
Schedule 13D filing or other announcement date.\827\ As noted in the
Proposing Release, the literature does not find that these returns
reverse in the long term, though the determination of long-term returns
is inherently more complicated than measuring short-term returns.\828\
Researchers have also found that the degree of impact that these
activities have on shareholder value varies significantly with an
issuer's market capitalization, with smaller-cap issuers experiencing
significantly larger returns (expressed as a percentage) around the
disclosure of an activist campaign than larger-cap issuers.\829\
Researchers have debated whether the activists' actions are responsible
for any of this increase in value. Some researchers argue that any
stock price reaction may instead reflect activists' ability to select
issuers that are likely to be taken over or to recover from
underperformance for other reasons.\830\ However, broader evidence
supports the hypothesis that activists' actions are responsible for the
vast majority of the increase in value.\831\
---------------------------------------------------------------------------

    \826\ See letters from 65 Professors; MFA; Rep. Torres, et al.
    \827\ Measurement windows in most studies range from five to 40
days around the announcement date, with many also considering longer
horizons to address concerns about a potential reversal of the
returns. See, e.g., Lucian Bebchuk et al., The Long-Term Effects of
Hedge Fund Activism, 115 Colum. L. Rev. 1085 (2015) (``Bebchuk et
al. 2015 Study'') (estimating an announcement return of about 6% to
initial Schedule 13D filings by activist hedge funds from 1994
through 2007, with, on average, no reversal in returns over the
following five years); Kedia et al. 2021 Study (demonstrating, in
Table IA2 of the internet Appendix, no reversal over five years of
the positive one-year buy-and-hold returns for different subsamples
of initial Schedule 13D filings by activist hedge funds from 2004
through 2012, based on a variety of models of benchmark returns);
Boyson & Pichler 2019 Study (estimating a buy-and-hold return of
about 12% over a holding period averaging 2.7 years to campaigns by
hedge fund activists from 2001 through 2012); Martijn Cremers et
al., Hedge Fund Activism and Long-Term Firm Value (Working Paper,
Dec. 13, 2018), available at https://ssrn.com/abstract=2693231
(``Cremers et al. 2018 Study'') (estimating a return of about 6%
around the start of activist hedge fund campaigns from 1995 through
2011, with, on average, no reversal in returns over the following
five years); Edward Swanson et al., Are All Activists Created Equal?
The Effect of Interventions by Hedge Funds and Other Private
Activists on Long-Term Shareholder Value, 72 J. Corp. Fin. 102144
(2022) (``Swanson et al. 2022 Study'') (estimating returns of 5% to
initial Schedule 13D filings in 1994 through 2014, with, on average,
no reversal in returns over the following three years); Ed deHaan et
al., Long-Term Economic Consequences of Hedge Fund Activist
Interventions, 24 Rev. Acc. Stud. 536 (2019) (``deHaan et al. 2019
Study'') (estimating, on an equally weighted basis, returns of 5% to
initial Schedule 13D filings by activist hedge funds from 1994
through 2011, with, on average, no reversal in returns over the
following two years); Brav et al. 2022 Study (estimating an
announcement return of about 5% to blockholdings by hedge fund
activists from 1994 to 2018, with, on average, no reversal in
returns over the following three years). While much of the academic
research has focused on blockholdings by activist hedge funds, other
studies have found similar stock returns related to Schedule 13D
filings by other types of investors. See, e.g., Ulf von Lilienfeld-
Toal & Jan Schnitzler, The Anatomy of Block Accumulations by
Activist Shareholders, 62 J. Corp. Fin. 101620 (2020) (``Lilienfeld-
Toal & Schnitzler 2020 Study'') (estimating returns of 7% to 8%
around initial Schedule 13D filings by external shareholders in 2001
through 2016, irrespective of filer type); Swanson et al. 2022 Study
(estimating returns of 5% around initial Schedule 13D filings in
1994 through 2014, with no statistically significant difference in
the returns around filings by hedge funds versus those by other
private activists).
    \828\ See Proposing Release at 13885 and supra note 827. Several
commenters cited a different study than those cited above, with one
stating that it ``shows the stock price increase is temporary and in
fact the company is often in a weaker economic position post-
activist intervention.'' See letter from Sen. Baldwin, et al; see
also letter from Labor Unions. The cited study presents results
showing that a measure of firm valuation increases for firms
targeted by hedge fund activists relative to a matched sample of
similar, non-targeted firms in the year after activists report their
ownership, but that there is no statistically significant difference
in this metric across the targeted and matched firms over a longer
horizon. However, this study does not investigate stock price or
stock returns, but instead measures firm valuation as Tobin's Q,
which the authors define as ratio of a firm's market value of assets
to the replacement value of assets. This metric may therefore
reflect changes in a number of factors beyond stock returns, such as
changes in debt values and changes in book assets, and cannot be
interpreted equivalently to the studies cited above. Further, the
results of the matched sample analysis demonstrate that the
differential in Tobin's Q diminishes over longer horizons, but not
that the improvement among targeted firms is necessarily temporary;
it is possible that the gap narrows due to a similar but delayed
improvement in the matched control firms. It is also unclear how the
study treats targets that are later acquired, which is a common
outcome for targeted firms and could bias the long horizon results.
Finally, the longer-horizon tests use a different baseline than the
shorter-horizon tests (Tobin's Q one year after activists report
their ownership is compared to the same metric one year before
activists report their ownership, while Tobin's Q five years after
activists report their ownership is compared to the same metric five
years before activists report their ownership), which may affect the
interpretation of the results. See Mark DesJardine & Rodolphe
Durand, Disentangling the Effects of Hedge Fund Activism on Firm
Financial and Social Performance, 41 Strateg. Mgmt. J. 1054 (2020)
(``DesJardine and Durand 2020 Study'') (with matched sample results
presented in Table 7). One commenter noted additional concerns with
this study. See letter from Profs. Bishop and Partnoy II. A
different study using a larger sample of hedge fund activist
campaigns finds differing results under multiple matched-sample
approaches, with a statistically significant increase in Tobin's Q
for targeted firms, including over a five-year horizon. See Brav et
al. 2022 Study (at Table 9, Panel A).
    \829\ See, e.g., deHaan et al. 2019 Study (finding that the
average long-term returns around hedge fund activism on an equally
weighted basis are driven by the smallest 20% of targets by market
capitalization); Brav et al. 2022 Study (documenting a roughly 2-3%
announcement return for the largest two terciles of targets of
activist hedge funds, compared to a roughly 9% announcement return
for the smallest tercile of targets, based on market
capitalization). We note that a smaller percentage return for an
issuer with a larger market capitalization may imply a larger total
dollar impact on shareholder value than that associated with a
larger percentage return for a smaller issuer.
    \830\ See, e.g., Cremers et al. 2018 Study; deHaan et al. 2019
Study; Yvan Allaire & Fran[ccedil]ois Dauphin, The Game of
`Activist' Hedge Funds: Cui Bono?, 31 Int. J. Discl. Gov. 279
(2016).
    \831\ See, e.g., Brav et al. 2022 Study (finding that the
outperformance of issuers targeted by activists persists even when
benchmarked against a variety of matched control samples, including
a control sample of non-targeted issuers that are closely matched to
the targeted issuers based on their condition at the time of
targeting as well as changes in performance prior to that time); Rui
Albuquerque et al., Value Creation in Shareholder Activism, 145 J.
Fin. Econ. 153 (2022) (``Albuquerque et al. 2022 Study'')
(estimating that only 13% of the total returns associated with
activist campaigns could be attributed to stock-picking ability as
opposed to the campaigns themselves); Robin Greenwood & Michael
Schor, Investor Activism and Takeovers, 92 J. Fin. Econ. 362 (2009)
(finding that returns associated with Schedule 13D filings are
driven by activists' success at getting target firms acquired, and
not just selecting targets that are likely to get acquired); Nicole
Boyson et al., Activism Mergers, 126 J. Fin. Econ. 54 (2017)
(finding that even Schedule 13D targets with failed acquisition bids
experience improvements in operating performance, financial policy,
and positive long-term abnormal returns); Swanson et al. 2022 Study
(finding significant abnormal returns associated with the subsets of
Schedule 13D filings presenting a variety of non-sale demands, such
as demands associated with corporate strategy, and not just for
those presenting demands for a sale of all, or part, of the
company). Various studies have also associated activist campaigns
with operational improvements. See, e.g., Nicole M. Boyson & Robert
Mooradian, Corporate Governance and Hedge Fund Activism, 14 Rev.
Derivatives Res. (2011) (finding an increase in return on assets for
issuers that are the subject of hedge fund activist campaigns,
relative to similar non-targeted issuers); Alon Brav et al., The
Real Effects of Hedge Fund Activism: Productivity, Asset Allocation,
and Labor Outcomes, 28 Rev. Fin. Stud. 2723 (2015) (``Brav et al.
2015 Study'') (finding an increase in productivity at the plant
level for issuers that are the subject of hedge fund activist
campaigns, but not for similar plants at non-targeted issuers);
Nickolay Gantchev et al., Activism and Empire Building, 138 J. Fin.
Econ. 526 (2020) (finding that issuers that are the subject of hedge
fund activist campaigns reduce value-destructive acquisition
activity relative to similar, non-targeted issuers).

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    There is also academic research on the effect of activist campaigns
on investors other than shareholders of the targeted issuers. Studies
have associated activist campaigns with a positive effect on the
operational and financial performance, as well as shareholder value, of
issuers other than the targeted issuers, based on the perceived
likelihood of a potential activist campaign targeting these other
issuers.\832\ Other research has found that issuers that are the
suppliers or close competitors of the targeted issuers, in certain
circumstances, experience decreases in shareholder value around an
activist campaign, which researchers have associated with cost-cutting
and increased efficiency at the target issuer.\833\ These effects on
suppliers and competitors of targeted issuers are consistent with
activism having beneficial competitive effects related to improvements
in operational efficiency, as noted by a commenter.\834\ Other academic
studies have found that activist campaigns have a mixed impact on
debtholders of the targeted issuer, depending on the nature of the
campaign's goals and how pursuing those goals would impact both
performance and also the level of financial risk of the issuer.\835\
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    \832\ See, e.g., Nikolay Gantchev et al., Governance Under the
Gun: Spillover Effects of Hedge Fund Activism, 23 Rev. Fin. 1031
(2019) (``Gantchev et al. 2019 Study'') (finding that an
interquartile increase in the ``threat'' of an activist campaign is
associated with operational and financial improvements and a 2.4%
positive stock return at the issuers with a high perceived
``threat'' of being targeted); Caroline Heqing Zhu, The Preventative
Effect of Hedge Fund Activism: Investment, CEO Compensation, and
Payout Policies, 17 Int. J. Man. Fin. 401 (2021) (finding that an
increase in the likelihood of an activist campaign is associated
with proactive corporate policy changes and improved operating
performance in the form of an increase in return on assets).
    \833\ See, e.g., Hadiye Aslan, Shareholders Versus Stakeholders
in Investor Activism: Value for Whom?, 60 J. Corp. Fin. 101548
(2020) (finding reduced profit margins and stock prices reflecting a
negative announcement return of about -1.5% for the suppliers of an
issuer targeted by an activist hedge fund relative to suppliers of
other issuers and finding that the economic effects on suppliers are
stronger for the suppliers of target firms with high cost efficiency
or operating margin improvements after the activist campaign);
Hadiye Aslan & Praveen Kumar, The Product Market Effects of Hedge
Fund Activism, 119 J. Fin. Econ. 226 (2016) (finding a negative
announcement return for those close competitors of an issuer
targeted by an activist hedge fund that do not themselves face the
``threat'' of activist hedge fund campaign, while those close
competitors that do face such a ``threat'' experience positive
announcement returns; and finding that the impact on competing firm
performance is stronger for targets with, among other things, a
greater improvement in productivity).
    \834\ See Lewis Study II (exhibit to letter from EIM IV).
Several other commenters also questioned the DERA Memorandum's
inclusion of a discussion of shareholders of a target's suppliers
and competitors. See letters from EIM IV; CIRCA IV. We acknowledge
that effects on these shareholders represent transfers rather than
market-level economic benefits or costs of activism (e.g., costs to
these shareholders may result even when the market benefits as a
whole from enhanced operational efficiency and competition). As
noted, we refer to the impact on entities other than the target
issuer here as evidence that activism can have beneficial
competitive effects, rather than to place a primary emphasis on
consideration of shareholders of issuers other than the target
issuers in determining appropriate disclosure deadlines and related
amendments.
    \835\ See, e.g., April Klein & Emanuel Zur, The Impact of Hedge
Fund Activism on the Target Firm's Existing Bondholders, 24 Rev.
Fin. Stud. 1735 (2011) (estimating that bonds of targeted issuers
experience, on average, a negative announcement return of about -4%
to activist hedge fund campaigns); Hadiye Aslan & Hilda Maraachlian,
Wealth Effects of Hedge Fund Activism (Working Paper, 2018),
available at https://ssrn.com/abstract=993170 (estimating that bonds
of targeted issuers experience, on average, a positive announcement
return of about 2% to activist hedge fund campaigns, but with
variation based on the type of campaign: bondholders benefit the
most for those with governance-related goals, while those calling
for restructuring the issuer lead to bondholder losses); Jayanthi
Sunder et al., Debtholder Responses to Shareholder Activism:
Evidence from Hedge Fund Interventions, 27 Rev. Fin. Stud. 3318
(2014) (examining changes in bank loan spreads upon activist hedge
fund campaigns and finding that spreads increase in response to
merger-related or restructuring campaigns but decrease in response
to those that seek to address governance-related issues).
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Considerations
    Commenters noted that if there are fewer activist campaigns under
the amended deadline, there will be reduced shareholder value
creation.\836\ Commenters also noted that a reduction in activist
campaigns would result in decreased corporate accountability and, on
average, a reduction in operational efficiency, both because of the
reduced direct beneficial effect of activists (on average) on the
operations of targeted issuers \837\ and because of the reduced
indirect beneficial effect of the possibility of becoming a future
activist target (or of competition with targeted issuers) on the
operational performance of non-targeted issuers.\838\ Some commenters
indicated that activist investors would continue their activities
despite reduced profitability.\839\ Others indicated that such reduced
profitability and the acceleration of potential defensive responses by
the target issuer would impede activism.\840\ Some commenters indicated
that a reduction in the pursuit of activist campaigns and in the
disciplining effect on corporate accountability of the possibility of
such campaigns would result in reduced market efficiency,\841\ a less
optimal allocation of resources,\842\ reduced liquidity,\843\ and
reduced trust in markets because managers are not held
accountable.\844\
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    \836\ See letters from 65 Professors; AIMA; C. Penner and Prof.
Eccles; CIRCA I; EIM I; M. Frampton; MFA; Profs. Swanson, Young, and
Yust; PSCM; Profs. Eccles and Rajgopal; Rice Management; S. Lorne.
One comment letter provided an analysis in which the commenters
concluded that ``net investors benefit significantly during the
relevant time period,'' estimating a $12 million benefit to net
investors per campaign based on their computation of the net order
imbalance and stock returns from each day through 30 days after the
Schedule 13D filing dates. See letter from Profs. Bishop and Partnoy
III.
    \837\ See supra note 831 for detail on studies that have
associated activist campaigns with operational improvements.
    \838\ See supra note 832. Reductions in operational efficiency
and the associated weakening of competition could result in greater
shareholder value at some supplier and competitor firms of potential
targets, per the academic research cited above, but this would not
represent a market-level benefit. See supra note 834. See also
letters from 65 Professors; AIMA; C. Penner and Prof. Eccles; CIRCA
I; CIRCA IV; Dodge & Cox; EIM I; ICM; M. Frampton; MFA; Prof.
Gordon; Profs. Schwartz and Shavell I; Prof. Webber; PSCM; Profs.
Eccles and Rajgopal; Rep. Torres, et al.
    \839\ See letters from AFREF; Better Markets I; HMA II; SCG;
WLRK I.
    \840\ See letters from AIMA; CIRCA I; Dodge & Cox; EIM I; ICM;
M. Frampton; MFA; Prof. Gordon; Profs. Schwartz and Shavell I;
Profs. Swanson, Young, and Yust; Profs. Eccles and Rajgopal; Rep.
Torres, et al.; S. Lorne; STB; TRP.
    \841\ See letters from AIMA; Dodge & Cox; EIM I; MFA; Profs.
Swanson, Young, and Yust; Profs. Eccles and Rajgopal; Rice
Management; STB.
    \842\ See letters from 65 Professors; EIM I; Rep. Torres, et
al.; TRP.
    \843\ See letters from AIMA; EIM I.
    \844\ See letters from C. Penner and Prof. Eccles; Dodge & Cox;
EIM I.
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    We acknowledge that a reduction in investment research and in
significant shareholdings by investors who undertake such campaigns
could reduce

market efficiency (and thereby the efficient allocation of resources)
because of the role that investments based on such research and
analysis play in moving stock prices closer to their fundamental
values. A reduction in such activities could also reduce liquidity, as
noted by commenters,\845\ by lessening liquidity provision in the
securities market by these investors (through, e.g., limit orders) as
they build their stakes. We acknowledge the beneficial effects of
activism to the market. However, our analysis of historical data
indicates that 80 percent of campaigns were completed by the amended
deadline, with 97 percent of campaigns having completed 90 percent of
their stakes by the amended deadline.\846\ We therefore expect the
majority of campaigns will be largely unaffected by the deadline. In
addition, for those campaigns that would be affected by the deadline,
we expect the activists will adapt to the shortened deadline and
continue to pursue the campaigns, thereby preserving the beneficial
effects of their activism.\847\
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    \845\ See supra note 843.
    \846\ See supra section IV.B.3.a.iii, Table 3.
    \847\ Although we believe that activists whose campaigns are
impacted by the shortened deadline are likely to adapt and continue
with their campaigns, we note that there are costs likely associated
with those adaptations, as discussed below. Thus, although the
market is likely to benefit from an activist campaign that continues
as a result of such adaptations, the costs associated with those
adaptations may reduce the extent of such benefits. Nevertheless,
because those campaigns would still proceed, the potential reduction
in benefits resulting from the costs associated with an adaptation
likely would be significantly less than the elimination of all the
potential benefits if the campaign were abandoned outright.
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    Some commenters indicated that activist campaigns are not uniformly
beneficial, and that the short-term price reaction to such campaigns
may not translate into positive shareholder value impacts in the long-
term.\848\ Some commenters stated that a reduction in such campaigns
and the threat of such campaigns could be beneficial because it would
reduce the pressure on issuers to make changes in governance, payouts,
or investments that are not in the interest of long-term
shareholders.\849\ One commenter stated that activist campaigns are a
deterrent to going public,\850\ implying that a reduction in such
activities could encourage more companies to enter the public markets.
We acknowledge that activist campaigns are heterogeneous. While the
average impact of activist campaigns on shareholder value is likely to
be positive in the long-term as well as the short-term,\851\ some
campaigns may have a negative impact on shareholder value either in the
short- or long-term. It is possible that some of the activist campaigns
that are less likely to occur after the adoption of the final rules
would have decreased shareholder value, such that activists forgoing
those campaigns could benefit shareholders. A lower risk of facing an
activist campaign could, per the commenter cited above, also be a
positive factor in the decision of additional companies to enter the
public markets. That said, the final amendments are not intended to
discourage activism. Instead, they reflect our attempt to ensure
investors receive material information in a timely manner while, at the
same time, maintaining the balance between issuers of securities and