This Valentine’s Day, the SEC is sending very little love to 13D Filers …

This Valentine's Day, the SEC is sending very little love to 13D Filers

Instead, for 2024 the language of love comes in the shape of accelerated deadlines, expanded derivative inclusion and data formatting obligations, in some big changes for beneficial ownership in the US, fit for a machine’s eyes only.

February deadlines 

February will stage the first phase of the amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (The Exchange Act) by halving the initial reporting deadline to five business days for Schedule 13D filers and two business days to file any amendments. As the reduced deadline is effective from 5 February, the new rules for disclosures mean investors have until 12 February for their initial filings to reach the SEC and any amendments to these submissions to be filed by 14 February. This will result in visibility and transparency of beneficial ownership much sooner to the market than was previously the case.

Cash settled derivatives added to 13D reporting

A more complex addition to 13D reporting is the US expansion of the inclusion of cash settled derivatives. Although it is largely understood that derivatives settled exclusively in cash indicate a pure economic interest, our experience is that this isn’t always how and why these derivatives are held. The SEC has now put greater emphasis and clarity on certain circumstances which could result in a holder having voting / investment power or deemed to be a beneficial owner. We therefore urge investors to carefully consider the terms of their derivative contracts to ensure these are not inadvertently subject to the disclosure requirements under the Rule 13d-3.

Furthermore, 13D filers are now burdened with the task of including cash settled interests within item 6 of Schedule 13D. Here, the requirement to notify “any contracts, arrangements, understandings or relationships with respect to any securities of the issuer,” will now extend to including information concerning cash settled interests and disclosable on a Schedule 13D.

XML from December 2024

The amendments impose structured data requirements on those investors who would have typically utilised the more basic platforms for filing reports for Schedule 13D. These will no longer be adequate as the SEC leads investors towards its approved structured, machine-readable XML-based language, effective from December 2024.  Within this short timeframe, investors and Schedule 13D filers will need to undertake technical development and resource given that the XML process requires experience in producing, translating, and generating XML to be consumed correctly.

Our Shareholding Disclosure system not only has this XML expertise, but it can fully automate the conversion of 13D disclosure information from its standard form into the language readily available for EDGAR consumption, saving you time and the risk of incorrectly filing with the SEC.

Managing expanded ownership requirements

These changes demonstrate the SEC’s continuous focus on the transparency of beneficial ownership. They also show the importance of the markets and investors having accessibility to, and visibility of the ownership of shares, and the promptness of this relevant and material information in what is a very fast paced market. 

With this focus in mind, let’s not forget the changes implemented for those 13G filers scheduled for later this year as a result of the amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, and Rule 13f-2 which introduces a gross short position regime, causing significant changes to disclosure obligations for investment managers in early 2025.

Put simply, these adoptions magnify the need for an accurate automated reporting tool to capture these expanded ownership requirements and generate an auto-populated disclosure form within the new tighter deadlines. Kaizen’s platform deals with all these issues, supported by subject matter experts like myself, who have a background in filing global disclosures on behalf of tier one financial institutions. 

  • For more background to the changes, please visit the SEC’s website.
  • To learn more about Kaizen’s Shareholding Disclosure system and service, please get in touch