
[Federal Register Volume 88, Number 214 (Tuesday, November 7, 2023)]
[Rules and Regulations]
[Pages 76896-76984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22678]



[[Page 76895]]

Vol. 88

Tuesday,

No. 214

November 7, 2023

Part II





Securities and Exchange Commission





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17 CFR Parts 232 and 240





Modernization of Beneficial Ownership Reporting; Final Rule

  Federal Register / Vol. 88 , No. 214 / Tuesday, November 7, 2023 / 
Rules and Regulations  

[[Page 76896]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232 and 240

[Release Nos. 33-11253; 34-98704; File No. S7-06-22]
RIN 3235-AM93


Modernization of Beneficial Ownership Reporting

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; guidance.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting amendments to certain rules that govern beneficial ownership 
reporting. The amendments generally shorten the filing deadlines for 
initial and amended beneficial ownership reports filed on Schedules 13D 
and 13G. The amendments also clarify the disclosure requirements of 
Schedule 13D with respect to derivative securities. We also are 
expanding the timeframe within a given business day by which Schedules 
13D and 13G must be filed, and separately requiring that Schedule 13D 
and 13G filings be made using a structured, machine-readable data 
language. Further, we discuss how, under the current rules, an 
investor's use of a cash-settled derivative security may result in the 
person being treated as a beneficial owner of the class of the 
reference equity security. We also are providing guidance on the 
application of the current legal standard found in section 13(d)(3) and 
13(g)(3) of the Securities Exchange Act of 1934 to certain common types 
of shareholder engagement activities. Finally, we are making certain 
technical revisions.

DATES: 
    Effective dates: The amendments are effective on February 5, 2024.
    Compliance dates: See section II.G.

FOR FURTHER INFORMATION CONTACT: Nicholas Panos, Senior Special 
Counsel, and Valian Afshar, Senior Special Counsel, Division of 
Corporation Finance, at (202) 551-3440, U.S. Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 
240.13d-1 (``Rule 13d-1''), 17 CFR 240.13d-2 (``Rule 13d-2''), 17 CFR 
240.13d-3 (``Rule 13d-3''), 17 CFR 240.13d-5 (``Rule 13d-5''), 17 CFR 
240.13d-6 (``Rule 13d-6''), 17 CFR 240.13d-101 (``Rule 13d-101''), and 
17 CFR 240.13d-102 (``Rule 13d-102'') under the Securities Exchange Act 
of 1934 [15 U.S.C. 78a et seq.] (``Exchange Act'').\1\ We also are 
adopting amendments to 17 CFR 232.13 (``Rule 13 of Regulation S-T'') 
and 17 CFR 232.201 (``Rule 201 of Regulation S-T'') under 17 CFR part 
232 (``Regulation S-T'').\2\ In addition, we are rescinding 17 CFR 
240.13d-7 (``Rule 13d-7'').
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    \1\ Unless otherwise noted, when we refer to the Exchange Act, 
or any paragraph of the Exchange Act, we are referring to 15 U.S.C. 
78a of the United States Code, at which the Exchange Act is 
codified, and when we refer to rules under the Exchange Act, or any 
paragraph of these rules, we are referring to title 17, part 240 of 
the Code of Federal Regulations [17 CFR part 240], in which these 
rules are published.
    \2\ Unless otherwise noted, when we refer to Regulation S-T, or 
any paragraph of the rules thereunder, we are referring to title 17, 
part 232 of the Code of Federal Regulations [17 CFR part 232], in 
which these rules are published.
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Table of Contents

I. Introduction
II. Discussion of the Final Amendments
    A. Amendments to Rules 13D-1 and 13D-2 and Rules 13 and 201 of 
Regulation S-T To Revise Filing Deadlines and Filing Date Assignment
    1. Rule 13d-1(a), (e), (f), and (g)
    2. Rule 13d-1(b), (c), and (d)
    3. Rule 13d-2(a) and (b)
    4. Rule 13d-2(c) and (d)
    5. Rules 13(a)(4) and 201(a) of Regulation S-T
    B. Proposed Amendment to Rule 13D-3 Regarding the Use of Cash-
Settled Derivative Securities
    1. Proposed Amendment
    2. Comments Received
    3. Commission Guidance
    C. Proposed Amendments to Rule 13D-5
    1. Proposed Rule 13d-5(b)(1)(i), (b)(2)(i), and (b)(1)(ii)
    2. Proposed Rule 13d-5(b)(1)(iii) and (b)(2)(ii)
    3. Proposed Rule 13d-5(b)(1)(iv) and (b)(2)(iii)
    D. Proposed Amendments to Rule 13D-6 To Create Certain 
Exemptions
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    E. Amendment to Schedule 13D To Clarify Disclosure Requirements 
Regarding Derivative Securities
    1. Proposed Amendment
    2. Comments Received
    3. Final Amendment
    F. Structured Data Requirement for Schedules 13D and 13G
    1. Proposed Amendment
    2. Comments Received
    3. Final Amendment
    G. Compliance Dates
III. Other Matters
IV. Economic Analysis
    A. Overview
    B. Baseline
    1. Current Schedule 13D and 13G Filing Requirements
    2. Market Trends
    3. Affected Parties and Current Market Practices
    C. Economic Effects of the Final Rules
    1. Shortened Initial Schedule 13D Filing Deadline
    2. Shortened Schedule 13G Filing Deadlines
    3. Other Amendments
    D. Reasonable Alternatives to the Final Rules
    1. Alternative Filing Deadlines
    2. Tiered Approaches
    3. Modify Structured Data Requirement
V. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Summary of Comment Letters on PRA Estimates
    C. Burden and Cost Estimates for the Final Amendments
VI. Regulatory Flexibility Act Certification Statutory Authority

I. Introduction

    We are amending certain rules within 17 CFR 240.13d-1 through 
240.13f-1 (``Regulation 13D-G'') \3\ and Regulation S-T to modernize 
the beneficial ownership reporting requirements and improve their 
operation and efficacy. Some \4\ of these amendments are based on the 
amendments that the Commission proposed in 2022 (``Proposed 
Amendments'').\5\ Specifically, we are adopting revisions to the 
deadlines for Schedule 13D and Schedule 13G filings. We also are 
adopting certain related technical changes to Regulation S-T that the 
Commission proposed in connection with these amendments. Further, we 
are requiring that Schedule 13D and 13G filings be submitted using a 
structured, machine-readable data language.
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    \3\ Unless otherwise noted, when we refer to Regulation 13D-G, 
we are referring to title 17, part 240 of the Code of Federal 
Regulations [17 CFR part 240], in which 17 CFR 240.13d-1 through 
240.13f-1 are published.
    \4\ See infra note 22 for a discussion of certain technical 
amendments we are adopting that the Commission did not previously 
propose.
    \5\ See Modernization of Beneficial Ownership Reporting, Release 
Nos. 33-11030; 34-94211 (Feb. 10, 2022) [87 FR 13846 (Mar. 10, 
2022)] (``Proposing Release''). On Apr. 28, 2023, the Commission 
reopened the comment period for the Proposing Release in connection 
with the addition to the comment file of a memorandum prepared by 
staff of the Commission's Division of Economic and Risk Analysis. 
See Reopening of Comment Period for Modernization of Beneficial 
Ownership Reporting, Release Nos. 33-11180; 34-97405 (Apr. 28, 2023) 
[88 FR 28440 (May 4, 2023)] (``Reopening Release''). That memorandum 
provided supplemental data and analysis related to certain economic 
effects of the Proposed Amendments. See Memorandum of the Staff of 
the Division of Economic and Risk Analysis, Supplemental data and 
analysis on certain economic effects of proposed amendments 
regarding the reporting of beneficial ownership (Apr. 28, 2023), 
available at https://www.sec.gov/comments/s7-06-22/s70622-20165251-334474.pdf (``DERA Memorandum'').
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    In response to the comments we received on the Proposed 
Amendments,\6\ however, we are making

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certain adjustments from the proposal. For example, we are not adopting 
proposed 17 CFR 240.13d-3(e) (``Rule 13d-3(e)'') to deem certain 
holders of cash-settled derivative securities \7\ as beneficial owners 
of the reference covered class.\8\ Instead, we discuss how, under 
current Rule 13d-3, persons using these types of derivative securities 
may already be subject to regulation as beneficial owners. We also are 
not adopting many of the proposed amendments to Rules 13d-5 \9\ and 
13d-6. Instead, we are issuing guidance on the application of the 
current legal standard found in sections 13(d)(3) and 13(g)(3) to 
certain common types of shareholder engagement activities.
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    \6\ See generally letters submitted in connection with the 
Proposed Amendments, available at https://www.sec.gov/comments/s7-06-22/s70622.htm. Unless otherwise specified, all references in this 
release to comment letters are to comments submitted on the Proposed 
Amendments. Further, on June 22, 2023, the Commission's Investor 
Advisory Committee (``IAC'') adopted recommendations (``IAC 
Recommendations'') with respect to the Proposed Amendments. See U.S. 
Securities and Exchange Commission Investor Advisory Committee, 
Recommendation of the Market Structure Subcommittee of the SEC 
Investor Advisory Committee on SEC Proposed Amendments to Regulation 
13D-G, Proposed Rule 10B-1, and Proposed Rule 9j-1 (June 22, 2023), 
available at https://www.sec.gov/files/spotlight/iac/20230622-recommendation-regarding-sec-proposed-amendments-regulation-13d-g-proposed-rule-10b-1-and.pdf. The IAC was established in Apr. 2012 
pursuant to section 911 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 
1822 (2010)] (``Dodd-Frank Act'') to advise and make recommendations 
to the Commission on regulatory priorities, the regulation of 
securities products, trading strategies, fee structures, the 
effectiveness of disclosure, and initiatives to protect investor 
interests and to promote investor confidence and the integrity of 
the securities marketplace. We discuss the IAC Recommendations in 
connection with the comments received on the Proposed Amendments 
below. See infra sections II.A.1.b, II.A.2.b, II.B.2, and II.C.1.b. 
In addition, on Sept. 21, 2022, the IAC held a meeting that included 
a panel discussion on the Proposed Amendments. See the agenda for 
that meeting, including the panelists that discussed the Proposed 
Amendments, at https://www.sec.gov/spotlight/investor-advisory-committee/iac092122-agenda.htm.
    \7\ As used in this release (including for purposes of proposed 
Rule 13d-3(e)), the term ``derivative security'' has the meaning set 
forth in 17 CFR 240.16a-1(c) (``Rule 16a-1(c)''). See Rule 16a-1(c) 
(defining ``derivative securities'' as including certain rights, 
such as options, warrants, convertible securities, stock 
appreciation rights, or similar rights ``with an exercise or 
conversion privilege at a price related to an equity security, or 
similar securities with a value derived from the value of an equity 
security,'' excluding certain enumerated rights, obligations, 
interests, and options). For purposes of proposed Rule 13d-3(e), the 
term ``derivative security'' would not have included a security-
based swap, as defined in section 3(a)(68) of the Exchange Act and 
the rules and regulations thereunder (``SBS''). As the context 
requires, references to ``SBS'' in this release includes both the 
singular (``security-based swap'') and plural (``security-based 
swaps'') form. See Proposing Release at 13864 & nn.110-114.
    \8\ As used in this release, a ``covered class'' is a class of 
equity securities described in section 13(d)(1) of the Exchange Act 
and Rule 13d-1(i) and generally means, with limited exception, a 
voting class of equity securities registered under section 12 of the 
Exchange Act.
    \9\ See infra note 22 and sections II.C.2 and II.C.3 for a 
discussion of the proposed amendments to Rule 13d-5 that we are 
adopting.
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    With respect to the Schedule 13D and Schedule 13G filing deadlines, 
we are amending the following rules:
     17 CFR 240.13d-1(a) (``Rule 13d-1(a)''): Shortening the 
filing deadline for the initial Schedule 13D to within five business 
days \10\ after the date on which a person acquires beneficial 
ownership of more than five percent of a covered class; \11\
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    \10\ The term ``business day'' currently is not defined in 
section 13(d) or 13(g) or any rule of Regulation 13D-G. Accordingly, 
we are amending 17 CFR 240.13d-1(i) (``Rule 13d-1(i)'') by adopting 
a new paragraph (i)(2) that defines ``business day'' for purposes of 
Regulation 13D-G to mean any day, other than Saturday, Sunday, or a 
Federal holiday, from 12 a.m. to 11:59 p.m. Eastern Time. See infra 
notes 14 and 134 for further discussion of our new definition of 
``business day.''
    \11\ Throughout this release, we refer to an initial Schedule 
13D filing obligation as being incurred under Rule 13d-1(a) when a 
person ``acquires beneficial ownership of more than 5% of a covered 
class,'' among other similar formulations. These formulations refer 
to the requirement in Rule 13d-1(a), which currently states that 
``[a]ny person who, after acquiring directly or indirectly the 
beneficial ownership of any equity security of a [covered class], is 
directly or indirectly the beneficial owner of more than five 
percent of the class shall, within 10 days after the acquisition, 
file with the Commission, a . . . Schedule 13D.''
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     17 CFR 240.13d-1(e), (f), and (g) (``Rule 13d-1(e), (f), 
and (g)''): Shortening the filing deadline for the initial Schedule 13D 
required to be filed by certain persons who become ineligible to report 
on Schedule 13G in lieu of Schedule 13D to five business days after the 
event that causes the ineligibility;
     17 CFR 240.13d-1(b) and (d) (``Rule 13d-1(b) and (d)''): 
Shortening the deadline for the initial Schedule 13G filing for 
Qualified Institutional Investors (``QIIs'') \12\ and Exempt Investors 
\13\ to within 45 days \14\ after the end of the calendar quarter in 
which beneficial ownership first exceeds five percent of a covered 
class; \15\
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    \12\ The institutional investors qualified to report on Schedule 
13G, in lieu of Schedule 13D and in reliance upon Rule 13d-1(b), 
include a broker or dealer registered under section 15 of the 
Exchange Act, a bank as defined in section 3(a)(6) of the Exchange 
Act, an insurance company as defined in section 3(a)(19) of the 
Exchange Act, an investment company registered under section 8 of 
the Investment Company Act of 1940, a person registered as an 
investment adviser under section 203 of the Investment Advisers Act 
of 1940, a parent holding company or control person (if certain 
conditions are met), an employee benefit plan or pension fund that 
is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, a savings association as defined in section 
3(b) of the Federal Deposit Insurance Act, a church plan that is 
excluded from the definition of an investment company under section 
3(c)(14) of the Investment Company Act of 1940, non-U.S. 
institutions that are the functional equivalent of any of the 
institutions listed in Rule 13d-1(b)(1)(ii)(A) through (I), so long 
as the non-U.S. institution is subject to a regulatory scheme that 
is substantially comparable to the regulatory scheme applicable to 
the equivalent U.S. institution, and related holding companies and 
groups (collectively, ``Qualified Institutional Investors'' or 
``QIIs''). 17 CFR 240.13d-1(b)(1)(ii). In addition, under Rule 13d-
1(b), in order to qualify to report on Schedule 13G in lieu of 
Schedule 13D, a QII must have acquired securities in the covered 
class in the ordinary course of business and not with the purpose 
nor with the effect of changing or influencing the control of the 
issuer, nor in connection with or as a participant in any 
transaction having such purpose or effect. 17 CFR 240.13d-
1(b)(1)(i).
    \13\ The term ``Exempt Investor'' as used in this release refers 
to persons holding beneficial ownership of more than 5% of a covered 
class, but who have not made an acquisition of beneficial ownership 
subject to section 13(d). For example, persons who acquire all of 
their securities prior to the issuer registering the subject 
securities under the Exchange Act are not subject to section 13(d). 
In addition, persons who acquire no more than 2% of a covered class 
within a 12-month period are exempted from section 13(d) by section 
13(d)(6)(B). In both cases, however, those persons are subject to 
section 13(g). Amendments to Beneficial Ownership Reporting 
Requirements, Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, n.8 
(Jan. 16, 1998)]; see also Proposing Release at 13856, n.55.
    \14\ Any reference to ``day'' in this release means ``calendar 
day,'' and those terms may be used interchangeably. Any reference to 
``business day'' means ``business day,'' as we are defining that 
term. See supra note 10 and infra note 134 for discussions of our 
new definition of ``business day.''
    \15\ In addition, we are retaining the requirement in Rule 13d-
1(b)(2) that a QII file its initial Schedule 13G on a more expedited 
basis if its beneficial ownership exceeds 10% of a covered class. 17 
CFR 240.13d-1(b)(2). We are amending that rule, however, to require 
that such an initial Schedule 13G be filed within five business days 
after the end of the first month in which the QII's beneficial 
ownership exceeds 10% of a covered class, computed as of the last 
day of the month, rather than the current requirement of 10 calendar 
days after month-end.
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     17 CFR 240.13d-1(c) (``Rule 13d-1(c)''): Shortening the 
deadline for Passive Investors \16\ to file an initial Schedule 13G in 
lieu of Schedule 13D to within five business days after the date on 
which they acquire beneficial ownership of more than five percent of a 
covered class;
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    \16\ The term ``Passive Investors'' as used in this release 
refers to beneficial owners of more than 5% but less than 20% of a 
covered class who can certify under Item 10 of Schedule 13G that the 
subject securities were not acquired and are not held for the 
purpose or effect of changing or influencing the control of the 
issuer of such securities and were not acquired in connection with 
or as a participant in any transaction having such purpose or 
effect. Amendments to Beneficial Ownership Reporting Requirements, 
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, n.9 (Jan. 16, 
1998)]. These investors are ineligible to report beneficial 
ownership pursuant to Rule 13d-1(b) or (d) but are eligible to 
report beneficial ownership on Schedule 13G in reliance upon Rule 
13d-1(c).
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     17 CFR 240.13d-2(a) (``Rule 13d-2(a)''): Revising the 
deadline for filing amendments to Schedule 13D to two business days 
after the date on which a material change occurs;

[[Page 76898]]

     17 CFR 240.13d-2(b) (``Rule 13d-2(b)''): Shortening the 
deadline for Schedule 13G amendments filed pursuant to that provision 
to 45 days after the end of the calendar quarter in which a reportable 
change occurs;
     17 CFR 240.13d-2(c) (``Rule 13d-2(c)''): Shortening the 
filing deadline for Schedule 13G amendments filed pursuant to that 
provision to five business days after the end of the month in which 
beneficial ownership first exceeds 10 percent of a covered class, and 
thereafter upon any deviation by more than five percent of the covered 
class, with these requirements applying if the thresholds were crossed 
at any time during a month; and
     17 CFR 13d-2(d) (``Rule 13d-2(d)''): Revising the deadline 
for Schedule 13G amendments filed pursuant to that provision to two 
business days after the date on which beneficial ownership exceeds 10 
percent of a covered class, and thereafter upon any deviation by more 
than five percent of the covered class.
    In addition, we are amending Rule 13d-2(b) to require that an 
amendment to a Schedule 13G be filed only if a ``material change'' 
occurs (replacing the current rule text that requires an amendment upon 
the occurrence of ``any change'' in the facts previously reported). 
Further, we are amending 17 CFR 232.13(a) (``Rule 13(a) of Regulation 
S-T'') to permit Schedules 13D and 13G, and any amendments thereto, 
that are submitted by direct transmission commencing on or before 10 
p.m. Eastern Time \17\ on a given business day to be deemed to have 
been filed on the same business day.\18\ This amendment should provide 
additional time for beneficial owners to prepare and submit their 
Schedule 13D or 13G filings.\19\ The following table summarizes the 
changes we are adopting with respect to Schedule 13D and 13G filings, 
as described more fully in section II.A:
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    \17\ When we refer to ``Eastern Time'' in this release, we mean 
Eastern Standard Time or Eastern Daylight Saving Time, whichever is 
currently in effect.
    \18\ This rule applies to filing deadlines expressed both in 
calendar days and in business days. For example, for filing 
deadlines expressed in calendar days, if the deadline falls on a 
Federal holiday, a Saturday, or a Sunday, then the filing may be 
made on the next business day thereafter. See infra note 268.
    \19\ See Rule 13(a)(2) of Regulation S-T. We also are amending 
17 CFR 232.201(a) (``Rule 201(a) of Regulation S-T'') to make the 
temporary hardship exemption set forth in that rule--which applies 
to unanticipated technical difficulties preventing the timely 
preparation and submission of an electronic filing--unavailable to 
Schedules 13D and 13G, including any amendments thereto.

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                                   Current Schedule                        Current Schedule
              Issue                       13D          New Schedule 13D           13G          New Schedule 13G
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Initial Filing Deadline.........  Within 10 days      Within five         QIIs & Exempt       QIIs & Exempt
                                   after acquiring     business days       Investors: 45       Investors: 45
                                   beneficial          after acquiring     days after          days after
                                   ownership of more   beneficial          calendar year-end   calendar quarter-
                                   than 5% or losing   ownership of more   in which            end in which
                                   eligibility to      than 5% or losing   beneficial          beneficial
                                   file on Schedule    eligibility to      ownership exceeds   ownership exceeds
                                   13G. Rule 13d-      file on Schedule    5%. Rule 13d-1(b)   5%. Rule 13d-1(b)
                                   1(a), (e), (f),     13G. Rule 13d-      and (d).            and (d).
                                   and (g).            1(a), (e), (f),    QIIs: 10 days       QIIs: Five
                                                       and (g).            after month-end     business days
                                                                           in which            after month-end
                                                                           beneficial          in which
                                                                           ownership exceeds   beneficial
                                                                           10%. Rule 13d-      ownership exceeds
                                                                           1(b).               10%. Rule 13d-
                                                                                               1(b).
                                                                          Passive Investors:  Passive Investors:
                                                                           Within 10 days      Within five
                                                                           after acquiring     business days
                                                                           beneficial          after acquiring
                                                                           ownership of more   beneficial
                                                                           than 5%. Rule 13d-  ownership of more
                                                                           1(c).               than 5%. Rule 13d-
                                                                                               1(c).
Amendment Triggering Event......  Material change in  Same as current     All Schedule 13G    All Schedule 13G
                                   the facts set       Schedule 13D:       Filers: Any         Filers: Material
                                   forth in the        Material change     change in the       change in the
                                   previous Schedule   in the facts set    information         information
                                   13D. Rule 13d-      forth in the        previously          previously
                                   2(a).               previous Schedule   reported on         reported on
                                                       13D. Rule 13d-      Schedule 13G.       Schedule 13G.
                                                       2(a).               Rule 13d-2(b).      Rule 13d-2(b).
                                                                          QIIs & Passive      QIIs & Passive
                                                                           Investors: Upon     Investors: Same
                                                                           exceeding 10%       as current
                                                                           beneficial          Schedule 13G:
                                                                           ownership or a 5%   Upon exceeding
                                                                           increase or         10% beneficial
                                                                           decrease in         ownership or a 5%
                                                                           beneficial          increase or
                                                                           ownership. Rule     decrease in
                                                                           13d-2(c) and (d).   beneficial
                                                                                               ownership. Rule
                                                                                               13d-2(c) and (d).
Amendment Filing Deadline.......  Promptly after the  Within two          All Schedule 13G    All Schedule 13G
                                   triggering event.   business days       Filers: 45 days     Filers: 45 days
                                   Rule 13d-2(a).      after the           after calendar      after calendar
                                                       triggering event.   year-end in which   quarter-end in
                                                       Rule 13d-2(a).      any change          which a material
                                                                           occurred. Rule      change occurred.
                                                                           13d-2(b).           Rule 13d-2(b).
                                                                          QIIs: 10 days       QIIs: Five
                                                                           after month-end     business days
                                                                           in which            after month-end
                                                                           beneficial          in which
                                                                           ownership           beneficial
                                                                           exceeded 10% or     ownership exceeds
                                                                           there was, as of    10% or a 5%
                                                                           the month-end, a    increase or
                                                                           5% increase or      decrease in
                                                                           decrease in         beneficial
                                                                           beneficial          ownership. Rule
                                                                           ownership. Rule     13d-2(c).
                                                                           13d-2(c).
                                                                          Passive Investors:  Passive Investors:
                                                                           Promptly after      Two business days
                                                                           exceeding 10%       after exceeding
                                                                           beneficial          10% beneficial
                                                                           ownership or a 5%   ownership or a 5%
                                                                           increase or         increase or
                                                                           decrease in         decrease in
                                                                           beneficial          beneficial
                                                                           ownership. Rule     ownership. Rule
                                                                           13d-2(d).           13d-2(d).
Filing ``Cut-Off'' Time.........  5:30 p.m. Eastern   10 p.m. Eastern     All Schedule 13G    All Schedule 13G
                                   Time. Rule          Time. Rule          Filers: 5:30 p.m.   Filers: 10 p.m.
                                   13(a)(2) of         13(a)(4) of         Eastern Time.       Eastern Time.
                                   Regulation S-T.     Regulation S-T.     Rule 13(a)(2) of    Rule 13(a)(4) of
                                                                           Regulation S-T.     Regulation S-T.
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    As noted above, we are not adopting proposed Rule 13d-3(e). 
Instead, we discuss the circumstances in which a holder of a cash-
settled derivative security, excluding SBS, may be deemed the 
beneficial owner of the reference covered class under Rule 13d-3. We 
also are not adopting the proposed exemption in 17 CFR 240.13d-6(d)

[[Page 76899]]

(``Rule 13d-6(d)''), which the Commission proposed to enable certain 
persons to transact in derivative securities in the ordinary course of 
business without concern that they had formed a group under section 
13(d)(3) or 13(g)(3), in part because we are not adopting proposed Rule 
13d-3(e).
    To further clarify the disclosure requirements with respect to 
derivative securities, particularly cash-settled derivative securities, 
held by a person required to report on Schedule 13D, the Commission is 
adopting an amendment to Schedule 13D. Specifically, we are amending 
Item 6 of Schedule 13D, codified at Rule 13d-101, to remove any 
implication that a person is not required to disclose interests in all 
derivative securities that use a covered class as a reference security. 
This amendment is intended to eliminate any ambiguity regarding the 
scope of the disclosure obligations of Item 6 of Schedule 13D as to 
derivative securities, including with respect to any derivative not 
originating with, or offered or sold by, the issuer, such as a cash-
settled option or SBS.
    As noted above, we are not adopting most of the proposed 
substantive amendments to Rule 13d-5.\20\ We also are not adopting 
proposed 17 CFR 240.13d-6(c) (``Rule 13d-6(c)''), which would have 
specified certain circumstances under which two or more persons may 
coordinate and consult with one another and engage with an issuer 
without being subject to regulation as a group. Instead, we are issuing 
guidance regarding the appropriate legal standard for determining 
whether a group is formed. This guidance is intended to provide clarity 
on the circumstances under which a person may be deemed to have formed 
a group with another person or persons within the meaning of sections 
13(d)(3) and 13(g)(3).
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    \20\ But see infra note 22 and sections II.C.2 and 3 for a 
discussion of the proposed amendments to Rule 13d-5 that we are 
adopting.
---------------------------------------------------------------------------

    We are adopting the proposed requirement that Schedules 13D and 13G 
be filed using a structured, machine-readable data language. We are, 
therefore, now requiring that all disclosures, including quantitative 
disclosures, textual narratives, and identification checkboxes, on 
Schedules 13D and 13G be filed using an XML-based language.\21\ This 
requirement is intended to make it easier for investors and other 
market participants to access, compile, and analyze information that is 
disclosed on Schedules 13D and 13G.
---------------------------------------------------------------------------

    \21\ Under this structured data requirement, only the exhibits 
to Schedules 13D and 13G will remain unstructured.
---------------------------------------------------------------------------

    Finally, we also are adopting certain technical revisions, some of 
which were not included among the Proposed Amendments.\22\
---------------------------------------------------------------------------

    \22\ Specifically, as proposed, we are: (1) changing the title 
of Rule 13d-5 from ``Acquisition of securities'' to ``Acquisition of 
beneficial ownership''; (2) revising 17 CFR 240.13d-5(a) (``Rule 
13d-5(a)'') to conform the text to the new title; (3) redesignating 
current Rule 13d-6 as new 17 CFR 240.13d-6(a) (``Rule 13d-6(a)''); 
and (4) redesignating current 17 CFR 240.13d-5(b)(2) (``Rule 13d-
5(b)(2)'') as new 17 CFR 240.13d-6(b) (``Rule 13d-6(b)''). The 
Commission did not receive any substantive comments on these 
amendments, so we are adopting them as proposed for the reasons set 
forth in the Proposing Release. We also are making other technical 
changes not included in the Proposing Release, namely: (1) 
rescinding in its entirety Rule 13d-7 because Congress already 
repealed the statutory requirements under sections 13(d)(1), (d)(2), 
(g)(1), and (g)(2) for beneficial owners to deliver a copy of a 
Schedule 13D or 13G, and any amendments thereto, to the issuer of 
the covered class and any national securities exchanges where such 
equity securities are listed, see Public Law 111-203, 124 Stat. 1900 
929R(a)(1)(B) through (4)(B) (2010); (2) making conforming 
amendments to Schedules 13D and 13G to remove the notes in those 
Schedules that refer to Rule 13d-7 and its requirements; (3) 
correcting incorrect cross references in Item 8 of Schedule 13G; and 
(4) replacing the gender-based pronouns used in Rules 13d-1, 13d-3, 
13d-6, 13d-101, and 13d-102 with gender-neutral phrases and making 
additional conforming edits to the surrounding text as necessary. 
Although the Commission did not propose these amendments, we find 
good cause, in accordance with the Administrative Procedure Act 
(``APA''), Public Law 79-404, 60 Stat. 237 (June 11, 1946), that, in 
light of their technical nature, notice and public comment in 
respect of these amendments is impracticable, unnecessary, or 
contrary to the public interest. 5 U.S.C. 553(b)(3)(B).
---------------------------------------------------------------------------

II. Discussion of the Final Amendments

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

    We are adopting a series of amendments to the deadlines for filing 
initial and amended beneficial ownership reports on Schedules 13D and 
13G and expanding the timeframe within a given business day in which 
such filings may be timely made. These amendments are listed in section 
I above and discussed in more detail below.
1. Rule 13d-1(a), (e), (f), and (g)
    Section 13(d)(1) of the Exchange Act requires a disclosure 
statement to be filed ``within ten days after [acquiring beneficial 
ownership of more than five percent of a covered class] or within such 
shorter time as the Commission may establish by rule.'' \23\ Consistent 
with this provision, Rule 13d-1(a) sets forth the 10-day filing 
deadline for the initial Schedule 13D.\24\ Although the Dodd-Frank Act 
amended section 13(d)(1) to grant the Commission the authority to 
shorten the deadline for filing the initial Schedule 13D, the 10-day 
deadline has not been updated since it was enacted more than 50 years 
ago.\25\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78m(d)(1).
    \24\ 17 CFR 240.13d-1(a) (requiring that a Schedule 13D be filed 
``within 10 days after the acquisition'' of beneficial ownership of 
more than 5% of a covered class).
    \25\ Section 13(d)(1) of the Exchange Act was enacted by the 
Ninetieth Congress in 1968 through the approval of Senate Bill 510.
---------------------------------------------------------------------------

    Rule 13d-1(e), (f), and (g) set forth the initial Schedule 13D 
filing obligations for investors who are no longer eligible to rely 
upon Rule 13d-1(b) \26\ or (c) \27\ (which permit investors to file the 
more abbreviated Schedule 13G in lieu of the longer-form Schedule 13D). 
Rule 13d-1(e), (f), and (g) ensure that initial Schedule 13D filings 
uniformly are subject to a 10-day deadline, regardless of whether the 
beneficial owners were previously eligible to file a Schedule 13G in 
lieu of the Schedule 13D.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.13d-1(b).
    \27\ 17 CFR 240.13d-1(c).
---------------------------------------------------------------------------

    Rule 13d-1(e) applies to persons who have been filing a Schedule 
13G in lieu of Schedule 13D in reliance upon either Rule 13d-1(b) or 
(c). Rule 13d-1(b) and (c) both provide that a person may not rely on 
those provisions if he or she beneficially owns the relevant equity 
securities with the purpose or effect of changing or influencing the 
control of the issuer.\28\ Institutional and non-institutional 
beneficial owners who are unable to certify that they do not hold 
beneficial ownership for the purpose of or with the effect of changing 
or influencing the control of the issuer or in connection with any 
transaction that would have such purpose or effect, as described more 
fully under Item 10 of Schedule 13G, or certain institutional investors 
that also acquire or hold beneficial ownership outside of the ordinary 
course of business, are considered to have, for purposes of this 
release, a ``disqualifying purpose or effect.'' \29\ Rule 13d-1(e)(1) 
requires

[[Page 76900]]

such persons to file their initial Schedule 13D within 10 days of 
losing their Schedule 13G eligibility because they beneficially own a 
covered class with a disqualifying purpose or effect.
---------------------------------------------------------------------------

    \28\ The provision at 17 CFR 240.12b-2 (``Rule 12b-2 of 
Regulation 12B'') defines the term ``control'' to mean ``the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether 
through the ownership of voting securities, by contract, or 
otherwise.'' The provision at 17 CFR 240.12b-1 sets forth the scope 
of Regulation 12B and provides that all rules contained in 
Regulation 12B ``shall govern . . . all reports filed pursuant to 
section[ ] 13.''
    \29\ Whether investors are engaged in activity with the purpose 
or effect of changing or influencing control of an issuer, and thus 
holding beneficial ownership with a disqualifying purpose or effect, 
ordinarily is a determination that would be based upon the specific 
facts and circumstances. For that reason, the Commission has not 
provided extensive guidance on this issue. The Commission has 
previously expressed the view that most solicitations in support of 
a proposal specifically calling for a change of control of the 
company (e.g., a proposal to seek a buyer for the company or a 
contested election of directors or a sale of a significant amount of 
assets or a restructuring of a corporation) would clearly have that 
purpose and effect. For a more expansive discussion of the 
Commission's reasoning and factors to consider when making this 
determination, see Amendments to Beneficial Ownership Reporting 
Requirements, Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 
16, 1998)].
---------------------------------------------------------------------------

    Similarly, Rule 13d-1(f) applies to persons who have been filing a 
Schedule 13G in lieu of Schedule 13D in reliance on Rule 13d-1(c). Rule 
13d-1(c) provides that persons may not rely on that provision if they 
beneficially own 20 percent or more of a covered class. Rule 13d-
1(f)(1) currently requires that such persons file their initial 
Schedule 13D within 10 days of losing their Schedule 13G eligibility 
because they beneficially own 20 percent or more of a covered class.
    Finally, Rule 13d-1(g) applies to persons who have been filing a 
Schedule 13G in lieu of Schedule 13D in reliance upon Rule 13d-1(b). 
Only QIIs may rely on Rule 13d-1(b). Further, in order to rely on Rule 
13d-1(b), a QII must beneficially own the relevant equity securities in 
the ordinary course of its business. Rule 13d-1(g) currently requires 
that such persons either file their initial Schedule 13D or amend their 
Schedule 13G to indicate that they are now relying on Rule 13d-1(c) 
(assuming they are eligible to rely on that rule) within 10 days of 
losing their Schedule 13G eligibility under Rule 13d-1(b) because they 
either no longer are a QII or no longer beneficially own the relevant 
equity securities in the ordinary course of their business.
    Rule 13d-1(e), (f), and (g) operate as regulatory safeguards that 
reestablish the application of Rule 13d-1(a) to beneficial owners who 
previously relied on Rule 13d-1(b) or (c). Under Rule 13d-1(e), (f), 
and (g), beneficial owners ``shall immediately become subject to'' 
Rules 13d-1(a) and 13d-2(a), which provisions are reinstated anew with 
respect to those persons the moment they become ineligible to rely upon 
Rule 13d-1(b) and (c).
a. Proposed Amendments
    In the Proposing Release, the Commission proposed to amend Rule 
13d-1(a) to require a Schedule 13D to be filed within five days after 
the date on which a person acquires beneficial ownership of more than 
five percent of a covered class. The Commission stated that the 
deadline for filing an initial Schedule 13D should be revised in light 
of advances in technology and developments in the financial markets and 
noted that shortening that deadline would be consistent with previous 
efforts to accelerate public disclosures of material information to the 
market.\30\ The Commission also asserted that the proposed five-day 
deadline would maintain an appropriate balance between the requirement 
that material information be timely disseminated to investors and the 
competing interest that undue burdens not be imposed in the change of 
control context.\31\ In addition, the Commission stated that it was 
mindful of the need to balance the market's demand for timely 
information and the administrative burden placed upon a filer to 
adequately and accurately prepare that information.\32\ Finally, the 
Commission noted that the current 10-day filing deadline ``contributes 
to information asymmetries that could harm investors'' and stated that 
shortening that deadline could increase transparency and provide 
assurance ``that transactions are not being made based on mispriced 
securities caused by a prolonged lag in the dissemination of market-
moving information,'' thereby improving investor confidence, market 
efficiency, and liquidity.\33\
---------------------------------------------------------------------------

    \30\ Proposing Release at 13851.
    \31\ Id.
    \32\ Id. at 13852.
    \33\ Proposing Release at 13850, 13852.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission also proposed to amend the 
initial Schedule 13D filing deadline under Rule 13d-1(e)(1), (f)(1), 
and (g) for largely the same reasons that it proposed to amend Rule 
13d-1(a). Specifically, the Commission proposed to make conforming 
revisions to Rule 13d-1(e), (f), and (g) so that persons who initially 
elected to report beneficial ownership on Schedule 13G, in lieu of a 
Schedule 13D, but subsequently lost their eligibility would be treated 
no differently from persons who make a Schedule 13D their initial 
filing.\34\ Accordingly, the Commission proposed to amend Rule 13d-
1(e), (f), and (g) to make the required Schedule 13D--or, in the case 
of Rule 13d-1(g), the amendment to Schedule 13G indicating that the 
filer is now relying on Rule 13d-1(c), if applicable--due no later than 
five days after the date on which the person became ineligible to 
report on Schedule 13G.\35\
---------------------------------------------------------------------------

    \34\ Id. at 13854.
    \35\ Id.
---------------------------------------------------------------------------

b. Comments Received
    Commenters \36\ expressed a range of views on the proposed 
amendments to Rule 13d-1(a), (e), (f), and (g). A number of commenters 
supported shortening the deadline for filing an initial Schedule 13D 
from 10 days to five days.\37\ Several

[[Page 76901]]

commenters asserted that the proposed amendments would increase the 
timeliness and quality of information for market participants.\38\ A 
number of commenters asserted that the proposed amendments would 
increase transparency and fairness in the financial markets.\39\
---------------------------------------------------------------------------

    \36\ Throughout the release, in describing some of the comments 
we received on the Proposed Amendments, we focus on those commenters 
that responded to a specific request for comment or question raised 
in the Proposing Release or Reopening Release, or that addressed a 
specific Proposed Amendment. We note that several commenters 
expressed general support or opposition for the Proposed Amendments 
or raised concerns or made recommendations that are unrelated to or 
beyond the scope of the Proposed Amendments; we do not, however, 
summarize all of their comments in this release. For the sake of 
brevity, we also do not cite letters that substantially duplicate 
comments made in other letters that we cite in this release. For 
example, in response to the Reopening Release, a number of 
commenters submitted substantially identical letters generally 
supporting some of the Proposed Amendments and expressing concerns 
or making recommendations with respect to other parts of the 
Proposed Amendments. See, e.g., Letter Type B, available at https://www.sec.gov/comments/s7-06-22/s70622-typeb.htm; Letter Type C, 
available at https://www.sec.gov/comments/s7-06-22/s70622-typec.pdf. 
We also note that several commenters submitted letters with 
substantially similar views as those expressed in Letter Type B, but 
with the letters worded sufficiently differently that they could not 
be consolidated with Letter Type B. See, e.g., letter from Gerardo 
Cruz (June 27, 2023). We note the same with respect to Letter Type 
C. See, e.g., letters from Chad Thompson (June 29, 2023); Bert 
Abanes (June 28, 2023). See infra note 37 for a discussion of Letter 
Type A. See infra note 458 for a discussion of Letter Type D and 
Letter Type E.
    \37\ See, e.g., letters from Committee on Federal Regulation of 
Securities of the Section of Business Law of the American Bar 
Association (Apr. 28, 2022) (``ABA'') (expressly supporting only the 
proposed amendment to Rule 13d-1(a), but noting that ``[t]he 
Committee is not unanimous in this view'' and that ``[t]here is 
support among some members of the Committee to further shorten the 
initial filing deadline to one or two calendar days'' and that 
``there are other members of the Committee that suggest a five 
business day deadline is more appropriate''); Brandon Rees, Deputy 
Director of Corporations and Capital Markets, AFL-CIO (Apr. 11, 
2022) (``AFL-CIO'') (expressly supporting only the proposed 
amendment to Rule 13d-1(a)); Americans for Financial Reform 
Education Fund (Apr. 11, 2022) (``AFREF'') (same); Americans for 
Financial Reform Education Fund, American Federation of Labor and 
Congress of Industrial Organizations (AFL-CIO), Communications 
Workers of America (CWA), Interfaith Center on Corporate 
Responsibility (ICCR), Public Citizen (June 27, 2023) (``AFREF, et 
al.'') (same); Anonymous (Feb. 19, 2022) (``Anonymous 1''); 
Anonymous (Feb. 19, 2022) (``Anonymous 3''); Anonymous (Feb. 20, 
2022) (``Anonymous 5''); Anonymous (Mar. 14, 2022) (``Anonymous 
11''); Anonymous (Mar. 14, 2022) (``Anonymous 12''); Anthony R., 
Individual Investors (Feb. 18, 2022) (``Anthony R.''); Better 
Markets (Apr. 11, 2022) (``Better Markets I'') (same); Better 
Markets (June 27, 2023) (``Better Markets II'') (same); Maria 
Ghazal, Senior Vice President and Counsel, Business Roundtable (Apr. 
11, 2022) (``BRT'') (same); Curtis Robinson (Feb. 18, 2022) (``C. 
Robinson''); Richard F. McMahon, Jr., Senior Vice President, Energy 
Supply & Finance Edison Electric Institute (Mar. 22, 2022) 
(``EEI''); An Investor, Engineer (Apr. 4, 2022) (``Engineer''); Mark 
R. Allen, Executive Vice President, FedEx Corporation (Apr. 12, 
2022) (``FedEx''); Freeport-McMoRan Inc./Douglas N. Currault II, 
Senior Vice President and General Counsel (Apr. 11, 2022) 
(``Freeport-McMoRan''); Tyler Gellasch, Executive Director, Healthy 
Markets Association (Mar. 22, 2022) (``HMA I''); Healthy Markets 
Association (Apr. 29, 2022) (``HMA II'') (same); Jack Pieper (Feb. 
21, 2022) (``J. Pieper''); Joshua Soucie, Managing Director, 
Singularity Acquisitions LLC (Feb. 21, 2022) (``J. Soucie''); Jonah 
(Feb. 18, 2022) (``Jonah''); Juan, Relationship Banker II (Feb. 19, 
2022) (``Juan''); Brandon Rees, Deputy Director of Corporations and 
Capital Markets, AFL-CIO (June 6, 2022) (``Labor Unions'') (same); 
Mark C. (Feb. 19, 2022) (``Mark C.''); Mike (Feb. 23, 2022) 
(``Mike''); Jeffrey S. Davis, Senior Vice President and Senior 
Deputy General Counsel, Nasdaq, Inc. (Apr. 12, 2022) (``Nasdaq''); 
National Investor Relations Institute (Apr. 15, 2022) (``NIRI'') 
(same); Phillip Worts (July 29, 2023) (``P. Worts''); Marc 
Steinberg, Radford Chair in Law and Professor of Law, Southern 
Methodist University (Feb. 22, 2022) (``Prof. Steinberg'') (same); 
Society for Corporate Governance (Apr. 13, 2022) (``SCG'') (same); 
Christina Maguire, President and Chief Executive Officer, Society 
for Corporate Governance and Matthew D. Brusch, President and CEO, 
National Investor Relations Institute (July 7, 2023) (``SCG & 
NIRI'') (same); Tammy Baldwin, Sherrod Brown, Bernard Sanders, 
Elizabeth Warren, Tammy Duckworth, and Jeffrey A. Merkley, United 
States Senators (July 18, 2022) (``Sen. Baldwin, et al.'') (same); 
SIFMA Asset Management Group, William Thurn, Managing Director, 
SIFMA AMG (Apr. 11, 2022) (``SIFMA AMG'') (same); Theodore N. 
Mirvis, Adam O. Emmerich, David A. Katz, Sabastian V. Niles, Jenna 
E. Levine, and Carmen X. W. Lu (Feb. 10, 2022) (``T. Mirvis, et 
al.''); Taj Reilly (Feb. 19, 2022) (``T. Reilly''); TIAA (Apr. 11, 
2022) (``TIAA'') (same); Todd (Feb. 19, 2022) (``Todd''); Wachtell, 
Lipton, Rosen & Katz (Apr. 11, 2022) (``WLRK I'') (same); Wachtell, 
Lipton, Rosen & Katz (Oct. 4, 2022) (``WLRK II''); see also Letter 
Type B; Letter Type C. We note that commenters submitted a 
substantively identical version of the letter from Sen. Baldwin, et 
al. an additional 16 times. See Letter Type A, available at https://www.sec.gov/comments/s7-32-10/s73210-typeb.pdf. As such, every 
citation to the letter from Sen. Baldwin, et al. in this release 
should also be read as a citation to those additional 16 submissions 
of the substantively identical letter.
    \38\ See, e.g., letters from ABA; Anthony R.; FedEx; Freeport-
McMoRan; Jonah; P. Worts; T. Mirvis, et al.
    \39\ See, e.g., letters from ABA; AFREF, et al.; Anonymous 5; 
Anonymous 12; Better Markets I; FedEx; Freeport-McMoRan; Labor 
Unions; Nasdaq; P. Worts; Sen. Baldwin, et al.
---------------------------------------------------------------------------

    Several commenters identified potential specific benefits of the 
proposed amendments. For example, some commenters asserted that the 
proposed amendments would be particularly beneficial for retail 
investors by providing them with additional information and 
transparency.\40\ Another commenter stated that the proposed amendments 
would enable investors and the market to ``better track when beneficial 
owners take significant positions in covered securities for purposes of 
controlling or exerting influence over issuers, resulting in more 
informed decision-making by investors and more accurate valuation of 
securities by the market.'' \41\
---------------------------------------------------------------------------

    \40\ See, e.g., letters from C. Robinson (``I welcome all rules 
that require more disclosure and faster times to report[ ].''); J. 
Soucie; P. Worts.
    \41\ See letter from TIAA; see also letter from P. Worts.
---------------------------------------------------------------------------

    Other commenters highlighted potential downsides of the current 10-
day deadline. For example, one commenter described the 10-day deadline 
as costly to public companies and investors generally and based its 
support for the proposed amendments ``on the fundamental concept that a 
public company must have timely information about its owners in order 
to engage with them effectively and respond promptly to their 
concerns.'' \42\ Another commenter stated that ``[i]nvestors' and 
market participants' abilities to prudently manage their positions and 
exposures is materially undermined by the arbitrary, unnecessary, 
discriminatory delay in reporting.'' \43\
---------------------------------------------------------------------------

    \42\ See letter from SCG; see also letter from NIRI (stating 
that the proposal ``would also ensure that public companies are not 
ambushed and are better prepared to respond to an activist investor 
who has accumulated a significant position over a relatively short 
period of time'').
    \43\ See letter from HMA I.
---------------------------------------------------------------------------

    Several commenters suggested that the proposed amendments would 
reduce information asymmetry among market participants.\44\ Other 
commenters raised similar information asymmetry-based concerns 
regarding the 10-day filing deadline. For example, one commenter 
expressed concern that under the current deadline, pension funds are 
deprived of any short-term gains from hedge fund activism if they sell 
shares during the 10-day delay in disclosure of a beneficial ownership 
stake.\45\ Another commenter asserted that the current 10-day deadline 
``disadvantages selling shareholders after the 5% threshold is reached 
and permits activist investors to ambush public companies, often by 
disclosing an ownership interest that far exceeds 5% of shares 
outstanding.'' \46\ Further, one commenter suggested that the proposed 
amendments could help address information asymmetries that facilitate 
``stealth'' accumulations at artificially low market prices, which 
purportedly transfer value from public investors to those activists 
engaged in seeking ownership, control, or influence over the target 
company.\47\
---------------------------------------------------------------------------

    \44\ See, e.g., letters from ABA; AFREF; AFREF, et al.; Better 
Markets II; Freeport-McMoRan; Nasdaq; NIRI; SCG; SCG & NIRI; see 
also Letter Type C. One of these commenters stated that ``if the 
filing window is shortened, institutional investors will be better 
able to manage liquidity shocks in a way that serves their ultimate 
beneficiaries, instead of costing them money by unknowingly selling 
undervalued shares.'' See letter from AFREF, et al.
    \45\ See letter from Labor Unions.
    \46\ See letter from NIRI.
    \47\ See letter from Better Markets I; see also letter from 
Better Markets II.
---------------------------------------------------------------------------

    Other commenters supported the proposed amendments based on changes 
in technology and developments in the financial markets.\48\ For 
example, one commenter supported the proposal based on the ``increasing 
effectiveness of activist campaigns and their decreased cost due to 
advances in information technology and the rise of concentrated 
economic ownership in the United States,'' citing ``cost-effective 
activism'' due to both the fact that ``little more than 10 to 15 
institutions are the target audience'' and ``the Commission's new 
universal proxy rule.'' \49\ Similarly, other commenters described the 
current Schedule 13D filing deadline as ``outdated.'' \50\ One 
commenter agreed with the expressed concern in the Proposing Release 
that material information about potential change of control 
transactions is not being disseminated to the public in a manner that 
would be considered timely in today's financial markets.\51\ One 
commenter cited an April 2020 survey it conducted of its members 
(composed of corporate officers and investor relations consultants) 
indicating that 82 percent supported modernization of the Schedule 13D 
filing deadlines.\52\
---------------------------------------------------------------------------

    \48\ See, e.g., letters from ABA; AFL-CIO; Better Markets I; 
BRT; C. Robinson; FedEx; Freeport-McMoRan; HMA I; HMA II; NIRI; SCG; 
Sen. Baldwin, et al.; T. Mirvis, et al.; T. Reilly; WLRK I; WLRK II; 
see also Letter Type B.
    \49\ See letter from WLRK II. The commenter also noted that 
``successful activism campaigns have been run by stockholders with 
relatively small stakes, often below or well below 5%.'' Id.
    \50\ See, e.g., letters from Sen. Baldwin, et al.; T. Mirvis, et 
al.
    \51\ See letter from BRT.
    \52\ See letter from NIRI.
---------------------------------------------------------------------------

    Several commenters noted that many foreign jurisdictions require 
beneficial ownership reporting on a shorter deadline than currently 
required under Regulation 13D-G.\53\ One commenter disagreed with the 
notion expressed in the Proposing Release that the comparison of the 
beneficial ownership reporting deadline in the United States to foreign 
jurisdictions is imperfect because U.S. corporate law permits anti-
takeover provisions that are not present in those jurisdictions.\54\ To 
the contrary, that commenter asserted that some of those foreign 
jurisdictions are even less

[[Page 76902]]

``stockholder'' and ``activism'' friendly than the United States, 
making corporate takeovers and activism more difficult, and described 
the corporate laws and corporate governance practices of those foreign 
jurisdictions as compared to the United States (focusing, in 
particular, on Delaware corporate law).\55\ Other commenters noted that 
the proposed amendments would be consistent with similar Commission 
efforts to accelerate filing deadlines.\56\
---------------------------------------------------------------------------

    \53\ See, e.g., letters from AFREF; Better Markets I; SCG; Sen. 
Baldwin, et al.; WLRK II.
    \54\ See letter from WLRK II.
    \55\ See id. The commenter also presented statistics indicating 
that, notwithstanding the stricter beneficial ownership reporting 
obligations and purportedly increased inhibitions on shareholder 
activism, those foreign jurisdictions have experienced increased 
shareholder activism in recent years. Id. Some commenters, however, 
disagreed with and questioned the utility of this analysis of 
foreign jurisdictions. See letters from Jose Ceballos, Council for 
Investor Rights and Corporate Accountability (Dec. 20, 2022) 
(``CIRCA III''); Richard B. Zabel, General Counsel Chief Legal 
Officer, Elliott Investment Management L.P. (Nov. 21, 2022) (``EIM 
III''); see also letter from Richard B. Zabel, General Counsel Chief 
Legal Officer, Elliott Investment Management L.P. (June 27, 2023) 
(``EIM IV'') (reiterating the points made in the commenter's letter 
dated Nov. 21, 2022). One of those commenters asserted that 
``regulatory structures, as well as cultural norms . . . mean that 
activism in non-U.S. markets is less prevalent than in the United 
States'' which is ``to the detriment of investors in those non-U.S. 
markets where, in many cases, there remains a lack of independent 
voices in the market able to hold boards and management 
accountable.'' See letter from EIM III. The commenter also stated 
that, because activism is less prevalent in those foreign 
jurisdictions than in the U.S., ``[s]ome level of increased activist 
engagement in a handful of non-U.S. markets . . . does not mean that 
the Commission should seek to emulate regulatory structures in those 
other jurisdictions.'' Id. The other commenter noted that the 
analysis ignores that some of the cited foreign jurisdictions offer 
benefits to shareholders that the United States does not. See letter 
from CIRCA III.
    \56\ See, e.g., letters from SCG; WLRK I.
---------------------------------------------------------------------------

    A number of commenters asserted that the proposed amendments would 
not impose significant costs or burdens on beneficial owners of more 
than five percent of a covered class.\57\ For example, one of those 
commenters stated that the compliance costs of the proposed amendments 
``are unlikely to be unduly burdensome, in a manner that outweighs the 
benefits'' of the proposal given the nature of investors that generally 
file a Schedule 13D and the technology available to them.\58\ Another 
commenter agreed that the proposed amendments would be consistent in 
balancing investors' need for adequate disclosures with the burdens 
placed on filers to accurately prepare required disclosures.\59\
---------------------------------------------------------------------------

    \57\ See, e.g., letters from ABA; Anonymous 11; BRT; Freeport-
McMoRan; J. Soucie; WLRK I.
    \58\ See letter from WLRK I.
    \59\ See letter from FedEx.
---------------------------------------------------------------------------

    Several commenters stated that the proposed amendments would not 
significantly reduce shareholder activism.\60\ For example, one 
commenter asserted that the proposed five-day deadline would not 
significantly impair the ability of activists to pursue their 
agendas.\61\ Another commenter questioned whether there is an empirical 
basis for asserting that the proposed amendments would prevent 
shareholder activism and engagement.\62\ Some commenters asserted that 
the proposed amendments would not interfere with shareholder activism 
on environmental, social, or governance (``ESG'') issues because many 
such activists are not Schedule 13D filers.\63\ One commenter was ``not 
persuaded that a 10-day delay in beneficial ownership disclosure after 
acquiring a 5 percent stake is needed to incentivize . . . [a] large 
investor to be an activist investor.'' \64\ And, one commenter asserted 
that the proposed amendments are ``more likely to adversely affect 
short-term behaviors than long-term oriented activism.'' \65\
---------------------------------------------------------------------------

    \60\ See, e.g., letters from ABA; AFREF; Better Markets I; 
Better Markets II; HMA II; Labor Unions; Sen. Baldwin, et al.; WLRK 
I.
    \61\ See letter from Better Markets I. The commenter stated that 
that many Schedule 13D filers currently do not avail themselves of 
the full 10-day filing period, many activists are effective in their 
campaigns without reaching the 5% beneficial ownership reporting 
threshold, and the proposed five-day deadline would give activists 
enough time to accumulate profits before public disclosure of their 
goals, enabling them to offset the costs of their activism. Id.; see 
also letter from Better Markets II (reiterating the point made in 
its first letter and citing the data and analysis in the DERA 
Memorandum for support).
    \62\ See letter from HMA II.
    \63\ See letters from Labor Unions; Sen. Baldwin, et al. One of 
those commenters noted that some of the most impactful ESG campaigns 
to date have occurred in Australia, where the beneficial ownership 
reporting deadline for a 5% stake is two business days, which 
``provides further evidence that a 10 day window is not needed to 
use shareholder activism to meaningfully change corporate 
behavior.'' See letter from Sen. Baldwin, et al. The Commission is 
not expressing any view as to whether the measures described by the 
commenters referenced herein would constitute activities undertaken 
for the purpose of changing or influencing control of an issuer. 
Nothing stated in this release changes or supersedes the 
Commission's prior guidance regarding whether certain soliciting 
activity has a control purpose or effect. See supra note 29.
    \64\ See letter from AFL-CIO.
    \65\ See letter from WLRK I.
---------------------------------------------------------------------------

    In addition, a number of commenters stated that shareholder 
activism is not uniformly beneficial for issuers and their 
shareholders.\66\ For example, one commenter asserted that hedge fund 
activism could be contributing to an emphasis on short-term gains over 
sustainable, long-term growth that benefits longer-term investors.\67\ 
One commenter noted that while a Schedule 13D filing by an activist may 
often lead to an immediate bump in the issuer's stock price, there is 
no compelling evidence that activist interventions deliver long-term 
value to shareholders.\68\ One commenter asserted that the current 10-
day deadline may discourage companies from going public, inhibiting 
capital formation, based on the threat of activism and ``the burden of 
being subject to attacks by activist investors, a number of whom have 
short-term agendas.'' \69\ One commenter stated that activist investors 
often pressure companies and their management to agree to their short-
term demands that may or may not be in the long-term interests of 
shareholders, employees, and other stakeholders.\70\ Further, one 
commenter cited a study indicating that activist hedge fund campaigns 
targeting public companies are associated with a reduction in jobs, 
research and development spending, and capital expenditures, which 
arguably harms employees.\71\
---------------------------------------------------------------------------

    \66\ See, e.g., letters from AFREF; Better Markets I; HMA II; 
Labor Unions; NIRI; SCG; Sen. Baldwin, et al.; WLRK I.
    \67\ See letter from AFREF. The commenter also noted that while 
hedge fund activism is associated with short-term increases in 
shareholder value, the evidence is much more mixed on the question 
of whether hedge fund activism results in long-term gains. Id.; see 
also letter from Better Markets I (stating that the benefits of 
shareholders seeking to acquire or influence corporate control and 
policy are mixed because some act out of short-term profit motives, 
not a desire to promote long-term value).
    \68\ See letter from WLRK I.
    \69\ See letter from SCG. The commenter also stated that 
although activists would have less time to buy additional shares 
after crossing 5% under the proposal, there is no shareholder 
protection rationale that would justify forcing other investors to 
subsidize activists' efforts to build larger positions in issuers. 
Id.
    \70\ See letter from NIRI.
    \71\ See letter from Labor Unions. The commenter also asserted 
that the proposed amendments would benefit pension funds based on a 
study it cited that found that while company value tends to increase 
in the first three years after being targeted by an activist hedge 
fund, these gains tend to be reversed in the fourth and fifth years. 
Id.; see also letter from Sen. Baldwin, et al. (citing the same 
study for the proposition that ``research . . . shows the stock 
price increase [associated with an activist's Schedule 13D filing] 
is temporary and in fact the company is often in a weaker economic 
position post-activist intervention''). But see letter from 
International Institute of Law and Finance (Nov. 1, 2022) (``Profs. 
Bishop and Partnoy II'') (critiquing the cited study, noting, among 
other things, that ``a simple analysis of the data, not undertaken 
in that study, shows that employment levels at firms targeted by 
activists decrease substantially in the years prior to an activist 
intervention, violating the parallel trends assumption that is 
required to make any sort of causal inference from the empirical 
design'').
---------------------------------------------------------------------------

    Finally, commenters raised a variety of other points in support of 
the proposed amendments. For example, one commenter stated that the 
balance that Congress sought to strike in the Williams Act \72\ was 
between activist investors seeking to change companies

[[Page 76903]]

and those companies' management--not between an activist investor and a 
company's other investors.\73\ One commenter stated that the proposed 
amendments could moderate the sudden, abrupt changes in corporate 
governance that often occur in issuers targeted by activist 
investors.\74\ And, one commenter noted that the proposed amendments 
fall ``squarely'' within the Commission's legal authority under section 
929R of the Dodd-Frank Act and align with the Williams Act's intent 
because Congress chose a 10-day deadline to accommodate the practical 
challenges associated with preparing and filing a Schedule 13D.\75\
---------------------------------------------------------------------------

    \72\ Public Law 90-439, 82 Stat. 454 (July 29, 1968).
    \73\ See letter from HMA II. The commenter also stated that 
there is no evidence or legitimate policy rationale to support a 
connection between the purported benefits of activist strategies 
generally on the one hand, and the purported need to preserve the 
ability of the small subset of investors engaged in them to be able 
to trade while in possession of material, non-public information to 
the detriment of other investors--for precisely 10 days. Id.
    \74\ See letter from AFREF. The commenter stated that the 
proposed amendments could decrease the likelihood of issuers that 
are not targeted by activist investors taking preemptive steps 
(e.g., overspending on short-term shareholder payouts and forgoing 
investments necessary for long-term financial health and growth) to 
avoid becoming targets of activism. Id. The commenter also asserted 
that the proposed amendments would benefit shareholders and other 
market participants by facilitating sound corporate governance. Id. 
For example, the commenter stated that a shortened filing deadline 
would help investors ensure their asset managers are fulfilling 
their fiduciary duties and help inform the education and advocacy 
efforts of those with a stake in proxy contests, shareholder 
resolutions, and other important votes. Id.
    \75\ See letter from Better Markets I.
---------------------------------------------------------------------------

    A number of commenters opposed shortening the initial Schedule 13D 
filing deadline to five days.\76\ Several commenters expressed concern 
that the proposed amendments would disincentivize shareholder activism 
by reducing the amount of time that such shareholders have to 
accumulate positions in an issuer before filing a Schedule 13D, thereby 
depriving issuers and their shareholders of the positive benefits of 
such activism.\77\ For example, one commenter stated that ``if active 
shareholders are unable to establish an economically efficient pre-
disclosure ownership stake, public company shareholders (and the 
economy more broadly) will be less likely to benefit from the improved 
stock price performance that often attends the monitoring and 
engagement activities pursued by engaged shareholders, given that such 
shareholders would have difficulty justifying certain engagements with 
issuers.'' \78\ Similarly, another commenter asserted that the proposal 
would ``mak[e] it more costly for blockholders to build a sufficient 
position to effect change'' and ``reduce the profitability of, and 
therefore the incentive to pursue, activist strategies,'' which would 
``reduce management's accountability to shareholders and corporate 
governance generally.'' \79\ And another commenter stated that 
``although the SEC requires an activist buyer to disclose information 
that the buyer has acquired, the SEC fails to ask whether the buyer 
would acquire the information initially'' and suggested that, under the 
proposed deadline, ``the buyer would often be unlikely to make the 
original investment in information.'' \80\
---------------------------------------------------------------------------

    \76\ See, e.g., letters from Adrian Day, RIA (Feb. 12, 2022) 
(``A. Day''); Daniel Austin, Director, U.S. Policy and Regulation, 
Alternative Investment Management Association (Apr. 11, 2022) 
(``AIMA''); Ben Mason (June 26, 2023) (``B. Mason''); Bernard 
Sharfman (Mar. 22, 2022) (``B. Sharfman'') (expressly opposing only 
the proposed amendment to Rule 13d-1(a)); CIRCA (Apr. 11, 2022) 
(``CIRCA I'') (same); CIRCA III (same); Milan Dalal, CIRCA (June 27, 
2023) (``CIRCA IV'') (same); Charles F. Pohl, Chairman, Dodge & Cox 
(Apr. 12, 2022) (``Dodge & Cox''); Edwin Fraser (Apr. 11, 2022) 
(``E. Fraser'') (same); Susan Olson, General Counsel and Sarah 
Bessin, Associate General Counsel, Investment Company Institute 
(Apr. 7, 2022) (``ICI I''); Irenic Capital Management LP (Apr. 11, 
2022) (``ICM'') (same); Marcus Frampton (Mar. 16, 2022) (``M. 
Frampton'') (same); Managed Funds Association (Apr. 11, 2022) 
(``MFA'') (same); National Venture Capital Association (Apr. 11, 
2022) (``NVCA'') (same); Perkins Coie LLP (Apr. 12, 2022) (``Perkins 
Coie''); Jeffrey N. Gordon, Professor of Law, Columbia Law School 
(June 20, 2022) (``Prof. Gordon'') (same); Robert Eccles and 
Shivaram Rajgopal (Mar. 31, 2022) (``Profs. Eccles and Rajgopal'') 
(same); Alan Schwartz, Sterling Professor, Yale Law School and the 
Yale School of Management and Steven Shavell, Samuel R. Rosenthal 
Professor of Law and Economics, Harvard Law School Director, John M. 
Olin Center for Law, Economics & Business, Harvard University (Apr. 
12, 2022) (``Profs. Schwartz and Shavell I'') (same); Alan Schwartz, 
Sterling Professor, Yale Law School and the Yale School of 
Management and Steven Shavell, Samuel R. Rosenthal Professor of Law 
and Economics, Harvard Law School Director, John M. Olin Center for 
Law, Economics & Business, Harvard University (May 15, 2022) 
(``Profs. Schwartz and Shavell II'') (same); Edward P. Swanson, 
Texas A&M University, Glen M. Young, Texas State University, and 
Christopher G. Yust, Texas A&M University (Feb. 19, 2022) (``Profs. 
Swanson, Young, and Yust'') (same); Rolf Parta (Apr. 7, 2022) (``R. 
Parta'') (same); Allison K. Thacker, President and Chief Investment 
Officer, Rice Management Company, Treasurer, William Marsh Rice 
University (Mar. 21, 2022) (``Rice Management'') (same); Jennifer 
Nadborny, Simpson Thacher Bartlett LLP (Apr. 11, 2022) (``STB'') 
(same); Donna Anderson, Marc Wyatt, and Bob Grohowski, T. Rowe Price 
(Apr. 11, 2022) (``TRP'') (same).
    \77\ See, e.g., letters from AIMA; CIRCA I; CIRCA III; CIRCA IV; 
Dodge & Cox; ICM; MFA; Prof. Gordon; Profs. Eccles and Rajgopal; 
Profs. Schwartz and Shavell I: Profs. Schwartz and Shavell II; 
Profs. Swanson, Young, and Yust; Rice Management; TRP.
    \78\ See letter from ICM.
    \79\ See letter from AIMA.
    \80\ See letter from Profs. Schwartz and Shavell II (emphasis in 
original); see also letter from Profs. Schwartz and Shavell I.
---------------------------------------------------------------------------

    In addition, one commenter expressed concern that the proposed 
amendments would disproportionately disincentivize shareholder activism 
that is targeted towards reforms other than a sale of the issuer.\81\ 
Another commenter asserted that the proposed amendments would inhibit 
an activist investor's ability to make overtures to an issuer's 
management prior to public disclosure and to consult with other 
shareholders to ensure that shareholders' opinions and proposals are 
considered when approaching management.\82\ And, one commenter stated 
that the proposed amendments would particularly disincentivize activism 
at medium- and small-cap companies because a larger economic position 
is needed to offset the activists' costs.\83\
---------------------------------------------------------------------------

    \81\ See letter from Profs. Swanson, Young, and Yust. The 
comment letter also stated that if the proposed accelerated initial 
Schedule 13D filing deadline reduces activists' ability to profit 
from price discovery, the proposed amendments could reduce market 
efficiency. Id.
    \82\ See letter from CIRCA I. In a separate letter, this 
commenter also disagreed with those supporting commenters that 
expressed concern about the negative effects that activists may have 
on targeted companies and cited data indicating that activist 
interventions benefit all shareholders in both the short- and long-
term. See letter from CIRCA III.
    \83\ See letter from Prof. Gordon; see also letter from ICM 
(predicting a reduction in shareholder activism and related benefits 
for other shareholders and stating that the predicted ``harms . . . 
will be most pronounced at micro-, small-, and mid-capitalization 
issuers . . . where the majority of active shareholder engagement 
occurs'').
---------------------------------------------------------------------------

    Several commenters took issue with the information asymmetry 
concerns that the Commission expressed as a justification for the 
proposed amendments.\84\ For example, one commenter cited data 
indicating that shareholders who sell during the period after an 
activist accumulates more than five percent beneficial ownership but 
before the activist files its Schedule 13D

[[Page 76904]]

still generally benefit from that activist's accumulation because the 
stock price generally increases prior to the Schedule 13D filing.\85\ 
Some commenters stated that the information asymmetry described in the 
Proposing Release is no different from the general asymmetry that 
exists in the market when any investor--activist or otherwise--
determines to invest the time and resources to develop and then 
implement an investment thesis.\86\ Similarly, some commenters asserted 
that information asymmetry is a quintessential element of the U.S. 
capital markets where investors are, and should be, entitled to profit 
from their analysis, hard work, and risk taking.\87\ Other commenters 
stated that selling shareholders are not forced to sell their shares 
and do so voluntarily, either seeking liquidity or because they have 
doubts about the issuer's prospects, and noted that such shareholders 
have the same access as the Schedule 13D filer to disclosures from both 
the issuer and insiders.\88\ Some commenters asserted that the 
Commission ignored the fact that although some investors may miss out 
on selling at an appreciated price once the Schedule 13D is filed, a 
larger number of investors generally will benefit from the efforts of 
an activist.\89\ Finally, one commenter asserted that the Williams Act 
was not intended to address information asymmetry-based concerns or the 
interests of shareholders who elect to sell prior to the disclosure of 
an initial Schedule 13D and cited to the legislative history and a U.S. 
Supreme Court decision to support such assertion.\90\
---------------------------------------------------------------------------

    \84\ See, e.g., letters from AIMA; CIRCA I; CIRCA III; CIRCA IV; 
Dodge & Cox; ICM; Prof. Gordon; Profs. Swanson, Young, and Yust; 
TRP. In addition, one commenter did not oppose the proposal but 
expressed concern about the information asymmetry-based 
justification. See letter from Elliott Investment Management L.P. 
(Apr. 11, 2022) (``EIM I''). That commenter stated, among other 
things, that ``the suggestion that an activist's awareness of her 
confidential intention to build a position in a public company 
should prohibit her from trading is both illogical and inconsistent 
with established law'' and contrasted the proposal with the 
``recently proposed short sale reporting rulemaking'' in which ``the 
Commission . . . expressly provided an alternative that protects the 
confidentiality of short sellers and their strategies, in 
recognition that disclosure would vitiate the value of their 
research.'' Id. (citing Short Position and Short Activity Reporting 
by Institutional Investment Managers, Release No. 34-94313 (Feb. 25, 
2022) [87 FR 14950 (Mar. 16, 2022)] (``Short Position Reporting 
Proposal'')); see also letter from Richard B. Zabel, General Counsel 
& Chief Legal Officer, Elliott Investment Management L.P. (Sept. 18, 
2023).
    \85\ See letter from Profs. Swanson, Young, and Yust.
    \86\ See, e.g., letters from CIRCA I; ICM; Prof. Gordon. These 
commenters also asserted that the Commission has long recognized the 
legitimacy of this asymmetry, including by allowing confidential 
treatment in Form 13F filings and in other contexts. Id.
    \87\ See, e.g., letters from CIRCA I; ICM; Prof. Gordon.
    \88\ See, e.g., letters from AIMA; ICM. Similarly, one commenter 
noted the absence of data indicating that shareholders are harmed by 
the timing of when they sell a security under the current Schedule 
13D reporting regime and posited that shareholders selling during 
the 10-day period are generally sophisticated, non-retail investors 
seeking liquidity based on an investment strategy which is unrelated 
(and indifferent) to disclosure indicating whether an activist has a 
stake in the company. See letter from CIRCA III.
    \89\ See letters from AIMA; TRP.
    \90\ See letter from ICM (citing Rondeau v. Mosinee Paper Corp., 
422 U.S. 49 (1975)); see also letters from B. Sharfman (``[T]he U.S. 
Supreme Court has repeatedly and unambiguously stated that the `sole 
purpose' of the Williams Act was for the protection of investors who 
are confronted with a cash tender offer.'' (citing Piper et al. v. 
Chris-Craft Industries, Inc., 430 U.S. 1 (1977)); EIM IV (citing 
Rondeau, 422 U.S. 49, for the same proposition, but not expressly 
opposing the proposal).
---------------------------------------------------------------------------

    A number of commenters also disagreed with the Commission's 
technological advancement- and financial market development-based 
justifications for the proposed acceleration of the beneficial 
ownership reporting deadlines.\91\ For example, some commenters 
asserted that neither Congress nor the Commission previously suggested 
that technological ability to file is or should be the primary basis to 
determine the appropriate filing deadlines for Schedules 13D and 
13G.\92\ One commenter asserted that the Commission has not made 
significant technological advances over the years to its own systems 
that market participants rely on to prepare Schedules 13D and 13G, 
making it challenging and costly for investors to gather the 
information about beneficial ownership they need to file Schedules 13D 
and 13G.\93\ One commenter asserted that technological advances do not 
support shortening the filing deadline as proposed because despite 
advances in technology, the filing process still has numerous 
operational components that take time to complete.\94\ Another 
commenter stated that recent trends indicate that activist investors 
are having a moderate and declining impact in the United States and, 
therefore, the Commission should ``encourage new forms of activism, not 
suppress them.'' \95\
---------------------------------------------------------------------------

    \91\ See, e.g., letters from AIMA; CIRCA IV; Dodge & Cox; ICI I; 
ICM; Robert E. Bishop, Fellow, UC Berkeley School of Law Center for 
Law and Business, Frank Partnoy, Adrian A. Kragen Professor of Law, 
UC Berkeley School of Law (Apr. 11, 2022) (``Profs. Bishop and 
Partnoy I''); STB; see also letter from Investment Adviser 
Association (Apr. 11, 2022) (``IAA'') (neither clearly supporting 
nor opposing the proposed amendments, but expressing certain 
concerns and making certain recommendations regarding the proposed 
amendments).
    \92\ See, e.g., letters from AIMA; ICI I; ICM; STB.
    \93\ See letter from ICI I.
    \94\ See letter from IAA. The commenter cited legal developments 
since 1968, including various anti-takeover mechanisms and the 
adoption of section 13(f) and Form 13F, as well as certain 
technological developments that provide public companies with the 
benefit of nearly-contemporaneous insight into their shareholder 
base and that have facilitated management entrenchment as offsetting 
factors to any technological advancements during that time period 
that would increase the ease of making a Schedule 13D filing. Id.
    \95\ See letter from Profs. Bishop and Partnoy I. The commenter 
further said that ``given the development of poison pills, public 
company boards are no longer monitored by hostile takeovers, so 
activism is the remaining recourse.'' Id.
---------------------------------------------------------------------------

    Several commenters expressed concerns that the proposed amendments 
do not align with the purpose or objectives of the Williams Act. For 
example, one commenter asserted that the proposed amendments ``would 
necessarily be considered to be beyond [the Commission's] statutory 
authority and an `abuse of discretion,' if not `arbitrary and 
capricious' under the APA'' because the proposed rule does not connect 
the proposed reduction in filing time with what the commenter described 
as the ``sole purpose'' of the Williams Act under Supreme Court 
precedent, namely the protection of shareholders confronted with a cash 
tender offer.\96\ Another commenter stated that not all of the 
investors who file on Schedule 13D are activist investors engaging in 
the types of activities the Williams Act seeks to regulate.\97\ Other 
commenters expressed concern that the proposed amendments would disrupt 
the balance that the Williams Act sought to strike.\98\
---------------------------------------------------------------------------

    \96\ See letter from B. Sharfman.
    \97\ See letter from STB. The commenter noted that many Schedule 
13D filers are former Exempt Investors who became disqualified to 
file on Schedule 13G because they acquired more than 2% beneficial 
ownership in a 12-month period. Id. The commenter also noted that 
many Schedule 13D filers are investors who seek a minority position 
and potentially a board seat (given their desire to more actively 
monitor their sizeable investment), but seek to work cooperatively 
with the issuer, with the goal of building shareholder value for all 
investors, and possess no intent to replace a majority of the board 
of directors, launch a tender offer, or make an offer to take the 
company private. Id.
    \98\ See letters from CIRCA IV; ICM.
---------------------------------------------------------------------------

    Some opposing commenters detailed the potential compliance burdens 
that the proposed amendments could impose. For example, some commenters 
expressed concern that the proposed five-day deadline would be unduly 
burdensome for smaller and non-institutional beneficial owners.\99\ 
Other commenters asserted that the proposed amendments would present 
compliance challenges \100\ and create significant reporting and 
monitoring burdens.\101\ One commenter expressed concern that the 
proposed amendments could negatively impact the ability of investors 
and their advisors to draft meaningful disclosures and engage in 
thoughtful analysis.\102\
---------------------------------------------------------------------------

    \99\ See letters from A. Day; E. Fraser.
    \100\ See letter from NVCA.
    \101\ See letter from Perkins Coie; see also letter from 
Jennifer W. Han, Executive Vice President, Chief Counsel & Head of 
Global Regulatory Affairs, Managed Funds Association and National 
Association of Private Fund Managers (July 24, 2023) (``MFA & 
NAPFM'') (describing potential costs associated with the Proposed 
Amendments, but not expressly opposing the Proposed Amendments).
    \102\ See letter from STB. For example, the commenter suggested 
that in order to avoid making a ``late'' filing with the Commission, 
beneficial owners may shift to boilerplate disclosures in their 
Schedule 13D filings, which can be prepared more quickly but are 
less useful to investors and regulators. Id.
---------------------------------------------------------------------------

    Other commenters raised various other concerns regarding the 
proposed

[[Page 76905]]

amendments. For example, a number of commenters expressed concerns that 
the proposed amendments would increase management entrenchment and 
reduce shareholder engagement and corporate accountability.\103\ One 
commenter stated that although ``some purchasers may file within fewer 
than the required 10 days for Schedule 13D,'' that ``does not justify 
accelerating the reporting timeline.'' \104\ One commenter also noted 
that the proposed accelerated initial Schedule 13D filing deadline 
could result in activist investors relying more heavily on derivatives, 
such as total return swaps and call options.\105\ One commenter 
asserted that the Commission has not provided a compelling 
justification for the proposed amendments or provided evidence to 
support its concerns regarding information asymmetries and reporting 
gaps that would warrant the proposed acceleration of the beneficial 
ownership reporting deadlines.\106\ One commenter expressed concern 
that the proposed amendments would induce a front-running effect that 
would distort market pricing and increase market volatility.\107\ Other 
commenters asserted that investors already have access to all of the 
volume and price data for publicly traded companies that they need to 
take appropriate action and, therefore, do not need additional 
information regarding holdings by significant beneficial owners.\108\
---------------------------------------------------------------------------

    \103\ See, e.g., letters from AIMA; CIRCA I; CIRCA III; Dodge & 
Cox; ICM; M. Frampton; MFA; Rice Management; TRP.
    \104\ See letter from AIMA. According to the commenter, ``[m]ost 
investors will have a total aggregate investment in mind,'' and 
``[w]hen the investor reaches this level and exceeds the 5% 
threshold, she files her Schedule 13D,'' but ``[t]his standard 
market practice in no way suggests that all other holders who are 
continuing to accumulate shares should be required to file 
earlier.'' Id.
    \105\ See letter from Profs. Swanson, Young, and Yust.
    \106\ See letter from ICI I.
    \107\ See letter from Rice Management.
    \108\ See letters from ICM; R. Parta.
---------------------------------------------------------------------------

    In addition, one commenter expressed concern that the Commission 
has not cited a market event or failure related to the existing 
beneficial ownership regime to support the proposed amendments.\109\ 
That commenter distinguished the proposed amendments from other 
congressional efforts to accelerate public disclosures based on the 
fact that the proposed amendments apply to unrelated, third-party 
investors rather than issuers or insiders.\110\ Finally, one commenter 
asserted that the proposed amendments conflict with contract law in the 
United States, which generally refrains from imposing disclosure 
obligations on buyers of property.\111\
---------------------------------------------------------------------------

    \109\ See letter from AIMA.
    \110\ Id. The commenter also stated that although some 
beneficial owners file a Schedule 13D before the end of the 10-day 
deadline, this does not support shortening the deadline because the 
decision as to when to file is based on each investor's target 
accumulation level. Id.
    \111\ See letter from Profs. Schwartz and Shavell I.
---------------------------------------------------------------------------

    Some of the commenters that generally supported the proposed 
amendments also made various recommendations to the Commission. For 
example, one commenter recommended that the Commission require that an 
initial Schedule 13D be filed by the end of the day on which a person 
acquires beneficial ownership of more than five percent of a covered 
class.\112\ Another recommended that the Commission require that an 
initial Schedule 13D be filed within one calendar day of a person 
acquiring three percent, rather than more than five percent, of a 
covered class and that a person be prohibited from acquiring more than 
three percent until one business day after filing a Schedule 13D.\113\ 
Similarly, one commenter recommended that the Commission require that 
an initial Schedule 13D be filed within one business day after crossing 
the five percent threshold and institute a moratorium on the 
acquisition of beneficial ownership of additional equity securities of 
an issuer by any acquirer required to file a Schedule 13D that would be 
in effect from the acquisition of a five percent beneficial ownership 
stake until two business days after filing the Schedule 13D.\114\
---------------------------------------------------------------------------

    \112\ See letter from Corey (Feb. 19, 2022) (``Corey'').
    \113\ See letter from Prof. Steinberg.
    \114\ See letter from WLRK I. The commenter asserted that the 
proposed five-day deadline will still substantially fail to serve 
the purpose of the Williams Act to require the timely release of 
information to the investing public with respect to the accumulation 
of substantial ownership of an issuer's voting securities. Id. 
According to the comment, this will ``provide hedge funds and 
activist shareholders ample time to accrue significant stakes in an 
issuer and ``improperly exploit, and profit from, information 
asymmetries at the expense of other public investors.'' Id. The 
commenter also stated that the moratorium is necessary to address 
information asymmetries and ensure the markets have time to assess 
impact of Schedule 13D filing and likened it to the 10-business day 
cooling off period applicable to Passive Investors switching from 
Schedule 13G filers to Schedule 13D filers. Id.
---------------------------------------------------------------------------

    Other supporting commenters recommended that the Commission require 
that an initial Schedule 13D be filed within two business days, 
consistent with the filing deadline for a Form 4.\115\ One supporting 
commenter recommended that the Commission require that an initial 
Schedule 13D be filed within three days rather than five days.\116\ 
Other supporting commenters recommended that the Commission consider 
further shortening the beneficial ownership reporting deadlines without 
specifying an alternative filing deadline.\117\
---------------------------------------------------------------------------

    \115\ See, e.g., letters from NIRI; SCG; SCG & NIRI; see also 
Letter Type C; letter from PL Salvati (Aug. 9, 2023) (``PL 
Salvati'') (neither clearly supporting nor opposing the proposal, 
but recommending a two-business day deadline).
    \116\ See letter from T. Reilly.
    \117\ See, e.g., letters from AFREF; Freeport-McMoRan; HMA I.
---------------------------------------------------------------------------

    In addition, some of the commenters that generally opposed the 
proposed amendments made various recommendations to the Commission. For 
example, one recommended that rather than shortening the Schedule 13D 
filing deadline, the Commission should impose a prohibition on tipping 
by an activist as soon as it reaches the five percent threshold until 
it files a Schedule 13D.\118\ Another recommended that the Commission 
include an assets under management-based threshold for the proposed 
accelerated Schedule 13D filing deadlines.\119\
---------------------------------------------------------------------------

    \118\ See letter from Prof. Gordon.
    \119\ See letter from A. Day.
---------------------------------------------------------------------------

    Other opposing commenters recommended that the Commission consider 
a ``tiered approach'' to Rule 13d-1(a).\120\ For example, one commenter 
suggested a tiered approach designed to vary the reporting deadline for 
an initial Schedule 13D based on the issuer's market capitalization 
without any limitation on acquisitions during the period between the 
time that the investor acquires more than five percent of a covered 
class and the time that the initial Schedule 13D is filed.\121\ Another 
opposing commenter recommended that the Commission require those who 
cross certain thresholds (e.g., 10 percent) or accumulate certain 
amounts after crossing five percent (e.g., an additional three percent) 
to file on the more accelerated timeline, but allowing investors who 
trigger Schedule 13D filings for more technical reasons and who are not 
accumulating stock in connection with a potential activist engagement 
(e.g., proxy contests or intended take-private activity) to continue 
filing under the current regime.\122\
---------------------------------------------------------------------------

    \120\ See letters from ICM; STB.
    \121\ See letter from ICM.
    \122\ See letter from STB.
---------------------------------------------------------------------------

    Some opposing commenters recommended that if the Commission revises 
the initial Schedule 13D filing deadline, it should adopt a different 
deadline than proposed. For example, one commenter recommended that the

[[Page 76906]]

Commission consider extending the filing deadline (e.g., to 15 or 30 
days) rather than accelerating it.\123\ One commenter recommended that 
the Commission require an initial Schedule 13D be filed within eight 
days rather than the proposed five days.\124\ Other commenters 
recommended that the Commission require an initial Schedule 13D be 
filed in five business days rather than five calendar days.\125\ Some 
of those commenters suggested that a five-business day deadline would 
be more appropriate in light of the steps required to prepare and file 
an accurate Schedule 13D,\126\ and one commenter noted that most 
analogous securities laws governing reporting of material changes 
(e.g., Form 8-K and Exchange Act section 16 filings) require filings 
within time periods designated in business days rather than calendar 
days.\127\
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    \123\ See letter from E. Fraser. The commenter also recommended 
that the Commission consider a provision for when a shareholder's 
position goes over the 5% threshold because of ordinary corporate 
actions that result in the number of outstanding shares to drop such 
that the shareholder unwittingly holds over the 5% of outstanding 
shares and recommended that the Commission consider increasing the 
threshold from greater than 5% beneficial ownership to 10%. Id.
    \124\ See letter from MFA.
    \125\ See, e.g., letters from Dodge & Cox; ICI I; SIFMA AMG; 
STB; see also IAC Recommendations (recommending that the Commission 
adopt a five-business day deadline, rather than a five-calendar day 
deadline, for an initial Schedule 13D filing).
    \126\ See letters from Dodge & Cox; ICI I.
    \127\ See letter from STB; see also IAC Recommendations.
---------------------------------------------------------------------------

    Finally, some commenters that neither clearly supported nor opposed 
the proposed amendments made recommendations to the Commission. Several 
commenters recommended an alternative filing deadline than proposed, 
with some suggesting that the Commission require an initial Schedule 
13D be filed within one day,\128\ within two days,\129\ five business 
days,\130\ or on the same day as the event triggering the filing 
obligation.\131\ Some commenters expressed a general preference for a 
deadline expressed in ``business days'' rather than ``calendar days.'' 
\132\ And, one commenter recommended that to the extent the Commission 
is concerned about Schedule 13D filers acquiring additional shares 
after crossing the five percent threshold without public disclosure, it 
should prohibit trading after crossing the five percent threshold 
rather than accelerating the filing deadlines.\133\
---------------------------------------------------------------------------

    \128\ See, e.g., letters from Jason Dunlop, Software Developer 
for the FAA (Feb. 19, 2022) (``J. Dunlop''); John Kennedy, Tax 
Paying American Citizen (Feb. 22, 2022) (``J. Kennedy''); Phillip, 
Retail Investor (Feb. 19, 2022) (``Phillip''). These commenters 
suggested that all beneficial ownership reports should be filed 
within one day. See also letter from Juan B. (Aug. 14, 2023) (``Juan 
B.'') (recommending that the initial Schedule 13D and 13G filing 
deadlines under Rule 13d-1(a), (b), and (d) be shortened to one 
day).
    \129\ See letter from Charles Jacobs, USCG (Feb. 20, 2022) (``C. 
Jacobs'').
    \130\ See letters from IAA; Profs. Bishop and Partnoy II; Robert 
Bishop, Associate Professor, Duke Law School, and Frank Partnoy, 
Adrian A. Kragen Professor of Law, UC Berkeley School of Law, 
Berkeley Haas (Affiliated Faculty) (June 27, 2023) (``Profs. Bishop 
and Partnoy III''). One of these commenters asserted that five 
calendar days would be extremely challenging for filers to obtain 
and verify all the information needed to ensure the accuracy and 
completeness of an initial Schedule 13D filing. See letter from IAA.
    \131\ See, e.g., letters from Chris McEntee, Retail Investor 
(Mar. 14, 2022) (``C. McEntee''); David Choate (Aug. 2, 2023) (``D. 
Choate''). These commenters suggested that all beneficial ownership 
reports should have a same-day filing deadline.
    \132\ See, e.g., letters from IAA; Profs. Bishop and Partnoy 
III. One of these commenters recommended that the Commission use 
business days to give filers sufficient time to analyze and prepare 
Schedules 13D and 13G and make it more likely that the Commission, 
issuers, and the marketplace will receive beneficial ownership 
information that is accurate and complete and asserted that the use 
of business days instead of calendar days when establishing the 
filing deadlines will not have a detrimental impact on the proposed 
benefits of shorter deadlines. See letter from IAA. Another of these 
commenters expressed the belief that ``there is now a broad 
consensus that the final rule should be framed in terms of business 
(or trading) days.'' See letter from Profs. Bishop and Partnoy III.
    \133\ See letter from Committee on Securities Law of the 
Business Law Section of the Maryland State Bar Association (Apr. 11, 
2022) (``MSBA'').
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c. Final Amendments
    We are amending Rule 13d-1(a), (e), (f), and (g) to shorten the 
initial Schedule 13D filing deadline. We are adopting a five-business 
day \134\ deadline, however, rather than the proposed five-calendar day 
deadline based on the input we received from commenters.
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    \134\ The term ``business day'' is not defined in section 13(d) 
or 13(g) or any rule of Regulation 13D-G. Accordingly, in the 
Proposing Release, the Commission proposed to define ``business 
day'' for purposes of Regulation 13D-G to mean any day, other than 
Saturday, Sunday, or a Federal holiday, from 6 a.m. to 10 p.m. 
Eastern Time. Proposing Release at 13847, n.5. One commenter 
addressed this proposal, expressing concern that the proposed 
definition of ``business day'' could raise confusion as to on which 
business day a material change occurred if the event took place 
outside of the hours set forth in that definition (i.e., 6 a.m. to 
10 p.m. Eastern Time). See letter from EIM I. Accordingly, the 
commenter recommended that the ``business day'' definition comprise 
the full 24-hour period of any given day based on the customary 
definition of the term. Id. To avoid the concern expressed by this 
commenter, we are adopting the commenter's recommendation. As such, 
the term ``business day'' for purposes of Regulation 13D-G will be 
defined to mean any day, other than Saturday, Sunday, or a Federal 
holiday, from 12:00 a.m. to 11:59 p.m. Eastern Time. We believe this 
will avoid any confusion as to the date on which a beneficial 
ownership report is due if, for example, a person incurs a filing 
obligation before 6 a.m. or after 10 p.m. on a day that is not a 
Saturday, Sunday, or Federal holiday. It is important to note, 
however, as stated at the outset of Regulation 13D-G, that 
Regulation S-T governs the preparation and submissions of filings in 
electronic format and should be read in conjunction with the rules 
contained within Regulation 13D-G, including Rules 13d-1 and 13d-2. 
Thus, even though the definition of ``business day'' encompasses an 
entire day, a Schedule 13D or 13G must be submitted by direct 
transmission to the Commission in accordance with the times set 
forth in Rule 13(a) of Regulation S-T in order to be deemed to have 
been filed on that day. See infra section II.A.5 for a more detailed 
discussion of Rule 13(a) of Regulation S-T, including the amendments 
we are adopting to extend the filing ``cut-off'' time for Schedules 
13D and 13G.
---------------------------------------------------------------------------

    As noted above, Rule 13d-1(a) currently requires an initial 
Schedule 13D to be filed within 10 days after the date on which a 
person acquires beneficial ownership of more than five percent of a 
covered class.\135\ We are amending Rule 13d-1(a) to require a Schedule 
13D to be filed within five business days after the date \136\ of such 
acquisition. Similarly, as discussed above, Rule 13d-1(e), (f), and (g) 
currently require an initial Schedule 13D to be filed within 10 days 
after the date on which a person loses its Schedule 13G eligibility. We 
are

[[Page 76907]]

amending those rules to require such Schedule 13D to be filed within 
five business days after such date.
---------------------------------------------------------------------------

    \135\ Under section 21 of the Exchange Act, the Commission has 
the authority to investigate and enforce violations of section 
13(d)(1) and Rule 13d-1(a) and may seek to impose various remedies 
for late filings, such as injunctive relief, cease-and-desist orders 
or civil monetary penalties. Importantly, no state of mind 
requirement exists for violations of section 13(d)(1) and 
corresponding Rule 13d-1(a). See SEC v. Levy, 706 F. Supp. 61, 63-69 
(D.D.C. 1989) (holding a defendant liable notwithstanding the 
defendant's assertion that his attorney ``misinformed defendant 
about his obligation to disclose'' information on Schedule 13D 
because scienter is not an element of such violations); see also SEC 
v. Savoy Indus., Inc., 587 F.2d 1149, 1167 (D.C. Cir. 1978) 
(``Indeed, the plain language of section 13(d)(1) gives no hint that 
intentional conduct need be found, but rather, appears to place a 
simple and affirmative duty of reporting on certain persons. The 
legislative history confirms that Congress was concerned with 
providing disclosure to investors, and not merely with protecting 
them from fraudulent conduct.''); Oppenheimer & Co., Inc., 47 SEC 
286, 1980 WL 26901, at *1-2 (May 19, 1980) (``We have previously 
held that the failure to make a required report, even though 
inadvertent, constitutes a willful violation.''). To the extent a 
person willfully fails to comply with section 13(d), a beneficial 
owner also has exposure to criminal liability under section 32(a) of 
the Exchange Act.
    \136\ We also are revising Rule 13d-1(a) to state that the 
initial Schedule 13D must be filed within five business days ``after 
the date of such acquisition'' rather than the current formulation 
of ``after such acquisition.'' This modification, which the 
Commission proposed, is intended to clarify that, for purposes of 
determining the filing deadline, the first day in the five-business 
day count towards reaching the deadline is the day after the date on 
which beneficial ownership of more than 5% is acquired (rather than 
the date of such acquisition). We also are adopting similar changes 
to Rule 13d-1(c) and (f)(1), as those rules currently contain 
language similar to the ``after such acquisition'' formulation 
currently in Rule 13d-1(a). We do not believe that a similar change 
is required for Rule 13d-1(e) and (g), as those rules use different 
formulations. See 17 CFR 240.13d-1(e)(1) and (g) (currently 
requiring an initial Schedule 13D be filed ``within 10 days'' of the 
filing trigger date).
---------------------------------------------------------------------------

    For purposes of determining the filing deadline under these 
amendments, the Commission must receive the filing by the fifth 
business day after the date on which the initial Schedule 13D filing 
obligation arises--i.e., the date on which a person acquires beneficial 
ownership of more than five percent of a covered class under Rule 13d-
1(a) or the date on which a person loses eligibility to file on 
Schedule 13G under Rule 13d-1(e), (f), and (g)--in order for the filing 
to be considered timely. Pursuant to our amendment to Rule 13(a)(4) of 
Regulation S-T, discussed in section II.A.5 below, the filing will have 
to be submitted by direct transmission commencing on or before 10 p.m. 
Eastern Time on the due date.\137\
---------------------------------------------------------------------------

    \137\ See infra section II.A.5 for a discussion of our amendment 
to Rule 13(a)(4) of Regulation S-T, which extends the filing ``cut-
off'' time for Schedules 13D and 13G from 5:30 p.m. Eastern Time to 
10 p.m. Eastern Time.
---------------------------------------------------------------------------

    We believe the current 10-day filing deadline for an initial 
Schedule 13D filing should be revised to ensure investors receive 
material information in a manner that is considered timely in light of 
advancements in technology and developments in the financial markets 
that have occurred since that deadline was enacted in 1968. Those 
technological advancements include, for example, market professionals' 
use of information technologies to compile the necessary data and 
prepare a filing,\138\ as well as their ability to submit filings 
electronically through the Commission's Electronic Data Gathering, 
Analysis, and Retrieval (``EDGAR'') system.\139\ In addition, the use 
of modern information technology and other developments in the 
financial markets may facilitate an investor's accumulation of a large 
equity stake more quickly than at the time Congress enacted the 
Williams Act.\140\ Before 1993, ``the prevailing practice'' was to 
``settl[e] securities transactions within five business days of trade 
date.'' \141\ Since then, the Commission has shortened the settlement 
cycle three times, most recently adopting rule amendments this year 
that require settlement of most transactions in securities within one 
business day after the trade date (with which compliance will be 
required by May 28, 2024).\142\ Because a shortened settlement cycle 
enables investors to access the proceeds of their transactions more 
quickly, investors also may be able to acquire a significant equity 
stake more quickly than when settling their transactions within five 
business days of trade date.\143\ Congress, in the Dodd-Frank Act, 
expressly empowered the Commission to shorten the deadline for filing 
the initial Schedule 13D.\144\ Because of those advances in technology 
and developments in the financial markets, we are now exercising that 
authority to shorten the initial Schedule 13D filing deadline.
---------------------------------------------------------------------------

    \138\ See, e.g., letters from Better Markets I (noting 
``technological advancements over the last 54 years [that] have 
reduced the need for a 10-day reporting period,'' including ``vastly 
more efficient data compilation methods''); SCG (noting that 
``[e]very fund manager with the resources to amass a 5% stake in a 
company should have sufficient record-keeping technology to 
determine'' the amount of their beneficial ownership in a rapid 
manner); Leo E. Strine, Jr., Who Bleeds When the Wolves Bite? A 
Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange 
Corporate Governance System, 126 Yale L.J. 1870, 1895, 1960-61 
(2017) (describing the ``disclosure regime under Section 13 of the 
Securities Exchange Act'' as ``antiquated'' and stating that ``[i]t 
seems entirely clear to me that the idea of Section 13 was that an 
investor should come public as soon as reasonably possible after 
hitting the 5% threshold and that the reporting deadline was due to 
what it took to type up, proof, and deliver to Washington the 
required filing in 1968, when word processors and electronic filing 
with a button push did not exist'').
    \139\ In mandating that all Schedules 13D and 13G be filed 
electronically, the Commission reasoned that such a transition was 
necessary to facilitate ``more rapid dissemination of, and easier 
access to, financial and other material information . . . than under 
our current paper filing system'' and cited to ``increased 
efficiencies in the filing process, which will significantly reduce 
the filing time required under traditional methods of paper 
delivery.'' See Rulemaking for EDGAR System, Release No. 34-35113 
(Dec. 19, 1994) [59 FR 67752 (Dec. 30, 1994)]; Mandated EDGAR Filing 
for Foreign Issuers, Release No. 34-45922 (May 14, 2002) [67 FR 
36678 (May 24, 2002)]; see also Adam O. Emmerich et al., Fair 
Markets and Fair Disclosure: Some Thoughts on the Law and Economics 
of Blockholder Disclosure, and the Use and Abuse of Shareholder 
Power, 3 Harv. Bus. L. Rev. 135, 143 (2013) (noting that the 10-day 
Schedule 13D filing deadline reflected ``commercial and 
technological realities that existed in 1968, [which] would have 
included the time required to mail the Schedule 13D to the SEC's 
office''); letter from Wachtell, Lipton, Rosen & Katz to Elizabeth 
M. Murphy, Sec'y, U.S. Sec. & Exch. Comm'n (Mar. 7, 2011) 
(``Wachtell Petition'') at 1-7, available at https://www.sec.gov/rules/petitions/2011/petn4-624.pdf (petitioning the Commission to 
propose amendments to the beneficial ownership reporting rules to, 
among other things, shorten the Schedule 13D filing deadline from 10 
days to one business day based, in part, on ``[c]hanges in 
technology, acquisition mechanics and trading practices [that] have 
given investors the ability to make these types of reports with very 
little advance preparation time'' and the fact that ``the markets 
rely on the expectation that material information wil1 be 
disseminated promptly and widely, in no small part due to the impact 
of the internet and online information exchange'').
    \140\ See, e.g., letter from SCG. This commenter noted, for 
example, that ``investment managers [in 1968] didn't have access to 
email, instant messaging, fax machines, market data terminals, 
computer-assisted trading technology, or alternative `dark pool' 
trading venues that help facilitate the accumulation of significant 
positions.'' Id. The commenter also noted that ``[d]aily trading 
volumes on U.S. exchanges, which averaged 22 million shares in 1968, 
have grown by more than 1,000 times.'' Id.
    \141\ Shortening the Securities Transaction Settlement Cycle, 
Release No. 34-96930 (Feb. 15, 2023) [88 FR 13872, 13873 (Mar. 6, 
2023)].
    \142\ Id. at 13873, 13916.
    \143\ See letter from SCG (``Fifty-four years ago, there was no 
standard period for settling securities trades; today the settlement 
cycle is two business days and the Commission recently proposed 
shortening that period further to `T+1' (one business day) by 2024 
to reduce risks to investors.''). See also infra text accompanying 
note 677 for further discussion of some ways in which investors may 
be able to acquire a significant equity stake more quickly in 
today's financial markets.
    \144\ Public Law 111-203, 124 Stat. 1900 929R(a)(1)(A) (2010).
---------------------------------------------------------------------------

    We note that our shortening of the initial filing deadline for 
Schedule 13D is consistent with previous congressional and Commission 
efforts to accelerate public disclosures of material information to the 
market.\145\ For example, in 2002, when the Commission accelerated the 
deadlines for issuers to submit their periodic reports, it reasoned 
that ``[s]ignificant technological advances over the last three decades 
have both increased the market's demand for more timely corporate 
disclosure and the ability of companies to capture, process and 
disseminate this information.'' \146\

[[Page 76908]]

Similarly, the Commission has long recognized the benefits of more 
expedient reporting, stating, for example, that ``a lengthy delay 
before . . . information becomes available makes the information less 
valuable to investors.'' \147\
---------------------------------------------------------------------------

    \145\ For example, the Sarbanes-Oxley Act of 2002 (``Sarbanes-
Oxley Act'') amended section 16(a) of the Exchange Act to require 
that change of beneficial ownership reports under section 16(a) of 
the Exchange Act be filed by officers, directors and beneficial 
owners of more than 10% of a covered class ``before the end of the 
second business day following the day on which the subject 
transaction has been executed.'' On Aug. 27, 2002, the Commission 
adopted amendments to implement the accelerated deadline for Form 4 
filings, shortening the deadline from 10 days after the close of 
each calendar month to two business days after a filing obligation 
is triggered. See Ownership Reports and Trading by Officers, 
Directors and Principal Security Holders, Release No. 34-46421 (Aug. 
27, 2002) [67 FR 56461 (Sept. 3, 2002)]. On Mar. 16, 2004, the 
Commission amended Form 8-K to generally require that such filings 
be made within four business days of a triggering event. In adopting 
the accelerated timeline, the Commission explained the amended 
requirement ``should enhance investor confidence in the financial 
markets.'' Additional Form 8-K Disclosure Requirements and 
Acceleration of Filing Date, Release No. 34-49424 (Mar. 16, 2004) 
[69 FR 15593 at 15611 (Mar. 25, 2004)]. The Commission further 
explained that ``[t]he requirement of enhanced, timely disclosure 
should raise investors' expectations regarding the amount and timing 
of information that reporting companies must make available to the 
public'' and that ``[c]onfidence in the expectation of such enhanced 
disclosure should provide more certainty to those investors that 
they are making investment decisions in a more transparent market, 
which should reduce market volatility as a result of uncertainty of 
the availability of accurate timely information about public 
companies.'' Id.
    \146\ Acceleration of Periodic Report Filing Dates and 
Disclosure Concerning website Access to Reports, Release No. 34-
46464 (Sept. 5, 2002) [67 FR 58479 (Sept. 16, 2002)]. We recognize 
that these accelerated deadlines applied to periodic filings made by 
issuers, whereas sections 13(d) and (g) relate to filings made by 
investors. See supra note 110 and accompanying text. We also 
recognize that the acceleration of these deadlines was prompted, in 
part, by section 409 of the Sarbanes-Oxley Act, which ``added 
Section 13(l) of the Exchange Act . . . [to] require[ ] disclosure 
on a rapid and current basis of such additional information 
concerning material changes in the financial condition or operations 
of the issuer,'' id. at n.15 and accompanying text (emphasis added), 
whereas no such ``rapid and current'' language exists in sections 
13(d) and 13(g). Nonetheless, the technological advances that have 
increased both the market's demand for more timely disclosure and 
the ability of issuers to file more rapidly are equally applicable 
to the information disclosed on Schedule 13D and available to 
investors making Schedule 13D filings. For example, Congress 
recognized the market's demand for more timely disclosure of non-
issuer filings by accelerating the deadline for section 16 filings 
in the Sarbanes-Oxley Act. See supra note 145. As such, we believe 
that these technological advances and market practices also support 
accelerating the initial Schedule 13D filing deadline.
    \147\ Acceleration of Periodic Report Filing Dates and 
Disclosure Concerning Website Access to Reports, Release No. 34-
46464 (Sept. 5, 2002) [67 FR 58479, 58483 (Sept. 16, 2002)]; see 
also H.R. Rep. 90-550 (1967) (``The persons seeking control, 
however, have information about themselves and about their plans 
which, if known to investors, might substantially change the 
assumptions on which the market price is based. The bill is designed 
to make relevant facts known so that shareholders have a fair 
opportunity to make their decision.'').
---------------------------------------------------------------------------

    Despite those efforts to accelerate various other reporting 
deadlines, the initial Schedule 13D filing deadline has remained 
unchanged since its enactment in 1968. As a number of commenters 
pointed out, there have been significant changes in technology and 
developments in the financial markets in the intervening years that 
have rendered the 10-day deadline ``outdated.'' \148\ Commenters also 
highlighted some costs that the current 10-day deadline may be imposing 
on market participants (i.e., by delaying the disclosure of potentially 
material information) \149\ and identified some potential benefits of 
shortening that deadline, including increased timeliness of information 
and improved transparency and fairness in the financial markets.\150\ 
We agree with those commenters that shortening the initial Schedule 13D 
filing deadline will increase the timeliness of the disclosure of 
material information, thereby improving market transparency, 
facilitating better-informed decision-making by investors, and 
enhancing the efficiency of resource allocation (i.e., the direction of 
capital and other resources to their most productive uses) across the 
economy.\151\
---------------------------------------------------------------------------

    \148\ See supra notes 48-52 and accompanying text.
    \149\ See supra notes 42-43 and accompanying text.
    \150\ See supra notes 38-41 and accompanying text.
    \151\ See infra section IV.C.1.a.ii.
---------------------------------------------------------------------------

    We recognize that several commenters opposed the proposed 
amendments to Rule 13d-1(a), (e), (f), and (g). Some commenters 
asserted that neither Congress nor the Commission previously suggested 
that technological ability to file should be the primary basis to 
determine the appropriate initial Schedule 13D filing deadline.\152\ 
There is some indication, however, that when enacting the 10-day 
deadline, Congress considered the amount of time a beneficial owner 
would need to prepare and submit a filing.\153\ As noted above, there 
have been significant technological advancements since 1968 that have 
made it easier to prepare and file a Schedule 13D more quickly.\154\ 
There also is some indication that Congress enacted section 13(d), in 
part, to provide shareholders with material information regarding 
potential changes in control in a timely manner to facilitate their 
investment decisions.\155\ Because changes in technology and 
developments in the financial markets since 1968 have facilitated 
investors' abilities to rapidly accumulate beneficial ownership,\156\ 
we believe it is appropriate to shorten the initial Schedule 13D 
deadline so that the rate at which shareholders become aware of such 
accumulations keeps pace.\157\
---------------------------------------------------------------------------

    \152\ See supra note 92 and accompanying text.
    \153\ See, e.g., Full Disclosure of Corporate Equity Ownership 
and in Corporate Takeover Bids: Hearing on S. 510 Before the 
Subcomm. on Securities of the S. Comm. on Banking and Currency, 90th 
Cong. 136 (1967) (statement of Stanley Kaplan, Professor, University 
of Chicago) (stating that ``[r]equiring the filing . . . within 
seven days after acquisition of 10% of equity securities seems to 
provide an unduly short time for preparation of a document of that 
magnitude and significance'' and noting that ``[i]t will take longer 
to prepare and check such a document properly'').
    \154\ See supra notes 138-139 and accompanying text.
    \155\ See Full Disclosure of Corporate Equity Ownership and in 
Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. On 
Securities of the S. Comm. On Banking and Currency, 90th Cong. 25 
(1967) (statement of Manuel F. Cohen, Chairman, Securities and 
Exchange Commission) (``We think that this bill would improve our 
ability to elicit . . . information [regarding changes of control] . 
. . in a timely way, that is necessary for appropriate investor 
information and judgment.''); see also id. at 70 (statement of 
Donald J. Calvin, Vice President, New York Stock Exchange) (noting 
that Senator Harrison A. Williams, Jr. stated that ``[t]he primary 
objective of this bill . . . is to provide full and timely 
disclosure to stockholders'' and stating that ``[d]isclosure to 
stockholders of events which may affect investment decisions is and 
has been for many years a primary object of exchange policy'' and 
that ``[w]e consider timely disclosure . . . vital to the fair 
operation of a securities market'').
    \156\ See supra note 140 and accompanying text.
    \157\ We recognize that several commenters disagreed that 
technological advancements and other developments in the financial 
markets justify shortening the initial Schedule 13D deadline as 
proposed. See supra notes 91-95 and accompanying text. For example, 
some commenters noted that despite advances in technology, the 
filing process still has numerous operational components that take 
time to complete. See letter from IAA; see also letter from STB 
(stating that ``calculation of beneficial ownership remains an 
extremely manual process, can involve significant judgment and 
relies on third party information''). Others described some ways in 
which it may be more difficult to accumulate a significant equity 
stake in today's financial markets. See infra notes 678-679 and 
accompanying text. As an initial matter, we expect that the change 
from the proposed five-calendar day deadline to a five-business day 
deadline should mitigate these concerns. See infra note 165 and 
accompanying text. In addition, for the reasons discussed infra 
notes 166-168 and accompanying text, we believe that our analyses of 
the current timing of Schedule 13D filings and accumulations of 
significant equity stakes demonstrate that Schedule 13D filers are 
capable, utilizing modern technology and in light of the 
characteristics of today's financial markets, of complying with the 
amended five-business day deadline. This is especially so given the 
sophistication and size of many Schedule 13D filers. See supra note 
58 and accompanying text. Finally, some commenters expressed 
concerns about filers' ability to meet the proposed deadline (as 
well as the other Schedule 13D and 13G filing deadlines) given the 
amount of time it may take to obtain EDGAR filer codes. See, e.g., 
letters from MSBA; STB. To ensure they obtain their EDGAR filer 
codes in a timely manner, we generally expect filers to begin the 
process of applying for their EDGAR filer codes before they have 
incurred a filing obligation (e.g., as they begin to acquire shares 
with a control intent but before crossing the 5% threshold). Filers 
should note that the Commission's staff reviews all Form ID 
applications, and filers should allow sufficient time for that 
review. Further, the Commission's staff works diligently to process 
Form IDs promptly upon receipt of an application.
---------------------------------------------------------------------------

    Many commenters also expressed concern that shortening the initial 
Schedule 13D filing deadline could, among other things, disincentivize 
shareholder activism by reducing the amount of time such shareholders 
have to accumulate positions in an issuer's covered class before filing 
a Schedule 13D.\158\ According to those commenters, this reduction of 
time could deprive issuers and their shareholders of the positive 
benefits of such activism, thereby increasing management entrenchment 
and reducing shareholder engagement and corporate accountability.\159\
---------------------------------------------------------------------------

    \158\ See supra notes 77-83 and accompanying text.
    \159\ See supra notes 77-83, 103 and accompanying text.
---------------------------------------------------------------------------

    Although we primarily are concerned with ensuring that investors 
receive material information in a timely manner, we agree that we 
should remain conscious of the competing interest that undue burdens 
not be imposed on shareholders engaging in change of

[[Page 76909]]

control transactions.\160\ In the Proposing Release, the Commission 
``recognize[d] the chilling effect that a shortening of the initial 
Schedule 13D filing deadline could have on a shareholder's ability . . 
. to effect changes at companies'' if the shortened deadline increases 
the costs and reduces the incentives for shareholders attempting to 
effect a change of control.\161\ Yet, the Commission further stated 
that it did not believe ``that a shortening of the deadline would 
unduly disrupt that balance,'' noting that ``many Schedule 13D filers 
currently do not avail themselves of the full 10-day filing period.'' 
\162\ A number of commenters similarly asserted that the proposed five-
day deadline would not significantly impede shareholder activism or 
impose significant costs or burdens on beneficial owners of more than 
five percent of a covered class.\163\
---------------------------------------------------------------------------

    \160\ See Full Disclosure of Corporate Equity Ownership and in 
Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. on 
Securities of the S. Comm. on Banking and Currency, 90th Cong. 1 
(1967) (statement of Manuel F. Cohen, Chairman, Securities and 
Exchange Commission) (``It must be emphasized again that in 
establishing requirements which will make this important information 
available to stockholders, we must be careful not to tip the scales 
to favor either incumbent management or those who would seek to oust 
them. We believe that the provisions of the present bill . . . 
reflect an appropriate balance among competing interests which, at 
the same time, will fulfill the need of public stockholders to be 
fully informed about the control and potential control of the 
company in which they have invested.''); H.R. Rep. No. 1711, at 4 
(1968) (``The bill avoids tipping the balance of regulation either 
in favor of management or in favor of the person making the takeover 
bid. It is designed to require full and fair disclosure for the 
benefit of investors while at the same time providing the offeror 
and management equal opportunity to fairly present their case.''); 
113 Cong. Rec. 24, 664 (1967) (noting that ``takeover bids should 
not be discouraged, since they often serve a useful purpose by 
providing a check on entrenched but inefficient management'') 
(statement of Sen. Harrison A. Williams, Jr.).
    \161\ Proposing Release at 13851. The Commission noted academic 
research indicating that large blockholders may improve the share 
price and the corporate governance of the companies in which they 
invest and that all of a company's shareholders enjoy these 
benefits. Proposing Release at 13851, n.30. The Commission further 
recognized that shortening the initial Schedule 13D filing deadline 
could reduce the profitability of such investments, making large 
blockholders less inclined to make those investments or engage with 
the companies in ways that produce such benefits. Id. This is 
consistent with the concerns that many opposing commenters 
expressed. See supra notes 77-83 and accompanying text; see also 
infra section IV.C.1.b.i.
    \162\ Id.
    \163\ See supra notes 57-65 and accompanying text.
---------------------------------------------------------------------------

    Notwithstanding this support for the proposed five-calendar day 
deadline, we have decided to instead adopt a five-business day 
deadline. This change from the proposal comports with a recommendation 
that a number of commenters, including several that opposed the 
proposed amendments, made to the Commission.\164\ Further, this shift 
to a ``business days''-based deadline also will help to address a 
variety of concerns that commenters expressed about the burdens 
associated with the proposed five-day deadline. Specifically, five 
business days (as compared to five calendar days) gives beneficial 
owners additional time to accumulate positions in an issuer before 
filing a Schedule 13D and to prepare and file an accurate Schedule 
13D.\165\ As with the proposed five-calendar day deadline, we also note 
that many Schedule 13D filings currently are made within the amended 
five-business day deadline.\166\ This demonstrates that at least some 
Schedule 13D filers are likely to be unaffected by the shortened 
deadline. And, many Schedule 13D filers are sophisticated, large 
investors that have access to technology and resources that should 
allow them to prepare and file a Schedule 13D within five business 
days.\167\ As such, we do not anticipate a five-business day deadline 
will be unduly disruptive for Schedule 13D filers.
---------------------------------------------------------------------------

    \164\ See supra notes 125, 130 and accompanying text.
    \165\ The five-business day deadline, as compared to the 
proposed five-calendar day deadline, generally will give beneficial 
owners additional time before their Schedule 13D filing is due if 
the filing period encompasses days that are not business days (i.e., 
Saturday, Sunday, or a Federal holiday). As an illustrative example, 
if a person acquires beneficial ownership of more than 5% of a 
covered class on a Wednesday, then under the five-business day 
deadline, the initial Schedule 13D is not due until the following 
Wednesday (assuming there are no Federal holidays during that 
period), giving the filer a total of seven days to prepare and 
submit the Schedule 13D. However, under the proposed five-day 
deadline, if a person acquires beneficial ownership of more than 5% 
of a covered class on a Wednesday, then the initial Schedule 13D 
will be due on the following Monday (assuming that Monday is not a 
Federal holiday), giving the filer a total of five days to prepare 
and submit the Schedule 13D. For purposes of performing this 
comparison of the five-business day deadline to the proposed five-
day deadline, it is important to keep in mind that if the last day 
of a filing deadline expressed in ``days'' falls on a Saturday, 
Sunday, or Federal holiday, then such filing may be made on the next 
business day thereafter. 17 CFR 240.0-3 (``[I]f the last day on 
which [a filing] can be accepted as timely filed falls on a 
Saturday, Sunday or holiday, such [filing] may be [made] on the 
first business day following.'').
    \166\ See infra section IV.B.3.a.i (``Approximately 29 percent 
of the initial Schedule 13D filings [in 2022], representing about 41 
percent of all of the initial Schedule 13D filings that were filed 
by the current filing deadline, were filed within the amended five-
business day deadline.'').
    \167\ See supra note 58 and accompanying text.
---------------------------------------------------------------------------

    With respect to shareholder activism in particular, we note that 
for the vast majority of campaigns, the shareholder currently 
accumulates at least 90 percent of its equity stake, with many 
accumulating 100 percent of their equity stake, within the amended 
five-business day deadline.\168\ This demonstrates that most 
shareholder activists may not be affected by the shortened deadline. In 
addition, for those campaigns that would be affected by the amended 
five-business day deadline, we expect the activists will adapt to the 
shortened deadline and continue to pursue the campaigns.\169\ For 
example, for those campaigns in which the shareholder has accumulated 
less than 90 percent of its equity stake within the amended five-
business day deadline, we note that the unrealized gains attributable 
to the shares accumulated after the amended deadline generally 
represent a significantly smaller portion of the shareholder's total 
unrealized gains (when compared to the shares accumulated prior to the 
amended deadline).\170\
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    \168\ See infra section IV.C.1.b.i, Table 6 (noting that for 
approximately 208 of the 215 campaigns conducted annually, at least 
90% of the equity stake is accumulated within the amended five-
business day deadline); see also letter from Better Markets II 
(citing the same analysis conducted in the DERA Memorandum for the 
proposed five-day deadline and stating that the analysis 
``indicate[s] that shortening the deadline should not significantly 
impede activist campaigns'').
    \169\ See infra note 847 and accompanying text.
    \170\ See infra section IV.C.1.b.i, Table 6 (noting that for the 
7 campaigns conducted annually for which less than 90% of the total 
equity stake was accumulated by the amended five-business day 
deadline, and the 1 campaign conducted annually for which less than 
75% of the total equity stake was accumulated by the amended five-
business day deadline, the average percentages of the filer's 
unrealized gains on reported equity stake, as of the day after 
filing date, attributable to shares accumulated after amended 
deadline were 9.1% and 22.6%, respectively); see also letter from 
Better Markets II (citing the same analysis conducted in the DERA 
Memorandum for the proposed five-day deadline and stating that ``for 
filers who acquired less than 100% of their reported stake by the 
proposed deadline, only 6.8% of their unrealized gains on average 
were attributable to shares accumulated after the proposed 
deadline'').
---------------------------------------------------------------------------

    Finally, we note that profits from shareholder activism may not be 
derived solely from the increase in share price associated with the 
public disclosure of an activist's more than five percent beneficial 
ownership stake. Specifically, shareholder activists may continue to 
experience abnormal positive returns from activism even after filing 
their initial Schedule 13D. Thus, to the extent a shareholder activist 
seeks to profit from increases in share price after the public 
disclosure of its more than five percent beneficial ownership stake, we 
would not expect a reduction in the profits associated with such 
disclosure to be determinative as to whether a shareholder engages in 
an activist campaign.
    The amended five-business day deadline reflects our attempt to 
ensure

[[Page 76910]]

investors receive material information in a timely manner while, at the 
same time, maintaining the appropriate balance between issuers of 
securities and the shareholders who seek to exert influence or control 
over issuers, especially when compared with the proposed five-calendar 
day deadline, which many commenters supported,\171\ and the even 
shorter deadlines many commenters recommended.\172\ We believe a five-
business day deadline is sufficiently prompt and represents a more 
modern approach that reflects the technological advancements and other 
developments in the financial markets in the more than 50 years since 
the 10-day deadline was enacted. A five-business day deadline, as 
compared to the current 10-day deadline, also would more closely align 
the initial Schedule 13D filing deadline with the reporting deadline on 
Form 8-K for issuers (generally, four business days) and Form 4 for 
officers, directors, and beneficial owners of more than 10 percent of a 
covered class (two business days), both in terms of the length of the 
deadline and the use of ``business days,'' rather than ``days,'' to 
express the deadline.\173\ This alignment should help to ensure that 
investors consistently receive prompt disclosures of material 
information, irrespective of the source. A five-business day deadline 
for the initial Schedule 13D also is more consistent in both length and 
form with the filing deadlines for similar beneficial ownership reports 
in foreign jurisdictions.\174\
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    \171\ See supra note 37 and accompanying text.
    \172\ See, e.g., letters from C. McEntee (recommending a same-
day initial Schedule 13D filing deadline); D. Choate (same); Corey 
(same); Prof. Steinberg (recommending, among other things, a one-day 
initial Schedule 13D filing deadline); J. Dunlop (recommending a 
one-day initial Schedule 13D filing deadline); J. Kennedy (same); 
Juan B. (same); Phillip (same); WLRK I (recommending, among other 
things, a one-business day initial Schedule 13D filing deadline); C. 
Jacobs (recommending a two-day initial Schedule 13D filing 
deadline); NIRI (recommending a two-business day initial Schedule 
13D filing deadline); PL Salvati (same); SCG (same); SCG & NIRI 
(same); T. Reilly (recommending a three-day initial Schedule 13D 
filing deadline).
    \173\ See supra note 150; see also letter from STB (noting that 
most analogous securities laws governing reporting of material 
changes (e.g., Form 8-K and section 16 filings) require filings 
within time periods designated in business days rather than calendar 
days). We further believe it is advisable to express all Schedule 
13D filing deadlines (i.e., for both initial filings and amendments) 
in ``business days.'' We expect that the consistent use of 
``business days''--as opposed to using ``days'' or inconsistently 
using both ``days'' and ``business days'' to express the filing 
deadlines--will ease Schedule 13D filers' administrative burdens. We 
also anticipate that this uniform approach across the filing 
deadlines will make it easier for Schedule 13D filers to comply with 
those deadlines. In addition, as amended, all of the Schedule 13G 
deadlines that are less than 45 days also will be expressed in 
``business days,'' consistent with one commenter's recommendation. 
See letter from IAA (recommending that the Commission express 
deadlines consistently in either calendar days or business days 
across all of the Schedule 13D and 13G initial and amendment filing 
deadlines, where the deadlines are less than 45 days to promote 
compliance by making it simpler and less confusing to keep track of 
the various deadlines).
    \174\ For example, Australia requires disclosure of any position 
of 5% or more within two business days if any transaction affects or 
is likely to affect control or potential control of the issuer. See 
Corporations Act 2001 (Cth) sec. 671B (Austl.). The United Kingdom 
imposes a two-trading-day deadline for disclosure of acquisitions in 
excess of 3% of an issuer's securities. See Disclosure Rules and 
Transparency Rules, Ch. 5 (U.K.). Germany requires a report 
``immediately,'' but in no event later than four days after crossing 
the acquisition threshold. See Securities Trading Act, Sept. 9, 
1998, BGBL. I at 2708, as amended, pt. 5 (Ger.). Hong Kong 
securities laws require a report within three business days of the 
acquisition of a ``notifiable interest'' under the law. See Part XV 
of the Securities and Futures Ordinance (promulgated by the 
Securities and Futures Commission, effective Apr. 1, 2003) (H.K.). 
We note that commenters disagreed as to the utility of referencing 
foreign jurisdictions' beneficial ownership reporting deadlines for 
purposes of determining the appropriate initial Schedule 13D filing 
deadline. See supra note 55 and accompanying text. Nonetheless, we 
believe that this comparative analysis suggests that a shortened 
deadline is workable based on the experiences of these foreign 
jurisdictions.
---------------------------------------------------------------------------

    Overall, because we expect that the vast majority of activist 
campaigns, and the value they create, will continue unabated under the 
amended rules,\175\ we conclude that the significant benefits of the 
amendments outlined here and below \176\ justify their costs.
---------------------------------------------------------------------------

    \175\ See infra section IV.C.1.b.
    \176\ See infra section IV.C.a.
---------------------------------------------------------------------------

    Some commenters expressed other objections to the proposed 
amendments. For example, several commenters disagreed with the 
information asymmetry-based concerns in the Proposing Release as a 
basis for the proposed amendments.\177\ We recognize that there are 
information asymmetries involved in any market transaction and agree 
that not all information asymmetries warrant a regulatory response. For 
example, one commenter stated that the information asymmetries 
described in the Proposing Release ``are simply the beneficial result 
of research and initiative by investors and the sign of properly 
functioning markets'' and expressed concern that ``[i]f activists have 
no economic incentive to pursue activism, other shareholders will not 
experience the increase in value that would have otherwise resulted 
from the activist's conduct.'' \178\ We acknowledge that benefits may 
stem from the information asymmetry between a Schedule 13D filer and 
the market, and we recognize that 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.\179\ As such, although the Proposing Release referred to 
information asymmetries between Schedule 13D filers and selling 
shareholders and expressed concern that those information asymmetries 
``could harm investors,'' \180\ we do not focus on the reduction of 
these asymmetries as a justification for shortening the initial 
Schedule 13D deadline, as discussed in sections IV.C.1.a.iii and iv 
below.
---------------------------------------------------------------------------

    \177\ See supra notes 84-90 and accompanying text.
    \178\ See letter from EIM I. Further, that commenter contrasted 
the proposal with the Short Position Reporting Proposal and stated 
that ``[t]he Commission does not explain why the research and 
analysis of a short seller is entitled to protection and does not 
constitute material non-public information about the company it is 
shorting, while the research and analysis of an activist is somehow 
characterized differently.'' Id.; see also supra note 84. The 
commenter's comparison of our shortening of the initial Schedule 13D 
deadline to the Short Position Reporting Proposal is inapt. We are 
shortening the Schedule 13D deadline in order to ensure that 
investors receive material information regarding potential changes 
in control in a timely manner to facilitate their investment 
decisions. This is consistent with the purpose of section 13(d), and 
necessarily requires public disclosure, including of the Schedule 
13D filer's identity. See supra note 155 and accompanying text; 
Exchange Act section 13(d)(1)(A) (requiring a Schedule 13D filer to 
disclose, among other things, its ``background and identity''). The 
Short Position Reporting Proposal addresses a different regulatory 
scheme, and the reasons for those proposed amendments are discussed 
in that release. See Short Position Reporting Proposal. In addition, 
contrary to the commenter's suggestion that the Commission is 
disregarding the value of an activist's research and analysis, the 
amended five-business day deadline represents our attempt to 
maintain an appropriate balance between the requirement that 
material information be timely disseminated to investors and the 
competing interest that undue burdens not be imposed in the change 
of control context.
    \179\ See infra sections IV.C.1.a.iii and iv.
    \180\ See Proposing Release at 13850 & n.19, 13881 & n.214.
---------------------------------------------------------------------------

    Some other information asymmetries may, however, raise concerns 
that warrant a regulatory response. Specifically, the research and 
analysis prepared by the staff of the Division of Economic and Risk 
Analysis indicate that shortening the initial Schedule 13D deadline to 
five business days could meaningfully reduce information asymmetries 
between ``informed bystanders'' \181\ and other, less-informed 
investors who sell their shares during the period after which an 
initial Schedule 13D filing obligation has been incurred but before the 
filing is made.\182\ The informational advantage those

[[Page 76911]]

``informed bystanders'' have over the selling shareholders in these 
transactions and the associated wealth transfers may be perceived by 
some market participants to be unfair. Thus, to the extent that a 
shortened initial Schedule 13D filing deadline would reduce these 
wealth transfers, thereby addressing this perceived unfairness, this 
change could enhance trust in the securities markets and promote 
capital formation.\183\
---------------------------------------------------------------------------

    \181\ See infra note 753 and accompanying text for a discussion 
of the term ``informed bystanders,'' as used in this release.
    \182\ See infra section IV.C.1.a.iii.
    \183\ See id.
---------------------------------------------------------------------------

    We also note that some commenters questioned the appropriateness 
and legality of the proposed amendments in light of certain U.S. 
Supreme Court cases that the commenters cited for the proposition that 
the ``sole purpose'' of the Williams Act is to protect shareholders 
confronted with a cash tender offer.\184\ In both cases, the Court made 
the cited statements in the limited context of determining causes of 
action or remedies that are available for purported violations of 
certain provisions of the Williams Act. Neither decision suggests that 
the provisions and protections of the Williams Act are available only 
when a cash tender offer is involved; in fact, the Court in Rondeau v. 
Mosinee Paper Corp. referred to the defendant-shareholder's belated 
compliance with section 13(d), notwithstanding the absence of a pending 
or threatened cash tender offer.\185\ We also note statements in the 
legislative history indicating that Congress intended that the Williams 
Act would apply to any ``acqui[sition] of a substantial block of equity 
securities . . . by a cash tender offer . . . or through open market or 
privately negotiated purchases.'' \186\ We do not believe, therefore, 
that our shortening of the initial Schedule 13D deadline must be tied 
to risks shareholders face in connection with cash tender offers.
---------------------------------------------------------------------------

    \184\ See supra notes 90, 96 and accompanying text (describing 
comment letters citing Piper et al. v. Chris-Craft Industries, Inc. 
430 U.S. 1 (1977) and Rondeau v. Mosinee Paper Corp., 422 U.S. 49 
(1975)).
    \185\ 442 U.S. at 59 (noting, in relevant part, that the 
shareholder ``has now filed a proper Schedule 13D, and there has 
been no suggestion that he will fail to comply with the Act's 
requirement of reporting any material changes in the information 
contained therein'' notwithstanding the fact that the shareholder 
``has not attempted to obtain control of respondent, either by a 
cash tender offer or any other device'').
    \186\ S. Rep. No. 90-550 to Accompany S. 510, (Aug. 29, 1967); 
see also Full Disclosure of Corporate Equity Ownership and in 
Corporate Takeover Bids: Hearing on S. 510 Before the Subcomm. on 
Securities of the S. Comm. on Banking and Currency, 90th Cong. 16 
(1967) (statement of Manuel F. Cohen, Chairman, Securities and 
Exchange Commission) (stating that ``[t]he bill before you deals 
with stock acquisitions in three specific contexts'' including ``the 
acquisition by means of a cash tender offer'' and ``other 
acquisitions by any person or group'').
---------------------------------------------------------------------------

    Finally, some opposing commenters expressed other doubts regarding 
the Commission's authority to shorten the initial Schedule 13D deadline 
as proposed \187\ and asserted that the Commission did not identify a 
market event or failure that would justify the proposed 
amendments.\188\ As noted above, however, section 13(d)(1) of the 
Exchange Act clearly grants the Commission authority to shorten the 
initial Schedule 13D filing deadline.\189\ In addition, the Commission 
has long recognized that acquisitions made after a person acquires 
beneficial ownership of more than five percent of a covered class but 
before the person files an initial Schedule 13D constitute a 
``disclosure gap [that] may deprive security holders of a fair 
opportunity to adjust their evaluation of the securities of a company 
with respect to [a] potential change in control.'' \190\ We believe 
that the current length of that disclosure gap, together with the 
information asymmetry \191\ that it may facilitate and the advancements 
in technology and developments in the financial markets since Congress 
enacted the Williams Act, provide grounds to shorten the initial 
Schedule 13D filing deadline from 10 days to five business days.
---------------------------------------------------------------------------

    \187\ See supra note 96 and accompanying text.
    \188\ See supra notes 106, 109 and accompanying text.
    \189\ 15 U.S.C. 78m(d)(1) (requiring a Schedule 13D to be filed 
``within ten days . . . or within such shorter time as the 
Commission may establish by rule'').
    \190\ Report of the Securities and Exchange Commission on 
Beneficial Ownership Reporting Requirements pursuant to section 
13(h) of the Securities Exchange Act of 1934 (June 27, 1980). 
Following a review of the effectiveness of section 13(d) conducted 
more than four decades ago, the Commission evaluated the then 
``increasingly prevalent practice of [large blockholders] acquiring 
additional securities of [a covered] class during the 10-day period 
after the acquisition which results in the beneficial ownership of 
more than 5 percent and before the disclosure statement is required 
to be, and normally is, filed. . . .'' Securities and Exchange 
Commission Report on Tender Offer Laws, printed for the Use of the 
S. Comm. on Banking, Housing and Urban Affairs (Comm. Print 1980). 
The Commission provided multiple illustrative examples in which 
``the existing notification system often does not provide 
shareholders with relevant information in a timely manner.'' Id.
    \191\ See supra notes 181-183 and accompanying text.
---------------------------------------------------------------------------

2. Rule 13d-1(b), (c), and (d)
    Congress enacted section 13(g) in 1977 \192\ to address the absence 
of beneficial ownership reporting by persons who had accumulated large 
amounts of stock in a public issuer but were not required to file a 
beneficial ownership report under section 13(d).\193\ Section 13(g) was 
intended to ``supplement the current statutory scheme by providing 
legislative authority for certain additional disclosure requirements 
that in some cases could not be imposed administratively.'' \194\ 
Beneficial owners who currently report on Schedule 13G pursuant to 
section 13(g) and corresponding Rule 13d-1(d) are not subject to 
section 13(d) because they either made an exempt acquisition or an 
acquisition otherwise not covered by the statute. Section 13(d), in 
contrast to section 13(g), applies only to beneficial owners who make 
non-exempt acquisitions of more than five percent of a covered class. 
Section 13(g) was intended to close this gap.
---------------------------------------------------------------------------

    \192\ Domestic and Foreign Investment Improved Disclosure Act of 
1977, Public Law 95-214, sec. 203, 91. Stat. 1494.
    \193\ S. Rep. No. 114, at 13 (1977).
    \194\ S. Rep. No. 95-114, at 13 (1977), as reprinted in 1977 
U.S.C.C.A.N. 4098, 4111.
---------------------------------------------------------------------------

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

    \195\ Filing and Disclosure Requirements Relating to Beneficial 
Ownership, Release No. 34-14692 (Apr. 21, 1978) [43 FR 18484 (Apr. 
28, 1978)] (``Filing and Disclosure Release'').
    \196\ Id. at 18486; see also S. Rep. No. 114, at 14 (1977).
---------------------------------------------------------------------------

    A QII relying upon Rule 13d-1(b) currently is obligated under Rule 
13d-1(b)(2) to file a Schedule 13G ``within 45 days after the end of 
the calendar year in which the person became obligated'' to report 
beneficial ownership, but only if such QII beneficially owns more than 
five percent of a covered class at the end of a calendar year.\197\ If 
the QII

[[Page 76912]]

beneficially owns more than 10 percent of a covered class as of the 
last day of any month, then the initial Schedule 13G must be filed 
within 10 days after the end of that month. A QII relying on Rule 13d-
1(b), therefore, may have beneficial ownership in excess of five 
percent throughout the calendar year without incurring a filing 
obligation unless the QII beneficially owns more than 10 percent of a 
covered class at the end of any month during that year.
---------------------------------------------------------------------------

    \197\ First adopted as Rule 13d-5 in 1977 and subsequently 
redesignated as Rule 13d-1(b)(1) in 1978, the predecessor to current 
Rule 13d-1(b)(2) established that an institution eligible to report 
on Schedule 13G had until 45 days after the end of the calendar year 
to report beneficial ownership to the extent the percentage 
beneficially owned exceeded 5% as of the end of the calendar year. 
See Filing and Disclosure Release at 18486 (explaining that ``the 
first proviso in new Rule 13d-1(b) has been added to make clear that 
the obligation to file a Schedule 13G . . . need be determined only 
on the last day of the calendar year'' and that ``filing [a] 
Schedule 13G to disclose a beneficial ownership interest of more 
than five but not more than ten percent will be required forty-five 
days after the end of the calendar year''); see also Adoption of 
Beneficial Ownership Disclosure Requirements, Release No. 34-13291 
(Feb. 24, 1977) [42 FR 12342 (Mar. 3, 1977)] (describing the 
Commission's adoption of new Rule 13d-5 and related new Form 13D-5, 
which permitted brokers, dealers, banks, investment companies, 
investment advisers, and employee benefit plans to utilize an 
abbreviated disclosure notice).
---------------------------------------------------------------------------

    Rule 13d-1(d),\198\ as with Rule 13d-1(b), imposes an initial 
Schedule 13G filing deadline of 45 days after the end of the calendar 
year, but only for investors who have become beneficial owners without 
having made an acquisition recognized under section 13(d)(1). Given 
that these investors did not make the requisite acquisition that would 
have subjected them to section 13(d), the Commission has previously 
referred to this type of beneficial owner as an ``Exempt Investor.'' 
Unlike the QIIs and Passive Investors--discussed below, in the context 
of Rule 13d-1(c)--who file a Schedule 13G in lieu of Schedule 13D and 
at all times remain subject to section 13(d), Exempt Investors are 
subject to section 13(g) at the time their initial filing obligation 
arises. Exempt Investors reporting pursuant to Rule 13d-1(d) today may 
include persons such as founders of companies and early investors in an 
issuer's class of equity securities who made their acquisition before 
the class was registered under section 12 of the Exchange Act.\199\ 
These beneficial owners may continue to influence or control the 
issuer. Accordingly, the Commission has emphasized that the disclosures 
required under section 13(g) are obtained in connection with the 
overall regulatory purposes served by section 13(d).\200\
---------------------------------------------------------------------------

    \198\ 17 CFR 240.13d-1(d).
    \199\ The Commission has explained that certain ``persons who 
are not required to file under Rule 13d-1(a) . . . would be required 
to file a Schedule 13G pursuant to the amendments herein proposed.'' 
Filing and Disclosure Release at 18502. Such persons may include 
``persons who acquired not more than two percent of a class of 
securities within a twelve month period, who are exempt from Rule 
13d-1(a) by Section 13(d)(6)(B).'' Id. The Commission also stated 
that ``Regulation 13D-G . . . would require any person `otherwise' 
not required to report pursuant to Section 13(d), but who is a 
beneficial owner of more than five percent of a specified class of 
equity securities to report on Schedule 13G.'' Id.
    \200\ Filing and Disclosure Release at 18486 (stating that ``the 
enactment of section 13(g) has rendered moot the issue of whether 
obtaining'' disclosure from institutional investors in the ordinary 
course of their business and without any control intent ``under 
section 13(d)(5) is within the primary purpose of section 13(d)''). 
The Commission also emphasized ``the importance of disclosing to the 
public the location of rapidly accumulated blocks of stock, even 
though they have been acquired not with the purpose or with the 
effect of changing or influencing control'' as a predicate for its 
position. Id.
---------------------------------------------------------------------------

    Finally, a beneficial owner electing to report on Schedule 13G in 
lieu of Schedule 13D in reliance on Rule 13d-1(c) as a Passive Investor 
must file a Schedule 13G within 10 days after acquiring beneficial 
ownership of more than five percent of a covered class. A person is 
eligible to file as a Passive Investor only if such person is not 
seeking to acquire or influence control of an issuer and beneficially 
owns less than 20 percent of a covered class. Persons unable or 
unwilling to certify under Item 10 of Schedule 13G that they do not 
have a disqualifying purpose or effect because, for example, the 
possibility exists that they may seek to exercise or influence control, 
are ineligible to file a Schedule 13G and must instead file a Schedule 
13D.
a. Proposed Amendments
    The Commission proposed to amend Rule 13d-1(b) and (d) to shorten 
the filing deadline for the initial Schedule 13G to be filed by QIIs 
and Exempt Investors to five business days after the end of the month 
in which beneficial ownership exceeds five percent of a covered class. 
The Commission expected that the proposed acceleration of these 
deadlines would result in more timely disclosures while minimizing any 
potential additional burdens.\201\ The Commission also believed that 
these investors should already have well-established compliance systems 
in place to monitor Schedule 13G ownership levels to determine whether 
filing obligations have been triggered.\202\
---------------------------------------------------------------------------

    \201\ Proposing Release at 13856.
    \202\ Id.
---------------------------------------------------------------------------

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

    \203\ Id.
---------------------------------------------------------------------------

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

    \204\ Id.
---------------------------------------------------------------------------

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

    \205\ Id. at 13855.
    \206\ Id.
    \207\ Id. at 13855-56.
---------------------------------------------------------------------------

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

[[Page 76913]]

its proposed amendment to the analogous filing deadline in Rule 13d-
1(a).
---------------------------------------------------------------------------

    \208\ Id. at 13856.
    \209\ Id.
---------------------------------------------------------------------------

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

    \210\ See, e.g., letters from AFL-CIO (supporting only the 
proposed amendment to Rule 13d-1(c)); AFREF (same); AFREF, et al. 
(same); Anonymous 3; Anonymous 5; Anonymous 11; Anonymous 12; 
Anthony R.; C. Robinson; John F. Phinney Jr, CEO & Founder, 
Convergence Inc. (June 15, 2023) (``Convergence'') (supporting only 
the proposed amendment to Rule 13d-1(b)); EEI; Engineer; FedEx; 
Freeport-McMoRan; Andrew Patrick White, Founder CEO of FundApps 
(Feb. 28, 2022) (``FundApps'') (same); HMA I; J. Pieper; J. Soucie; 
Jonah; Juan; Mark C.; Mike; Nasdaq; P. Worts; T. Mirvis, et al.; 
Todd.
    \211\ See supra notes 38-40, 43-44 and accompanying text.
    \212\ See letter from AFREF. For example, the commenter asserted 
that a shortened filing deadline would help investors ensure their 
asset managers are fulfilling their fiduciary duties and help inform 
the education and advocacy efforts of those with a stake in proxy 
contests, shareholder resolutions, and other important votes. Id.
---------------------------------------------------------------------------

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

    \213\ See, e.g., letters from AFL-CIO; C. Robinson; FedEx; 
Freeport-McMoRan; T. Mirvis, et al.
    \214\ See, e.g., letters from AFREF; Convergence; FundApps.
    \215\ See letter from T. Mirvis, et al.
    \216\ See, e.g., letters from Anonymous 11; Freeport-McMoRan; J. 
Soucie.
    \217\ See letter from FedEx.
---------------------------------------------------------------------------

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

    \218\ See, e.g., letters from A. Day; ABA; AIMA; B. Mason; Dodge 
& Cox; E. Fraser (opposing only the proposed amendment to Rule 13d-
1(c)); IAA (opposing only the proposed amendments to Rule 13d-1(b) 
and (d)); ICI I; MFA (same); MSBA (supporting only the proposed 
amendments to Rule 13d-1(c) and (d)); Perkins Coie; Kenneth E. 
Bentsen, Jr, CEO and President, Securities Industry and Financial 
Markets Association (Apr. 11, 2022) (``SIFMA'') (opposing only the 
proposed amendments to Rule 13d-1(b) and (c)); Kyle Brandon, 
Managing Director, Head of Derivatives Policy, SIFMA (June 27, 2023) 
(``SIFMA & SIFMA AMG'') (same); State Street Corporation (Apr. 11, 
2022) (``SSC'') (opposing only the proposed amendment to Rule 13d-
1(b)); STB; TIAA (opposing only the proposed amendment to Rule 13d-
1(b)); TRP.
    \219\ See, e.g., letters from ABA; Dodge & Cox; IAA; ICI I; 
MSBA; STB; TIAA.
    \220\ See letter from ICI I. The commenter also stated that the 
Commission has not made significant technological advances over the 
years to its own systems that market participants rely on to prepare 
Schedules 13D and 13G, making it challenging and costly for 
investors to gather the information about beneficial ownership they 
need to file Schedules 13D and 13G. Id.
    \221\ See letter from MSBA. The commenter also noted that 
Passive and Exempt Investors generally do not have specialized 
technology that would make it practical for them to file a Schedule 
13G on the proposed accelerated bases.
    \222\ See letter from TIAA. The commenter also asserted that the 
Proposing Release did not provide data showing that QIIs have as a 
standard matter adopted the type of technological improvements that 
would make it easier for them to prepare these filings on such a 
short timeline. Id.
---------------------------------------------------------------------------

    Some opposing commenters acknowledged the technological advances 
identified in the Proposing Release but disagreed that they justify the 
proposed amendments. For example, one commenter stated that 
technological advances do not support significantly reducing filing 
deadlines as proposed because, despite advances in technology, the 
filing process still has numerous operational components that take time 
to complete.\223\ Similarly, some commenters stated that 
notwithstanding any technological advancements, a month-end-based 
reporting deadline for Schedule 13G would be difficult to meet because 
much of the process is still manual and cannot be done reliably via any 
current technology, including exercising the judgment required to 
determine whether a person is a beneficial owner under the various 
provisions of Rule 13d-3.\224\ Another commenter stated that, despite 
technological advancements, it is often difficult for QIIs to gather 
aggregate information quickly, confirm such information for accuracy, 
draft disclosure documents and receive approval for filing purposes, 
especially given that QIIs often beneficially own positions in many 
issuers and those positions change frequently.\225\
---------------------------------------------------------------------------

    \223\ See letter from IAA (noting that ``an investment advisory 
firm's reporting process could involve receiving spreadsheets from 
multiple affiliates, consolidating those spreadsheets into one 
report, reviewing the consolidated report for errors and 
discrepancies, following up to correct issues, calculating 
beneficial ownership, preparing Schedule 13D or 13G'' and may also 
require them to obtain ``review by outside counsel . . . [and] 
signatures (including from group members if needed)'').
    \224\ See letters from STB; TIAA. For example, one of these 
commenters noted that notwithstanding any technological 
advancements, a month-end-based reporting deadline for Schedule 13G 
would be difficult to meet because analysis of Rule 13d-3 beneficial 
ownership depends on the most recently published outstanding share 
number from an issuer and, therefore, an investor cannot reliably 
determine whether it is a 5% beneficial owner of any particular 
stock as of a month-end reference date until the last day of such 
month and there is no consistent monthly disclosure requirement for 
an issuer's outstanding shares. See letter from STB.
    \225\ See letter from ABA.
---------------------------------------------------------------------------

    Opposing commenters also criticized some of the Commission's other 
justifications for, or the purported benefits of, the proposed 
amendments. For example, some commenters stated that the Commission has 
not provided evidence to support its concerns regarding reporting gaps 
and information asymmetries that would warrant the proposed 
acceleration of the reporting deadlines.\226\ Others asserted that the 
Commission has not articulated how the proposed amendments will promote 
transparency into matters of corporate control and questioned the 
necessity of the proposed amendments in that respect.\227\ Some of 
those

[[Page 76914]]

commenters expressed the view that the Commission's existing rules 
provide sufficient transparency into matters of corporate control with 
respect to QIIs and Passive Investors,\228\ as well as Exempt 
Investors.\229\ In addition, one commenter asserted that the Commission 
has not persuasively explained why it is appropriate to accelerate the 
beneficial ownership reporting deadlines as proposed.\230\ Some 
commenters stated that the information filed on Schedule 13G by Passive 
and Exempt Investors is unlikely to be material information that is 
market-moving.\231\ Other commenters asserted that the proposed 
amendments would provide little benefit to the market given that 
institutional investment managers' trading activity is already subject 
to significant scrutiny by the Commission and the public through the 
filing of Form 13F.\232\
---------------------------------------------------------------------------

    \226\ See, e.g., letters from ICI I; SIFMA; TIAA. Those 
commenters also asserted that the Commission's unsubstantiated 
concerns about QIIs selling down positions before the end of a 
reporting period to avoid a Schedule 13G filing does not provide an 
appropriate basis for the proposed amendment to Rule 13d-1(b). Id.
    \227\ See letters from ABA; SIFMA; STB.
    \228\ See letters from ABA; STB. For example, those commenters 
noted that QIIs and Passive Investors already are obligated to amend 
their Schedule 13G promptly upon crossing a 10% beneficial ownership 
threshold and are obligated to file an initial Schedule 13D if their 
control intent changes. Id.
    \229\ See letters from SIFMA; STB. For example, those commenters 
noted that Exempt Investors are largely investors who have held the 
shares since prior to the issuer's IPO and, as such, their original 
ownership is already materially disclosed in the IPO prospectus. Id. 
In addition, those commenters noted that to the extent an Exempt 
Investor's beneficial ownership either exceeds 10% or exceeds their 
pre-IPO beneficial ownership level, it will be required to make 
section 16 filings or make an initial Schedule 13D filing. Id.
    \230\ See letter from ICI I.
    \231\ See letters from ABA; MSBA. For example, those commenters 
noted that a Schedule 13G filed by a Passive Investor does not 
include information about potential changes in control and that 
Passive Investors must certify that they do not have a control 
intent. Id. Those commenters also noted that the proposed amendments 
to Rule 13d-5 include a ``tipper-tippee'' provision with respect to 
the filing of a Schedule 13D but not with respect to the filing of a 
Schedule 13G, see letter from MSBA, and stated that accelerating the 
filing deadline for Exempt Investors will provide no additional 
information to the market given that the vast majority of Exempt 
Investors become Exempt Investors following the effectiveness of a 
registration statement which contains all of the information, if not 
more, that would be included in a Schedule 13G. See letter from ABA.
    \232\ See letters from ABA; MFA.
---------------------------------------------------------------------------

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

    \233\ See, e.g., letters from ABA; IAA; ICI I; Perkins Coie; 
SSC; STB; see also letter from MFA & NAPFM.
    \234\ See letters from IAA; ICI I.
    \235\ See letter from STB. The commenter also asserted that the 
proposed five-business day period after month-end is not enough time 
for outside counsel to gather the requisite information from their 
clients and prepare a Schedule 13G filing and expressed concern that 
investors may not be able to obtain EDGAR filing codes in time to 
meet the proposed deadlines, noting that the Commission recently has 
been taking three to five business days (and even longer during busy 
periods) to generally provide such codes. Id.
    \236\ See letter from SSC; see also letter from IAA.
    \237\ See letter from Perkins Coie.
---------------------------------------------------------------------------

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

    \238\ See, e.g., letters from ABA; ICI I; SIFMA.
    \239\ See letters from ICI I; SIFMA.
    \240\ See letter from SIFMA.
    \241\ See letter from MSBA. For example, the commenter explained 
that obtaining EDGAR filing codes by making a Form ID filing 
requires the assistance of counsel and that such filing usually 
takes 7 days to be processed by the Commission, by which time the 
proposed deadline will have passed given that many Passive Investors 
are unaware of their Schedule 13G filing obligations until after 
they have crossed the 5% threshold. Id. The commenter also asserted 
that even if a Passive Investor is aware of its Schedule 13G filing 
obligation before it has crossed the 5% threshold, it is unlikely to 
take steps to prepare for such obligation before actually crossing 
the threshold. Id. In addition, the commenter noted that many 
Schedule 13G filings have multiple filing persons, which requires 
even more time in the preparation of the filing and the engagement 
of counsel to help prepare the filing. Id.
    \242\ Id.
---------------------------------------------------------------------------

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

    \243\ See, e.g., letters from A. Day; E. Fraser; MFA.
    \244\ See letter from MFA.
    \245\ See letters from ICI I; MFA.
    \246\ See letters from IAA; ICI I.
    \247\ See letter from Perkins Coie.
---------------------------------------------------------------------------

    Opposing commenters also highlighted some other potential risks 
associated with the proposed deadlines. For example, one commenter 
expressed concern that reporting within such a short time period under 
the proposed

[[Page 76915]]

amendment to Rule 13d-1(b) would increase the risk reported information 
would subsequently need to be revised through amendments to Schedule 
13G, potentially confusing the market.\248\ One commenter asserted that 
the proposed amendments would increase the number of unintentionally 
inaccurate filings.\249\ One commenter expressed concern that the 
proposed amendments could negatively impact the ability of investors 
and their advisors to draft meaningful disclosures and engage in 
thoughtful analysis.\250\ Another commenter stated that the proposed 
amendments could be more broadly disruptive to trading.\251\
---------------------------------------------------------------------------

    \248\ See letter from ICI I.
    \249\ See letter from ABA.
    \250\ See letter from STB; see also supra note 102.
    \251\ See letter from TRP. Specifically, the commenter posited 
that there would be additional trading and volatility in certain 
issuers just after the reporting deadline each month, as 
institutional investors begin the process of accumulating or 
reducing positions, followed by reduced liquidity leading up to the 
reporting deadline, as they concluded that trading. Id.
---------------------------------------------------------------------------

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

    \252\ See letters from ABA; ICI I.
    \253\ See id.
---------------------------------------------------------------------------

    The opposing commenters also provided some recommendations 
regarding the proposed amendments. A number of those commenters 
suggested a quarter-end-based initial Schedule 13G filing deadline for 
QIIs and Exempt Investors rather than a month-end-based deadline. For 
example, some commenters recommended that QIIs be required to file 
their initial Schedule 13G within 45 days after the end of a calendar 
quarter as of which the QII beneficially owns more than five percent of 
a covered class to align with the filing timeframe under section 13(f) 
and better reflect the distinction the Commission has historically made 
between QIIs and other institutional investors.\254\ Similarly, some 
commenters recommended that the Commission require that both QIIs and 
Exempt Investors file their initial Schedule 13G 45 days after the end 
of a calendar quarter, consistent with the Form 13F \255\ filing 
deadline.\256\ One commenter recommended that QIIs be required to file 
their initial Schedule 13G within 15 business days after the end of a 
calendar quarter as of which the QII beneficially owns more than five 
percent of a covered class.\257\ Another commenter recommended that 
QIIs be required to file their initial Schedule 13G on a quarterly 
basis with at least a 30-day period before the filing deadline.\258\
---------------------------------------------------------------------------

    \254\ See letters from Dodge & Cox; ICI I; SIFMA.
    \255\ See infra note 280 for a discussion of Form 13F and its 
filing deadlines.
    \256\ See letters from IAA; MFA; see also IAC Recommendations 
(recommending that the Commission shorten the initial filing 
deadlines for QIIs and Exempt Investors to 45 days after the end of 
a calendar quarter). One of the commenters stated that a quarterly 
deadline would increase transparency for market participants as 
compared with the current annual deadline and noted that 
institutional investment managers are already reviewing and 
assessing their holdings on a quarterly basis in order to prepare 
Form 13F filings and are more equipped to submit accurate Schedule 
13G filings with the same frequency. See letter from IAA. The 
commenter also asserted that aligning the deadlines for initial 
Schedule 13G filings with Form 13F filings would strike the right 
balance between the Commission's concerns about information 
asymmetry in the marketplace, and advisers' concerns about 
operational strains and competitive disadvantages that would come 
with publicly exposing their positions more frequently. Id.
    \257\ See letter from SSC.
    \258\ See letter from TRP.
---------------------------------------------------------------------------

    Opposing commenters also made alternative suggestions regarding the 
proposed amendments. For example, one commenter recommended that QIIs 
and Exempt Investors be required to file their initial Schedule 13G 
within 10 days after the end of the month in which its beneficial 
ownership exceeds five percent as of month-end.\259\ Another commenter 
recommended that to the extent the Commission is concerned about 
Schedule 13G filers acquiring additional shares after crossing the five 
percent threshold without public disclosure, it should prohibit trading 
after crossing the five percent threshold rather than accelerating the 
filing deadlines.\260\ One commenter suggested that if the Commission 
seeks to apply the proposed amendments to a broad set of investors 
whose activities are largely unrelated to matters of corporate control, 
or where such matters may be implicated but are already subject to 
disclosure requirements under the existing disclosure regime, it should 
conduct further study and analysis to better understand what percentage 
of such investors ever are implicated in actual change in control 
scenarios--to determine the percentage of activist matters where 
earlier and more frequent disclosure of such investors' holding would 
have been materially beneficial to investors.\261\ Another commenter 
recommended that rather than adopting the proposed amendments, the 
Commission should add a column to Form 13F requiring filers to 
explicitly note, for each listed class of securities, whether the filer 
has acquired over five percent beneficial ownership during the 
reporting period.\262\ And, one commenter recommended that the 
Commission consider extending the filing deadline for Passive Investors 
(e.g., to 15 or 30 days) rather than accelerating it.\263\
---------------------------------------------------------------------------

    \259\ See letter from ABA.
    \260\ See letter from MSBA.
    \261\ See letter from STB. The commenter also suggested that if 
the Commission's goal is market transparency more generally, and not 
a targeted concern related to matters of corporate control, the 
Commission should consider whether more appropriate tools exist to 
disclose 5% beneficial ownership or material changes to such 
positions in a more concise and efficient manner, using Form 13F as 
an example. Id.
    \262\ See letter from MFA.
    \263\ See letter from E. Fraser. The commenter also recommended 
that the Commission consider a provision for when a shareholder's 
position goes over the 5% threshold because of ordinary corporate 
actions that result in the number of outstanding shares to drop such 
that the shareholder unwittingly has a holding over the 5% of 
outstanding shares and suggested recommended that the Commission 
consider increase the threshold from greater than 5% beneficial 
ownership to 10%. Id.
---------------------------------------------------------------------------

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

    \264\ See letters from AFREF; Freeport-McMoRan; HMA I.
    \265\ Id.
---------------------------------------------------------------------------

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

    \266\ See letter from J. Dunlop.
    \267\ See letters from ABA; Dodge & Cox; IAA; ICI I. Some of 
these commenters suggested that a five-business day deadline would 
be more appropriate in light of the steps required to prepare and 
file an accurate Schedule 13G. See letters from Dodge & Cox, IAA; 
ICI I; see also supra note 130.

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

[[Page 76916]]

c. Final Amendments
    We are amending Rule 13d-1(b) and (d) to shorten the initial 
Schedule 13G filing deadlines under those rules, with some 
modifications from the proposals in response to commenter concerns. 
Specifically, we are adopting an initial Schedule 13G filing deadline 
of 45 days \268\ after calendar quarter-end for QIIs and Exempt 
Investors. In addition, consistent with our amendment to the initial 
Schedule 13D deadline, we are amending Rule 13d-1(c) to require that 
Passive Investors file their initial Schedule 13G within five business 
days after the date on which the Passive Investor acquired beneficial 
ownership of more than five percent of a covered class.
---------------------------------------------------------------------------

    \268\ If the deadline falls on a Federal holiday, a Saturday, or 
a Sunday, then the filing may be made on the next business day 
thereafter. 17 CFR 240.0-3 (``[I]f the last day on which [a filing] 
can be accepted as timely filed falls on a Saturday, Sunday or 
holiday, such [filing] may be [made] on the first business day 
following.'').
---------------------------------------------------------------------------

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

    \269\ See Proposing Release at 13856 (``Given the proposal to 
shorten the initial reporting deadline [in Rule 13d-1(b)] to five 
business days after the end of the month, the current provision of 
Rule 13d-1(b)(2) that operates to accelerate that initial filing 
deadline if beneficial ownership exceeds 10% at the end of any month 
would be unnecessary . . . .'').
---------------------------------------------------------------------------

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

    \270\ See supra notes 197, 199 and accompanying text.
    \271\ See supra notes 138-144 and accompanying text for some 
examples of those advancements and developments.
    \272\ See, e.g., Kristin Giglia, Note, A Little Letter, a Big 
Difference: An Empirical Inquiry into Possible Misuse of Schedule 
13G/13D Filings, 116 Colum. L. Rev. 105, 115-16 (2015) (explaining 
that the availability of Schedule 13G may allow investors to 
``intentionally structure their acquisition strategies to exploit 
the gaps created by the current reporting regime, to their own 
short-term benefit and to the overall detriment of market 
transparency and investor confidence'' (internal quotations 
omitted)). QIIs in particular may be able to amass sizeable amounts 
of beneficial ownership without reporting such positions. Rule 13d-
1(b)(2) provides in relevant part that ``it shall not be necessary 
to file a Schedule 13G unless the percentage of [a covered class] 
beneficially owned as of the end of the calendar year is more than 
five percent.'' 17 CFR 240.13d-1(b)(2). As such, a QII may 
beneficially own in excess of 5% of a covered class for the entire 
year, sell down its position to 5% or below on the last day of the 
calendar year and bypass having to report at all under the current 
regulatory framework assuming that its beneficial ownership 
continues to be held in the ordinary course of business, without a 
disqualifying purpose or effect, and does not exceed 10% of a 
covered class.
    \273\ We note that some commenters asserted that the Commission 
did not substantiate its concerns regarding reporting gaps and QIIs 
selling down positions before the end of a reporting period to avoid 
a Schedule 13G filing. See supra note 226 and accompanying text. 
Given the potential materiality of the information disclosed on 
Schedule 13G and its importance to the market, however, we believe 
it is appropriate to take action to reduce the risk of such 
reporting gaps, even absent evidence indicating that the practice of 
selling down positions to avoid a Schedule 13G filing currently is 
widespread. See Proposing Release at 13882, n.221 (noting the 
importance to the market of information regarding beneficial 
ownership, regardless of whether it is disclosed on Schedule 13D or 
13G, based on evidence that the initial filing of Schedule 13G, like 
that of Schedule 13D, generates a positive stock price reaction, 
albeit smaller in magnitude). We also recognize that because the new 
filing deadline will be tied to a QII's beneficial ownership as of 
calendar quarter-end, QIIs may still be able to avoid a reporting 
obligation if they sell down their positions before the end of a 
quarter. We believe, however, that risk is lower under a quarter-
end-based deadline than a year-end-based deadline because of the 
increased transaction costs, as well as disruptions with respect to 
a long-term investment strategy, that would be associated with 
selling down and building up positions multiple times throughout a 
year.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated its expectation 
that the proposed initial Schedule 13G deadlines under Rule 13d-1(b) 
and (d) (i.e., five business days after the end of the month in which 
beneficial ownership exceeds five percent of a covered class) would 
result in minimal additional burdens on filers because QIIs and Exempt 
Investors ``already have well-established compliance systems in place 
to monitor Schedule 13G ownership levels to determine whether filing 
obligations have been triggered.'' \274\ Although some commenters 
agreed with this expectation,\275\ several comments disagreed and 
asserted that the proposed deadlines would be unduly burdensome for 
QIIs and Exempt Investors (especially those that are smaller and non-
institutional investors) given the number of tasks and amount of 
resources required to prepare a filing in such a limited amount of time 
\276\ and that such burdens are not sufficiently mitigated by any 
technological advancements to justify adopting the proposed 
deadlines.\277\
---------------------------------------------------------------------------

    \274\ Proposing Release at 13856 (noting that ``QIIs currently 
need to monitor beneficial ownership levels at least on a monthly 
basis in case their holdings exceed more than 10% at the end of the 
month'' and that ``Exempt Investors already need to monitor the 
level of their beneficial ownership continuously or periodically to 
ensure that the amount of their beneficial ownership does not 
unintentionally exceed 2% in a 12-month period'').
    \275\ See supra note 216 and accompanying text (describing and 
citing comment letters that asserted that the proposed amendments 
would not impose significant burdens on Schedule 13G filers).
    \276\ See supra notes 233-247 and accompanying text.
    \277\ See supra notes 219-225 and accompanying text.
---------------------------------------------------------------------------

    Based on commenters' observations regarding the potentially 
significant burdens that the proposed deadlines would impose on QIIs 
and Exempt Investors, we have decided to take a different approach from 
the proposal and instead amend Rule 13d-1(b) and (d) to require an 
initial Schedule 13G be filed within 45 days after calendar quarter-
end. This change to a quarter-end-based deadline, rather than the 
proposed month-end-based deadline, is consistent with the 
recommendations that a number of commenters made to the 
Commission.\278\ We note that those commenters recommended various 
different numbers of days after quarter-end for the deadline.\279\ 
Taking into

[[Page 76917]]

account those various recommendations, believe that 45 days is the 
appropriate length of time because it aligns with the filing deadline 
for Form 13F,\280\ and many institutional investment managers who file 
a Schedule 13G are already reviewing and assessing their holdings on a 
quarterly basis in order to prepare Form 13F filings.\281\ In addition, 
although most of the other amended Schedule 13D and 13G filing 
deadlines will be expressed in ``business days,'' we believe the 
potential compliance benefits of aligning the initial Schedule 13G 
filing deadlines for QIIs and Exempt Investors with the Form 13F filing 
deadline justify using calendar days rather than business days.\282\
---------------------------------------------------------------------------

    \278\ See supra notes 254-258 and accompanying text.
    \279\ See letters from Dodge & Cox (recommending a filing 
deadline of 45 days after quarter-end); IAA (same); ICI I (same); 
MFA (same); SIFMA (same); TRP (recommending a filing deadline of at 
least 30 days after quarter-end); SSC (recommending a filing 
deadline of 15 business days after quarter-end).
    \280\ Form 13F is the reporting form filed by institutional 
investment managers pursuant to section 13(f) of the Exchange Act. 
Under section 13(f)(1), institutional investment managers that use 
the U.S. 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. Such institutional investment 
managers must submit four Form 13F filings, with the first filing 
due within 45 days after the end of the fourth quarter of the 
calendar year (i.e., the quarter ending Dec. 31 of the same calendar 
year that the $100 million filing threshold is reached) and the 
three additional filings due 45 days after the end of the subsequent 
three calendar quarters (i.e., the calendar quarters that end on 
Mar. 31, June 30, and Sept. 30). See 17 CFR 240.13f-1(a)(1); see 
also U.S. Securities & Exchange Commission, Division of Investment 
Management, Frequently Asked Questions About Form 13F, available at 
https://www.sec.gov/divisions/investment/13ffaq.
    \281\ See infra section IV.B.3.b, Table 4 (presenting statistics 
regarding the number of Schedule 13G filers that also filed Form 13F 
in 2022, noting that 84% of QIIs and 10% of Exempt Investors also 
filed Form 13F).
    \282\ See letter from IAA (recommending that the Commission 
express deadlines consistently in either calendar days or business 
days across all of the Schedule 13D and 13G initial and amendment 
filing deadlines, where the deadlines are less than 45 days to 
promote compliance by making it simpler and less confusing to keep 
track of the various deadlines).
---------------------------------------------------------------------------

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

    \283\ In addition, the amended deadline may result in the same 
amount of time to file as under the current rules, depending on the 
quarter in which the filing obligation is triggered. That is, if a 
QII or Exempt Investor becomes the beneficial owner of more than 5% 
of a covered class on or after Oct. 1 (the beginning of the fourth 
calendar quarter) and remains above the 5% threshold as of Dec. 31 
(both calendar year-end and the end of the fourth calendar quarter), 
then they would have the same amount of time to prepare and submit 
their initial Schedule 13G filing under both the current and amended 
Rule 13d-1(b) and (d).
    \284\ See supra notes 248-250 and accompanying text.
---------------------------------------------------------------------------

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

    \285\ See supra note 246 and accompanying text; see also infra 
section IV.C.2.b.
    \286\ See, e.g., letter from IAA (``A quarterly deadline 
significantly increases transparency for market participants as 
compared with the current annual deadline.'').
---------------------------------------------------------------------------

    In addition, as discussed above, Rule 13d-1(c) currently requires 
Passive Investors to file an initial Schedule 13G within 10 days of 
acquiring beneficial ownership of more than five percent of a covered 
class. As with our final amendment to Rule 13d-1(a), we are amending 
Rule 13d-1(c) to require that Passive Investors file their initial 
Schedule 13G within five business days after \287\ acquiring beneficial 
ownership of more than five percent of a covered class. We believe it 
is appropriate to amend the initial Schedule 13G filing deadline in 
Rule 13d-1(c) to match the initial Schedule 13D filing deadline in Rule 
13d-1(a) in order to maintain the historical regulatory consistency 
between the deadlines in Rule 13d-1(c) and (a) and to facilitate the 
overall goals of increasing transparency in beneficial ownership and 
ensuring that investors receive material information in a timely 
manner.
---------------------------------------------------------------------------

    \287\ See supra note 136 for a discussion of a revision we are 
making to Rule 13d-1(c) to clarify that the five-business day 
deadline is determined beginning on the day after the date on which 
a person acquires beneficial ownership of more than 5% of a covered 
class.
---------------------------------------------------------------------------

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

    \288\ See, for example, infra section IV.B.3.b, Table 4, which 
indicates that 31% of Passive Investors that filed a Schedule 13G in 
2022 also filed a Form 13F (which would only be required if, among 
other things, they exercise investment discretion over $100 million 
or more in section 13(f) securities).
    \289\ See supra note 241 and accompanying text.
    \290\ See Kristin Giglia, Note, A Little Letter, a Big 
Difference: An Empirical Inquiry into Possible Misuse of Schedule 
13G/13D Filings, 116 Colum. L. Rev. 105, 119 (2015) (``Activists can 
fly under the radar, planning to effect large changes to the issuer 
and even acquiring up to twenty percent ownership interest at a 
relatively low price, all while maintaining that their intent is 
still `passive.' '').
    \291\ Id. at n.160 (noting that QIIs and Exempt Investors are 
less likely than Passive Investors ``to switch to a [Schedule] 13D 
filing'').
    \292\ Amendments to Beneficial Ownership Reporting Requirements, 
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, 2854 (Jan. 16, 
1998)] (stating that ``the Commission is imposing some safeguards'' 
on Passive Investors, including that an ``[i]nitial Schedule 13G 
must be filed within 10 days (instead of year end)'' because ``a 
control purpose reflects the state of mind of a filing person and 
there are incentives to disclose less information''). The Commission 
also indicated that, as compared to QIIs and Exempt Investors, 
Passive Investors are more likely to represent ``voting blocks that 
have the potential of affecting or influencing control of the 
issuer'' which, therefore, warrants more timely notice to the market 
of their existence. Id. at 2855.

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[[Page 76918]]

3. Rule 13d-2(a) and (b)
    Section 13(d)(2) requires that an amendment must be filed to the 
statement required under section 13(d)(1) if any material change occurs 
in the facts set forth in the statement filed. Section 13(d)(2) does 
not, however, identify a specific deadline by which such amendment must 
be filed. Instead, Rule 13d-2(a) provides that such amendment must be 
filed with the Commission ``promptly.'' \293\ The obligation to file an 
amendment under current Rule 13d-2(a) is not limited to acquisitions. 
Instead, changes in the disclosure narrative that are material also 
must be reported in an amendment, as must material changes in the level 
of beneficial ownership caused by an involuntary change in 
circumstances, such as a reduction in the amount of beneficial 
ownership caused solely by an increase in the number of shares 
outstanding.\294\
---------------------------------------------------------------------------

    \293\ 17 CFR 240.13d-2(a).
    \294\ See id. (requiring an amendment ``[i]f any material change 
occurs in the facts set forth in the Schedule 13D'' including ``any 
material increase or decrease in the percentage of the class 
beneficially owned'').
---------------------------------------------------------------------------

    Section 13(g)(2) requires that an amendment be filed to the 
statement required under section 13(g)(1) if any material change occurs 
in the facts set forth in the statement filed, but like section 
13(d)(2), does not identify a deadline by which such amendment must be 
filed. Rule 13d-2(b), however, does specify a deadline and provides 
that for all persons who report beneficial ownership on Schedule 13G, 
an amendment shall be filed ``within forty-five days after the end of 
each calendar year if, as of the end of the calendar year, there are 
any changes in the information reported in the previous filing on that 
Schedule [13G].'' \295\
---------------------------------------------------------------------------

    \295\ 17 CFR 240.13d-2(b).
---------------------------------------------------------------------------

a. Proposed Amendments
    In the Proposing Release, the Commission proposed to amend Rule 
13d-2(a) to require that all amendments to Schedule 13D be filed within 
one business day after the date of the material change that triggers 
the amendment obligation. The Commission proposed this change from the 
``promptly'' standard to establish a specified filing deadline, remove 
any uncertainty as to the date on which an amendment is due, and help 
ensure that beneficial owners amend their filings in a more uniform and 
consistent manner.\296\ The Commission stated that it did not believe 
that requiring Schedule 13D amendments to be filed within one business 
day after the date on which a material change occurs would place those 
filers at a disadvantage.\297\ The Commission also stated that because 
an amendment to a Schedule 13D only requires that the material change 
be reported and not a complete set of new narrative responses to each 
of the disclosure form's individual line items,\298\ it expected that 
those amendments should present a lower administrative burden than the 
initial Schedule 13D filing.\299\ In addition, the Commission noted 
that that the proposed amendment would be consistent with its existing 
view that, under the current ``promptly'' standard in Rule 13d-2(a), 
``[a]ny delay beyond the date the filing reasonably can be filed may 
not be prompt'' and that an amendment to a Schedule 13D reasonably 
could be filed in as little as one day following the material 
change.\300\
---------------------------------------------------------------------------

    \296\ Proposing Release at 13857.
    \297\ Id.
    \298\ Under Rule 13d-2(a), the Schedule 13D filer only has an 
obligation to ``file or cause to be filed with the Commission an 
amendment disclosing that [material] change.'' See also 17 CFR 
240.12b-15, titled ``Amendments,'' which explains that 
``[a]mendments filed pursuant to this section must set forth the 
complete text of each item as amended.''
    \299\ Proposing Release at 13857.
    \300\ Id. at n.67 (quoting In re Cooper Laboratories, Release 
No. 34-22171 (June 26, 1985)).
---------------------------------------------------------------------------

    The Commission also proposed to amend Rule 13d-2(b) to require that 
a Schedule 13G be amended within five business days of the end of the 
month in which a material change occurs in the information previously 
reported. The Commission stated that accelerating the deadline for 
amendments from the current standard of 45 days after the end of the 
calendar year would help ensure that the information reported would be 
timely and useful.\301\ The Commission also noted that this proposed 
deadline would be consistent with the proposed five-business day 
deadline from the end of the month applicable to QIIs' and Exempt 
Investors' initial Schedule 13G filing obligations arising under Rule 
13d-1(b) and (d).\302\ In addition, the Commission proposed a 
``business day'' standard for the proposed deadline to partially 
mitigate the time pressures resulting from the reduction of the current 
45-day deadline.\303\
---------------------------------------------------------------------------

    \301\ Id. at 13857.
    \302\ Id.
    \303\ Id.
---------------------------------------------------------------------------

    The Commission further proposed to amend Rule 13d-2(b) to 
substitute the term ``material'' in place of the term ``any'' to serve 
as the standard for determining the type of change that will trigger an 
amendment obligation under Rule 13d-2(b). The Commission noted that, 
unlike sections 13(d)(2) and 13(g)(2), Rule 13d-2(b) does not include 
an express materiality qualifier for Schedule 13G amendments and simply 
requires an amendment for ``any change.'' \304\ At the time Rule 13d-
2(b) was adopted, however, the Commission stated that there is a 
materiality standard inherent in the provisions governing Schedule 13G 
filings.\305\ This inherent materiality standard is based on the fact 
that any disclosure provided by a Schedule 13G filer, in light of the 
infrequency of the reports and comparatively minimal statements 
required to be made, is effectively material.\306\ The Commission's 
proposed change, therefore, was intended to merely codify this view in 
the text of Rule 13d-2(b).
---------------------------------------------------------------------------

    \304\ Id. at 13857-58.
    \305\ Id. at 13858.
    \306\ Id. (citing Filing and Disclosure Release at 18489 
(stating the Commission's belief that because ``the information 
required by Schedule 13G has been reduced to the minimum necessary 
to satisfy the statutory purpose, . . . a materiality standard is 
inherent in those requirements'' and ``it is unnecessary to further 
minimize it by the insertion of an express materiality standard'')).
---------------------------------------------------------------------------

b. Comments Received
    The Commission received a variety of comments on the proposed 
amendments to Rule 13d-2(a) and (b). Several commenters supported the 
proposed amendments.\307\ Some of those commenters supported revising 
the Schedule 13D and 13G amendment deadlines for many of the same 
reasons they supported accelerating the initial Schedule 13D and 13G 
filing deadlines.\308\
---------------------------------------------------------------------------

    \307\ See, e.g., letters from AFREF (supporting only the 
proposed amendment to Rule 13d-2(a)); Anonymous 3; Anonymous 5; 
Anonymous 11; Anonymous 12; Anthony R.; BRT (same); C. Robinson; 
Engineer; FedEx; Freeport-McMoRan; HMA I; Jonah; J. Pieper; J. 
Soucie; Juan; Mark C.; Mike; Nasdaq; P. Worts; SIFMA AMG (same); 
TIAA (same); T. Mirvis, et al. (same); Todd. In addition, one 
commenter, which neither clearly supported nor opposed the proposed 
amendment to Rule 13d-2(b), supported the proposed shift from an 
``any change'' to a ``material change'' standard. See letter from 
IAA.
    \308\ See supra notes 38-41, 43-44 and accompanying text; see 
also supra note 211 and accompanying text.
---------------------------------------------------------------------------

    In addition, several commenters supported the proposed amendments 
to Rule 13d-2(a) and (b) based on changes in technology and 
developments in the

[[Page 76919]]

financial markets.\309\ One commenter agreed with the concern in the 
Proposing Release that material information about potential change of 
control transactions is not being disseminated to the public in a 
manner that would be considered timely in today's financial 
markets.\310\ Other commenters asserted that the proposed amendments 
would not impose significant costs or burdens on beneficial owners of 
more than five percent of a covered class \311\ and that the proposed 
amendments would be consistent in balancing the need for adequate 
disclosures to investors with burdens placed on filers to accurately 
prepare required disclosures.\312\
---------------------------------------------------------------------------

    \309\ See, e.g., letters from BRT; C. Robinson; FedEx; Freeport-
McMoRan; Nasdaq; T. Mirvis, et al.
    \310\ See letter from BRT.
    \311\ See, e.g., letters from Anonymous 11; BRT; J. Soucie.
    \312\ See letter from FedEx.
---------------------------------------------------------------------------

    A number of commenters opposed the proposed amendments to Rule 13d-
2(a) and (b).\313\ Several commenters disagreed with the Commission's 
technological advancement-based justifications for the proposed 
acceleration of the beneficial ownership reporting deadlines,\314\ some 
of whom raised many of the same concerns that they expressed with 
respect to the proposed acceleration of the initial Schedule 13D and 
13G filing deadlines.\315\ One commenter stated that filing a Schedule 
13D amendment is not just a question of technology, but often a 
question of marshalling complex and evolving facts and making difficult 
disclosure judgments.\316\
---------------------------------------------------------------------------

    \313\ See, e.g., letters from A. Day; ABA (opposing only the 
proposed amendment to Rule 13d-2(a)); AIMA; B. Mason; Dodge & Cox; 
EEI (same); EIM I (same); Hoak and Co. (Apr. 11, 2022) (``Hoak'') 
(same); ICI I; MFA; MSBA (same); NVCA (same); Perkins Coie; SIFMA 
(opposing only the proposed amendment to Rule 13d-2(b)); SIFMA & 
SIFMA AMG (same); SSC (same); STB; TRP (same).
    \314\ See, e.g., letters from ABA; Dodge & Cox; IAA; ICI I; 
TIAA.
    \315\ See supra notes 92-94, 220-224 and accompanying text.
    \316\ See letter from ABA. The commenter also noted that filing 
a Schedule 13D amendment depends on many factors, including the 
complexity of the information, the pace of developments of the 
information, and the number of persons or parties who have an 
interest in the disclosure and need to review the information, 
contribute to its drafting, and, if they are signing the Schedule 
13D, are subject to liability for the accuracy of the information. 
Id.
---------------------------------------------------------------------------

    Some commenters focused solely on the proposed amendment to Rule 
13d-2(a), expressing concern that a one-business day deadline would be 
unduly burdensome and may not be enough time to prepare a Schedule 13D 
amendment in all circumstances.\317\ For example, one commenter stated 
that in its experience, it generally takes two to three business days, 
and in some cases longer, to compile and file such amendments.\318\ One 
commenter noted that if the Commission adopts the proposed structured 
data requirements,\319\ this will add more time to the process of 
preparing a Schedule 13D amendment and may make the proposed one-
business day deadline impractical.\320\ Another commenter asserted that 
the proposed extension of the filing ``cut-off'' time to 10 p.m.\321\ 
would not be sufficient to offset the burden associated with meeting 
the proposed one-business day deadline for a Schedule 13D 
amendment.\322\
---------------------------------------------------------------------------

    \317\ See, e.g., letters from ABA; AIMA; EIM I; Hoak; ICI I; 
MFA; MSBA; Perkins Coie; STB; see also letter from MFA & NAPFM.
    \318\ See letter from STB. The commenter also noted that while 
the one-business day deadline may be feasible for an investor 
engaged in a change of control objective, as that investor may have 
(1) been taking preparatory steps toward such goal, (2) an internal 
deal team and external advisors actively engaged in the project, and 
(3) built the Schedule 13D amendment obligation into its workstream, 
there are many situations requiring a Schedule 13D amendment in 
which such advance notice and planning is not possible or practical. 
Id. The commenter further asserted that practical concerns regarding 
the ability to file an amendment pursuant to Rule 13d-2(a) in a 
timely manner may cause some Schedule 13D filers to avoid filing 
amendments for changes in their Schedule 13D disclosures, preferring 
to take more risk that their determination on materiality is later 
questioned than risk having a ``late'' filing with the Commission. 
Id.
    \319\ See infra section II.F for a discussion of the proposed 
structured data requirement for Schedules 13D and 13G.
    \320\ See letter from ABA.
    \321\ See infra section II.A.5 for a discussion of the proposed 
extension of the filing ``cut-off'' time for Schedules 13D and 13G.
    \322\ See letter from Hoak.
---------------------------------------------------------------------------

    Further, several commenters expressed concerns regarding the effect 
of the proposed amendment to Rule 13d-2(a) on the accuracy of Schedule 
13D amendments.\323\ For example, one of those commenters asserted that 
the proposed amendment would make filing accurate amendments nearly 
impossible.\324\ Some commenters expressed concern that by providing 
Schedule 13D filers with insufficient time to prepare and file 
amendments, the proposed amendment would increase the likelihood of 
errors and risk of liability.\325\ Another commenter noted that the 
proposed amendment to Rule 13d-2(a) could decrease transparency by 
increasing the risk of errors in Schedule 13D amendments.\326\
---------------------------------------------------------------------------

    \323\ See, e.g., letters from ABA; EEI; Hoak; MFA; NVCA.
    \324\ See letter from NVCA.
    \325\ See, e.g., letters from EIM I; Hoak; MFA.
    \326\ See letter from Hoak.
---------------------------------------------------------------------------

    Commenters also expressed concerns about other potential downsides 
associated with the proposed amendment to Rule 13d-2(a). For example, 
some commenters expressed concern that the proposed amendment could 
negatively impact the ability of investors and their advisors to draft 
meaningful disclosures and engage in thoughtful analysis.\327\ Some 
commenters noted that the proposed amendment to Rule 13d-2(a) may not 
leave adequate time to prepare the filing in the event of unforeseen 
circumstances, including the possibility that a necessary approver or 
signer may not be available.\328\ And, one commenter stated that there 
have been very few, if any, abuses associated with the current 
``promptly'' regime and asserted that it has worked well and 
effectively.\329\
---------------------------------------------------------------------------

    \327\ See letters from ABA; STB; see also supra note 102.
    \328\ See letters from EEI; Hoak.
    \329\ See letter from AIMA.
---------------------------------------------------------------------------

    In addition, some commenters questioned the basis for the proposed 
amendment to Rule 13d-2(a). For example, some commenters noted that a 
one-business day deadline for Schedule 13D amendments would be more 
restrictive than the filing deadline for a Form 8-K.\330\ Similarly, 
some commenters noted that Form 8-K and section 16 filings do not have 
as restrictive filing deadlines as proposed under Rule 13d-2(a).\331\ 
One commenter asserted that the ``promptly'' standard under Rule 13d-
2(a) has ``generally been understood'' to mean within two

[[Page 76920]]

business days and disagreed with the Proposing Release that Commission 
precedent supports a one-business day interpretation of that 
standard.\332\
---------------------------------------------------------------------------

    \330\ See letters from EIM I; MFA. Those commenters also stated 
that the Commission has not justified imposing such a restrictive 
deadline on Schedule 13D amendments, especially given the relatively 
importance of a Form 8-K. Id. One of those commenters noted that 
Schedule 13D amendments often disclose agreements between the 
beneficial owner and the issuer, and issuers typically have four 
business days to publicly disclose such agreements on Forms 8-K 
after entering into them and often prefer to be the first to 
disclose in order to control the initial message to the market, and 
the proposed deadline would deprive issuers of this opportunity. See 
letter from MFA. The commenter also asserted that the proposed 
Schedule 13D amendment deadline would make it more difficult for 
issuers and Schedule 13D filers to coordinate their messages 
regarding material agreements they have entered into and may force 
investors to publicly disclose an agreement in principle through a 
Schedule 13D amendment before the terms are finalized, creating the 
risk of prematurely disseminating information to the market that 
turns out to be inaccurate or incomplete. Id.
    \331\ See letters from MFA; STB. Those commenters also asserted 
that the Form 8-K and section 16 filing deadlines acknowledge the 
balance between the importance of getting disclosures to investors 
in a timely manner, with the complexity and labor required in order 
to create such filings in a complete and thoughtful manner, noting 
that section 16 filings require even less narrative disclosure than 
a Schedule 13D amendment. Id.
    \332\ See letter from EIM I.
---------------------------------------------------------------------------

    Further, one commenter stated that the proposed amendment to Rule 
13d-2(a) would ``unnecessarily sacrifice'' the flexibility that the 
current version of the rule provides.\333\ Other commenters noted that 
the promptness of a Schedule 13D amendment filing obligation under Rule 
13d-2(a) currently is determined by considering the facts and 
circumstances related to such filing and urged the Commission to 
continue to consider the variation in circumstances that can lead to an 
amendment obligation rather than applying the same standard in all 
circumstances.\334\ One commenter asserted that the proposed amendment 
to Rule 13d-2(a) could lead to a large increase in the number of late 
Schedule 13D amendment filings.\335\
---------------------------------------------------------------------------

    \333\ See letter from ABA. The commenter stated that, as the 
Commission has acknowledged in the past, in order to serve the 
policies of the Williams Act, the timing for public filings should 
vary based on the circumstances. Id.
    \334\ See letters from MFA; STB. The commenters noted, for 
example, that a one-business day deadline may not be appropriate for 
Schedule 13D amendments with respect to material changes that do not 
have any nexus to a change or influence in corporate control. Id.
    \335\ See letter from ABA.
---------------------------------------------------------------------------

    In addition, some commenters expressed concern about the costs of 
the proposed amendment to Rule 13d-2(a) relative to its benefits. For 
example, one commenter stated that the proposed amendment to Rule 13d-
2(a) does not appropriately balance the need for prompt disclosure of 
important, market-moving events with the need to avoid imposing an 
undue, impracticable burden on investors making more routine 
filings.\336\ Another commenter asserted that the burdens and risks of 
the proposed amendment to Rule 13d-2(a) associated with venture capital 
funds that make Schedule 13D filings exceed its benefits.\337\
---------------------------------------------------------------------------

    \336\ See letter from MFA.
    \337\ See letter from NVCA. Specifically, the commenter asserted 
that the burden of inaccurate Schedule 13D amendments and the 
associated risks are far greater than any benefit to be gained from 
the information that a venture capital fund is reducing its share 
ownership in the ordinary course of exiting investments and 
providing returns to limited partner-investors. Id. The commenter 
also noted that the proposed amendment would impose substantial 
compliance burdens on venture capital funds that make Schedule 13D 
filings and expressed concern that inaccurate Schedule 13D 
amendments caused by the proposed accelerated deadline could result 
in giving the market information that is misleading, particularly to 
retail investors, which could reduce liquidity and negatively impact 
an issuer's share price, harming all investors other than short 
sellers. Id.
---------------------------------------------------------------------------

    Several commenters \338\ opposed the proposed amendment to Rule 
13d-2(b) for many of the same reasons that they opposed the proposed 
acceleration of the initial Schedule 13G filing deadlines for QIIs and 
Exempt Investors.\339\ In addition, one commenter broadly asserted that 
the costs of the proposed amendment to Rule 13d-2(b) ``far outweigh any 
perceived benefits.'' \340\ Another commenter noted that many Schedule 
13G filers have filing obligations with respect to multiple issuers and 
that the proposed amendment may require ``hundreds of filings on a 
monthly basis, as their investments fluctuate perpetually.'' \341\ And, 
other commenters expressed the same concerns about the proposed 
amendments to Rule 13d-2(a) and (b) that they expressed with respect to 
the proposed acceleration of the initial Schedule 13D and 13G filing 
deadlines.\342\
---------------------------------------------------------------------------

    \338\ See, e.g., letters from MFA; Perkins Coie; STB; TIAA; TRP.
    \339\ See supra notes 226-228, 235-236, 251 and accompanying 
text.
    \340\ See letter from MFA. The commenter further stated that the 
benefits of the proposed amendment would be minimal because Schedule 
13G filers generally do not have control intent and already disclose 
their holdings on Form 13F. Id.
    \341\ See letter from MFA.
    \342\ See supra notes 99, 106, 226, 243 and accompanying text; 
see also letter from MFA & NAPFM.
---------------------------------------------------------------------------

    Finally, some commenters made recommendations to the Commission 
regarding the proposed amendments to Rule 13d-2(a) and (b). For 
example, some commenters that generally supported the proposed 
amendments recommended that the Commission consider further shortening 
the filing deadlines.\343\ Further, specifically with respect to the 
proposed amendment to Rule 13d-2(a), one supporting commenter 
recommended that the Commission include an assets under management-
based threshold for the proposed accelerated Schedule 13D filing 
deadlines.\344\ Another commenter that generally supported revising the 
Schedule 13D amendment deadline recommended that the Commission require 
that Schedule 13D amendments be filed within three business days.\345\
---------------------------------------------------------------------------

    \343\ See letters from Freeport-McMoRan; HMA I.
    \344\ See letter from A. Day.
    \345\ See letter from SIFMA AMG.
---------------------------------------------------------------------------

    Conversely, several opposing commenters recommended that the 
Commission retain the requirement that Schedule 13D amendments be filed 
promptly, but require that they be filed within no more than a 
specified number of days after the relevant triggering event (with 
recommendations varying between two and four business days).\346\ One 
opposing commenter suggested that the Commission require that Schedule 
13D amendments be filed within five business days.\347\ Other 
commenters, which either generally opposed or neither clearly supported 
nor opposed the proposed amendment to Rule 13d-2(a), recommended that 
the Commission require that Schedule 13D amendments be filed within two 
business days.\348\
---------------------------------------------------------------------------

    \346\ See, e.g., letters from ABA; Dodge & Cox; ICI I; MFA. One 
of those commenters also noted that to the extent that a Schedule 
13D filer is able to file earlier, the filer would still be 
obligated to do so because the rule would still require prompt 
filings. See letter from ABA. Alternatively, the commenter suggested 
that the Commission require that certain categories of amendments 
(e.g., dispositions or acquisitions of beneficial ownership of 1% or 
more) be filed within a specified one or two business day window. 
Id. Similarly, another commenter recommended that the Commission add 
a narrative setting forth its timing expectations in different 
situations for the filing to satisfy the ``prompt'' standard, 
including those where a shorter filing deadline would be required. 
See letter from MFA.
    \347\ See letter from AIMA.
    \348\ See, e.g., letters from EEI; EIM I; Hoak; IAA; Perkins 
Coie. Several of those commenters asserted that two business days 
would be consistent with the current general understanding of the 
``promptly'' standard. See letters from EIM I; IAA. Some commenters 
indicated that a one-business day deadline for Schedule 13D 
amendments would be too ``aggressive from an operational 
perspective,'' would be extremely difficult for filers to comply 
with, and could result in inadvertent errors, see letter from IAA, 
and that a two-business day deadline would be less onerous for 
investors yet would ensure the accuracy and transparency of the 
information in their filings. See letter from EEI.
---------------------------------------------------------------------------

    In addition to focusing on the Schedule 13D filing deadline, some 
opposing commenters made other recommendations with respect to the 
proposed amendment to Rule 13d-2(a). For example, one opposing 
commenter asserted that a Schedule 13D amendment should not be required 
for involuntary changes in circumstances caused by the issuer because 
such amendments do not relate to the Schedule 13D filer's action or 
intent and are already disclosed to the market by the issuer.\349\ 
Another opposing commenter recommended that if the Commission believes 
that a one-business day interpretation of ``promptly'' is not being 
properly observed, it should clarify that in situations involving 
acquisition of corporate control, ``promptly'' means one business 
day.\350\ One commenter,

[[Page 76921]]

which neither clearly supported nor opposed the proposed amendment to 
Rule 13d-2(a), recommended that the Commission define the percentage 
ownership change that is deemed a ``material change'' as the specified 
percentage only, and that it omit the subjective ``facts and 
circumstances'' part of the standard.\351\
---------------------------------------------------------------------------

    \349\ See letter from Hoak.
    \350\ See letter from STB. The commenter recommended that the 
Commission engage in further study to determine the percentage of 
Schedule 13D filers that ultimately engage in activities that impact 
corporate control and the number of such cases in which a Schedule 
13D amendment is not filed within the one-business day timeframe. 
Id. The commenter also suggested that the Commission engage in 
further study regarding the different circumstances under which 
Schedule 13D amendments are filed and consider whether requiring 
such amendments to be filed within the one business day timeframe 
would materially improve the information provided to investors 
relating to such issuer control matters. Id.
    \351\ See letter from IAA.
---------------------------------------------------------------------------

    Further, a number of opposing commenters made recommendations 
regarding the proposed amendment to Rule 13d-2(b). For example, several 
commenters recommended that the Commission require Schedule 13G 
amendments to be filed within 45 days after the end of a quarter in 
which a material change occurred, consistent with the amendment 
frequency for Form 13F.\352\ One commenter recommended that QIIs be 
required to file an amended Schedule 13G within 20 business days after 
the end of a quarter in which a material change has occurred.\353\ One 
commenter, which neither clearly supported nor opposed the proposed 
amendment to Rule 13d-2(b), recommended that the Commission require 
that Schedule 13G amendments be filed within 10 days after the end of 
the month in which a material change occurs.\354\
---------------------------------------------------------------------------

    \352\ See, e.g., letters from Dodge & Cox; IAA; ICI I.
    \353\ See letter from SSC. The commenter also recommended that 
materiality be defined as more than a 5% change in beneficial 
ownership. Id.
    \354\ See letter from ABA.
---------------------------------------------------------------------------

    In addition to focusing on the Schedule 13G amendment deadline, 
some commenters made other recommendations with respect to Rule 13d-
2(b). For example, one opposing commenter suggested that the Commission 
conduct further study and analysis to understand what percentage of 
Schedule 13G filers are involved in change in control scenarios.\355\ A 
number of commenters, which either generally opposed or neither clearly 
supported nor opposed the proposed amendment to Rule 13d-2(b), also 
requested that the Commission clarify what constitutes a ``material 
change'' for Schedule 13G filers.\356\ One commenter recommended that 
the Commission carve out QIIs from the accelerated filing deadline, 
including because QIIs must certify that they do not have a control 
intent.\357\ And, one commenter recommended that the Schedule 13G 
amendment filing deadline be expressed in business days.\358\
---------------------------------------------------------------------------

    \355\ See letter from STB. The commenter also suggested that if 
the Commission's goal is market transparency, and not a targeted 
concern related to matters of corporate control, the Commission 
should consider whether there are more appropriate tools to disclose 
significant beneficial ownership positions or material changes to 
such positions in a more concise and efficient manner (e.g., Form 
13F). Id.
    \356\ See, e.g., letters from ABA; IAA; ICI I; STB. Several of 
those commenters requested that the Commission confirm that a change 
in beneficial ownership of less than 5% will not be deemed 
``material'' for purposes of the rule. See letters from IAA; ICI I; 
STB. Further, one of those commenters recommended that the 
Commission clarify whether a Schedule 13G amendment obligation would 
be triggered based on actual trading activity of an investor or 
whether such obligation could be triggered based on changes in the 
number of outstanding shares. See letter from STB. The commenter 
also requested clarification as to whether an investor would be 
permitted to ``net'' purchases and sales for purposes of the 
analysis. Id.
    \357\ See letter from TIAA.
    \358\ See letter from IAA.
---------------------------------------------------------------------------

c. Final Amendments
    We are amending Rule 13d-2(a) and (b) to revise the Schedule 13D 
and 13G amendment filing deadlines under those rules. In response to 
commenter concerns, however, we are making some changes to the proposed 
deadlines. Specifically, we are adopting a Schedule 13D amendment 
filing deadline of two business days \359\ after the date of a material 
change and a Schedule 13G amendment filing deadline of 45 days after 
calendar quarter-end. We also are amending Rule 13d-2(b) to require an 
amendment to a Schedule 13G be filed only if a ``material change'' 
occurs.
---------------------------------------------------------------------------

    \359\ See supra note 134 for a discussion of the new definition 
of ``business day'' that we are adopting for purposes of Regulation 
13D-G.
---------------------------------------------------------------------------

    As noted above, Rule 13d-2(a) currently requires that an amendment 
be filed promptly if a material change occurs in the facts set forth in 
a Schedule 13D. Although the Commission proposed to amend Rule 13d-2(a) 
to replace the ``promptly'' standard with a one-business day deadline, 
we are instead adopting a two-business day deadline in light of the 
comments received. As noted in the Proposing Release, establishing a 
specified filing deadline for Schedule 13D amendments should remove any 
uncertainty as to the date on which an amendment is due and help ensure 
that beneficial owners amend their filings in a more uniform and 
consistent manner.\360\ We note, however, that several commenters 
disagreed with the Commission's expectation that the proposed one-
business day deadline would impose minimal incremental burdens on 
Schedule 13D filers.\361\ To the contrary, those commenters expressed 
concerns about the workability of a one-business day deadline for 
filing Schedule 13D amendments and described the burdens that 
beneficial owners would incur trying to meet that deadline.\362\
---------------------------------------------------------------------------

    \360\ Proposing Release at 13857; see also letter from EIM I 
(stating that replacing the ``promptly'' standard with a two-
business day deadline would ``provid[e] a more objective 
deadline''). For that reason, we also disagree with commenters who 
recommended we should retain a flexible standard. See supra notes 
333-334 and accompanying text. We note that those recommendations 
were made, in part, in response to the proposed one-business day 
deadline. See, e.g., supra note 334 (describing some commenters' 
assertion that a one-business day deadline may not be appropriate 
for Schedule 13D amendments with respect to material changes that do 
not have any nexus to a change or influence in corporate control). 
As such, the additional time provided by the two-business day 
deadline we are adopting should address some of these concerns. This 
view is consistent with several commenters' assertions that 
``promptly'' is generally understood to mean two business days. See 
supra note 348.
    \361\ Id. (expressing the Commission's belief ``that requiring 
Schedule 13D amendments to be filed within one business day after 
the date on which a material change occurs will [not] place those 
filers at a disadvantage'' and noting that ``those amendments should 
present a lower administrative burden than the initial Schedule 13D 
filing'').
    \362\ See supra notes 317-322 and accompanying text.
---------------------------------------------------------------------------

    We believe that shifting from the proposed one-business day 
deadline to a two-business day deadline will address those concerns and 
provide beneficial owners with adequate time to prepare and file a 
Schedule 13D amendment. Relevantly, several commenters, including some 
that generally opposed the proposed amendment, recommended that the 
Commission adopt a two-business day deadline under Rule 13d-2(a).\363\ 
We agree with those commenters that a two-business day deadline, as 
compared to a one-business day deadline, would be less onerous for 
beneficial owners while at the same time ensuring that investors and 
markets are provided with material information disclosed in Schedule 
13D amendments in a sufficiently prompt manner. We also believe that 
giving beneficial owners additional time, as compared to the proposed 
deadline, to prepare their Schedule 13D amendments will reduce the risk 
of erroneous or incomplete filings, addressing a concern that some 
commenters expressed with respect to the proposed one-business day 
deadline and helping to preserve the utility of those filings.\364\
---------------------------------------------------------------------------

    \363\ See supra note 348 and accompanying text.
    \364\ See supra notes 323-326 and accompanying text.
---------------------------------------------------------------------------

    Further, as discussed above, Rule 13d-2(b) currently requires that 
an amendment be filed within 45 days of calendar year-end if there were 
any changes to the information previously reported on Schedule 13G 
during that year. Similar to our amendments to the

[[Page 76922]]

initial Schedule 13G filing deadlines under Rule 13d-1(b) and (d), we 
are revising Rule 13d-2(b) to require that a Schedule 13G amendment 
pursuant to that rule be filed within 45 days after calendar quarter-
end if, during that quarter, there were any material changes to the 
information previously reported (rather than five business days after 
the end of the month in which a material change occurred, as proposed). 
Thus, there are two components to our amendment to Rule 13d-2(b): we 
are both shortening the deadline for the filing of a Schedule 13G 
amendment and adding an express qualifier to require an amendment only 
if there is a material change to the information previously reported.
    We believe that accelerating the Schedule 13G amendment deadline 
will help ensure the information reported is timely and useful.\365\ 
Numerous supporting commenters also echoed this point.\366\ We note, 
however, that several commenters asserted that the proposed month-end-
based deadline would be unduly burdensome for Schedule 13G filers and 
that such burdens are not sufficiently mitigated by any technological 
advancements to justify adopting the proposed deadline,\367\ 
reiterating many of the concerns that were expressed about the proposed 
amendments to Rule 13d-1(b) and (d).\368\
---------------------------------------------------------------------------

    \365\ Proposing Release at 13857.
    \366\ See supra note 308 and accompanying text.
    \367\ See supra notes 314-316, 338-342 and accompanying text.
    \368\ See supra section II.A.2.
---------------------------------------------------------------------------

    To mitigate those concerns, and to conform to the initial Schedule 
13G filing deadlines applicable to QIIs and Exempt Investors under Rule 
13d-1(b) and (d),\369\ we are instead adopting a quarter-end-based 
deadline for Schedule 13G amendments under Rule 13d-2(b). This change 
from the proposal comports with the recommendations that several 
commenters that opposed the proposed amendment to Rule 13d-2(b) made to 
the Commission.\370\ Consistent with the comments provided on the 
proposed amendments to Rule 13d-1(b) and (d), we note that those 
commenters that suggested a quarter-end-based Schedule 13G amendment 
deadline recommended various different numbers of days after quarter-
end for the deadline.\371\ Taking into consideration those various 
recommendations, as we noted in the context of our amendments to Rule 
13d-1(b) and (d),\372\ we believe that 45 days is the appropriate 
length of time because it aligns with the filing deadline for Form 13F, 
and many institutional investment managers who file a Schedule 13G are 
already reviewing and assessing their holdings on a quarterly basis in 
order to prepare Form 13F filings. In addition, although most of the 
other amended Schedule 13D and 13G filing deadlines will be expressed 
in ``business days,'' we believe the potential compliance benefits of 
aligning the Schedule 13G amendment deadline with the Form 13F filing 
deadline justify using calendar days rather than business days.\373\
---------------------------------------------------------------------------

    \369\ We believe that aligning the Schedule 13G amendment 
deadline under Rule 13d-2(b) with the new quarter-end Schedule 13G 
filing deadlines for Exempt Investors and QIIs under Rule 13d-1(b) 
and (d) will promote compliance with those rules, as it preserves 
the uniformity currently in effect with respect to the year-end 
filing deadlines under those rules.
    \370\ See supra notes 352-353 and accompanying text.
    \371\ See letters from Dodge & Cox (recommending a filing 
deadline of 45 days after quarter-end); IAA (same); ICI I (same); 
SSC (recommending a filing deadline of 20 business days for QIIs 
after quarter-end).
    \372\ See supra section II.A.2.c.
    \373\ See letter from IAA (recommending that the Commission 
express deadlines consistently in either calendar days or business 
days across all of the Schedule 13D and 13G initial and amendment 
filing deadlines, where the deadlines are less than 45 days to 
promote compliance by making it simpler and less confusing to keep 
track of the various deadlines).
---------------------------------------------------------------------------

    Even for those Schedule 13G filers that are not Form 13F filers, 
the 45-day period after calendar quarter-end deadline will be familiar 
given that they currently must file their Schedule 13G amendment 45 
days after calendar year-end.\374\ As such, we believe that many of 
those beneficial owners are well-positioned to submit their Schedule 
13G filings 45 days after calendar quarter-end, and we expect that this 
change from the proposal will produce the same benefits and mitigate 
opposing commenters' concerns to the same degree as our amendments to 
Rule 13d-1(b) and (d).\375\
---------------------------------------------------------------------------

    \374\ In addition, the amended deadline may result in the same 
amount of time to file as under the current rules, depending on the 
quarter in which the filing obligation is triggered. That is, if a 
material change occurs to the information previously reported on 
Schedule 13G between Oct. 1 (the beginning of the fourth calendar 
quarter) and Dec. 31 (both calendar year-end and the end of the 
fourth calendar quarter), then the filer would have the same amount 
of time to prepare and submit their Schedule 13G amendment under 
both the current and amended Rule 13d-2(b).
    \375\ Id. See supra note 273 for a discussion of why we believe 
that it is appropriate to accelerate the Schedule 13G filing 
deadlines, notwithstanding some commenters' assertion that the 
Commission did not substantiate its concerns regarding Schedule 13G 
reporting gaps and QIIs selling down positions before the end of a 
reporting period to avoid a Schedule 13G filing. See supra note 339 
and accompanying text.
---------------------------------------------------------------------------

    Finally, we also are revising the text of Rule 13d-2(b), as 
proposed, to substitute the term ``material'' in place of the term 
``any'' to serve as the standard for determining the type of change 
that will trigger an amendment obligation under Rule 13d-2(b). As 
discussed in the Proposing Release, this change is merely intended to 
codify the Commission's previously stated view that there is an 
inherent materiality standard in the provisions governing Schedule 13G 
filings.\376\ We note that several commenters requested that the 
Commission clarify what constitutes a ``material change,'' with some of 
those commenters recommending that the Commission deem a change in 
beneficial ownership of less than five percent to not be ``material'' 
for purposes of Rule 13d-2(b).\377\ The term ``material,'' however, 
already is defined in Rule 12b-2 \378\ and is a familiar, established 
concept in the Federal securities laws.\379\ As such, we do not believe 
it is necessary or advisable to adopt a new materiality standard for 
purposes of Schedule 13G amendments under Rule 13d-2(b) or to provide 
an express safe harbor from the application of Rule 13d-2(b) for 
certain specified de minimis changes in beneficial ownership.
---------------------------------------------------------------------------

    \376\ See Proposing Release at 13858; see also supra note 306 
and accompanying text.
    \377\ See supra note 356 and accompanying text.
    \378\ 17 CFR 240.12b-2 (stating that the term ``material,'' when 
used to qualify a requirement for the furnishing of information as 
to any subject, limits the information required to those matters to 
which there is a substantial likelihood that a reasonable investor 
would attach importance in determining whether to buy or sell the 
securities registered).
    \379\ See, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 231-32 
(1988) (noting that the U.S. Supreme Court ``explicitly has defined 
a standard of materiality under the securities laws'' to mean that 
``there must be a substantial likelihood that the disclosure of the 
omitted fact would have been viewed by the reasonable investor as 
having significantly altered the `total mix' of information made 
available'' (quoting TSC Industries, Inc. v. Northway, Inc., 426 
U.S. 438, 449 (1976))).
---------------------------------------------------------------------------

    We recognize that Rule 13d-2(a) provides that a ``material change'' 
for purposes of that rule includes ``any material increase or decrease 
in the percentage of the class beneficially owned'' and provides that 
``[a]n acquisition or disposition of beneficial ownership of securities 
in an amount equal to one percent or more of the class of securities 
shall be deemed `material' for purposes of this section.'' \380\ We 
also note, however, that these are non-exclusive circumstances in which 
an amendment obligation has been triggered.\381\ Thus, although this

[[Page 76923]]

language in Rule 13d-2(a) provides guidance for beneficial owners to 
determine when a Schedule 13D amendment obligation arises under that 
rule, it is fundamentally different from the express safe harbor that 
some commenters requested with respect to the Schedule 13G amendment 
obligation under Rule 13d-2(b). Further, because both Rule 13d-2(a) and 
(b) will now share the same materiality standard for determining when 
an amendment is due, the language in Rule 13d-2(a), including the 
statement that ``[a]n acquisition or disposition of beneficial 
ownership of securities in an amount equal to one percent or more of 
the class of securities shall be deemed `material,' '' is equally 
instructive for purposes of determining what changes are material under 
Rule 13d-2(b).
---------------------------------------------------------------------------

    \380\ 17 CFR 240.13d-2(a).
    \381\ Id. (providing that a material change includes, ``but [is] 
not limited to,'' a ``material increase or decrease in the 
percentage of the class beneficially owned'' and that ``acquisitions 
or dispositions of less than [one percent of the class of 
securities] may be material, depending upon the facts and 
circumstances'').
---------------------------------------------------------------------------

4. Rule 13d-2(c) and (d)
    Rule 13d-2(c) governs the amendment obligation for QIIs whose 
beneficial ownership exceeds 10 percent of a covered class. Under Rule 
13d-2(c), QIIs are required to file an amendment to their Schedule 13G 
within 10 days after the end of the first month in which their 
beneficial ownership exceeds 10 percent of a covered class, calculated 
as of the last day of the month. Once across the 10 percent threshold, 
QIIs are further required under current Rule 13d-2(c) to file 
additional amendments within 10 days after the end of the first month 
in which their beneficial ownership increases or decreases by more than 
five percent of the covered class, calculated as of the last day of the 
month.
    Rule 13d-2(d) governs the amendment obligation for Passive 
Investors whose beneficial ownership exceeds 10 percent of a covered 
class. Under current Rule 13d-2(d), Passive Investors are required to 
``promptly'' file an amendment to their Schedule 13G upon acquiring 
greater than 10 percent of a covered class. Once across the 10 percent 
threshold, Passive Investors are further required under current Rule 
13d-2(d) to file additional amendments ``promptly'' if their beneficial 
ownership increases or decreases by more than five percent of the 
covered class.
    The amendment obligations arising under Rule 13d-2(c) and (d) are 
in addition to the general amendment requirement in Rule 13d-2(b), 
which is discussed in more detail in section II.3 above. To comply with 
Rule 13d-2(c) and (d), QIIs and Passive Investors, depending on their 
beneficial ownership levels, may have to amend their Schedule 13G 
filings more frequently and do so throughout the year.
a. Proposed Amendments
    In connection with the proposed amendment to Rule 13d-2(b),\382\ 
the Commission proposed to amend Rule 13d-2(c) to require that QIIs 
file an amendment to their Schedule 13G within five days after the date 
on which their beneficial ownership exceeds 10 percent of a covered 
class, rather than 10 days after the end of the month. Similarly, once 
across the 10 percent threshold, the proposed amendment would have 
required QIIs to file additional amendments five days after the date on 
which their beneficial ownership increases or decreases by more than 
five percent of the covered class, rather than 10 days after the end of 
the month. The Commission intended that these amendments, when 
considered in the context of the proposed amendment to Rule 13d-2(b), 
would preserve the utility of Rule 13d-2(c) as a provision that 
provides the market with earlier notice of QIIs' beneficial ownership 
exceeding 10 percent of a covered class and, thereafter, upon their 
beneficial ownership of the covered class increasing or decreasing by 
more than five percent.\383\ The Commission also expressed the view 
that the imposition of such an accelerated deadline is appropriate in 
the context of our proposed amendment to Rule 13d-2(c) because the high 
thresholds in that rule--10 percent beneficial ownership of a covered 
class and any subsequent five percent increase or decrease in 
beneficial ownership--warranted that the amendment be rapidly 
disseminated to the market.\384\ And, consistent with its rationale for 
proposing to shorten the other deadlines, the Commission noted that 
QIIs may have access to the same technology as other Schedule 13D and 
13G filers to satisfy this deadline, especially given the size and 
sophistication of the persons eligible to file as QIIs.\385\
---------------------------------------------------------------------------

    \382\ See supra section II.A.3.a.
    \383\ Proposing Release at 13858.
    \384\ Id.
    \385\ Id.
---------------------------------------------------------------------------

    The Commission also proposed to amend Rule 13d-2(d) to change the 
amendment filing deadline from the ``promptly'' standard to one 
business day after the date on which an amendment obligation arises. 
The Commission proposed this amendment for substantially the same 
reasons it proposed to shorten the filing deadline for the initial 
Schedule 13G \386\ and change the filing deadline for Schedule 13D 
amendments.\387\
---------------------------------------------------------------------------

    \386\ See supra section II.A.2.a.
    \387\ See supra section II.A.3.a.
---------------------------------------------------------------------------

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

    \388\ See, e.g., letters from AFREF (expressly supporting only 
the proposed amendment to Rule 13d-2(d)); Anonymous 3; Anonymous 5; 
Anonymous 11; Anonymous 12; Anthony R.; C. Robinson; Engineer; 
FedEx; Freeport-McMoRan; HMA I; J. Pieper; J. Soucie; Jonah; Juan; 
Mark C.; Mike; Nasdaq; P. Worts; Todd.
    \389\ See supra notes 38-40, 43-44 and accompanying text; see 
also supra notes 211, 308 and accompanying text.
---------------------------------------------------------------------------

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

    \390\ See, e.g., letters from Anonymous 11; Freeport-McMoRan; J. 
Soucie.
    \391\ See letter from FedEx.
    \392\ See id.
---------------------------------------------------------------------------

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

    \393\ See, e.g., letters from A. Day; ABA; AIMA; B. Mason; Dodge 
& Cox; EEI (opposing only the proposed amendment to Rule 13d-2(d)); 
ICI I; MFA; MSBA (same); Perkins Coie; SSC (opposing only the 
proposed amendment to Rule 13d-2(c)); TIAA (same).
    \394\ See supra notes 99, 101-102, 226, 236, 243, 247, 250, 327 
and accompanying text.
---------------------------------------------------------------------------

    In addition, some commenters also expressed concern that the 
proposed amendment to Rule 13d-2(c) would impose significant and 
unnecessary additional reporting burdens on QIIs, including costs 
related to enhancing their systems to comply with potential

[[Page 76924]]

intra-month reporting.\395\ Another commenter asserted that retaining 
the current Schedule 13G amendment filing deadline under Rule 13d-2(c) 
would be consistent with the Commission's historical recognition that 
beneficial ownership by QIIs does not raise the same concerns as 
beneficial ownership by investors that hold positions with a control 
intent and, therefore, it is appropriate to minimize the reporting 
burdens on QIIs.\396\
---------------------------------------------------------------------------

    \395\ See, e.g., letters from ABA; ICI I; MFA. One commenter 
noted that proposed amendment represents a radical change for QIIs 
as it will require them to shift from monitoring and reporting 
Schedule 13G positions on a monthly basis to a daily basis. See 
letter from MFA. The commenter also stated that the proposed 
amendment would be particularly burdensome for algorithmic traders 
whose investments are in a perpetual state of flux. Id.
    \396\ See letter from ICI I.
---------------------------------------------------------------------------

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

    \397\ See letter from MSBA.
    \398\ See letter from EEI.
---------------------------------------------------------------------------

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

    \399\ See, e.g., letters from Dodge & Cox; IAA; ICI I; MSBA.
    \400\ See supra notes 92-94, 220, 223 and accompanying text.
    \401\ See letter from MSBA.
    \402\ See letters from ABA; MFA. One commenter stated that 
because QIIs do not have any control intent, the timing of their 
beneficial ownership reporting is not a source of meaningful 
concern. See letter from ABA.
---------------------------------------------------------------------------

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

    \403\ See letter from IAA.
---------------------------------------------------------------------------

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

    \404\ See letters from EEI; Perkins Coie.
    \405\ See letter from EEI.
    \406\ See letter from ABA.
    \407\ See letter from IAA. The commenter further noted that 
``Passive Investors (and QIIs) who lose eligibility to file on 
Schedule 13G--for example, by changing to a control intent--
currently have 10 calendar days . . . to file their initial Schedule 
13D reflecting this change in intent'' and that ``[i]t seems 
inconsistent with the materiality of the information disclosed to 
require Passive Investors who remain passive to file a Schedule 13G 
amendment in a shorter timeline than formerly-Passive Investors who 
have to file a Schedule 13D.'' Id.
---------------------------------------------------------------------------

c. Final Amendments
    We are amending Rule 13d-2(c) and (d) to revise the Schedule 13G 
amendment filing deadlines under those rules. In response to commenter 
concerns, however, we are making some changes from the proposed 
deadlines. Specifically, we are adopting a filing deadline of five 
business days \408\ after the end of the first month in which an 
amendment obligation is triggered under Rule 13d-2(c) and two business 
days after the date on which an amendment obligation is triggered under 
Rule 13d-2(d).
---------------------------------------------------------------------------

    \408\ See supra note 134 for a discussion of the new definition 
of ``business day'' that we are adopting for purposes of Regulation 
13D-G.
---------------------------------------------------------------------------

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

    \409\ See Proposing Release at 13858 (stating that the proposed 
amendments to Rule 13d-2(c), ``when considered in the context of our 
proposed amendment to Rule 13d-2(b), preserve the utility of Rule 
13d-2(c) as a provision that provides the market with earlier notice 
of'' significant changes in QIIs' beneficial ownership).
---------------------------------------------------------------------------

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

    \410\ See supra section II.A.3.c.
    \411\ See supra notes 394-396 and accompanying text.
---------------------------------------------------------------------------

    Notwithstanding those commenters' concerns, we believe it is 
appropriate to accelerate the filing deadline in Rule 13d-2(c) in order 
for investors to receive material information in a timely manner

[[Page 76925]]

in light of the technological advancements and other developments in 
the financial markets \412\ in the more than 40 years since the 10-day 
deadline was adopted.\413\ As such, we are shortening Rule 13d-2(c)'s 
filing deadline from 10 days after month-end to five business days 
after month-end. Because the deadline is being expressed in ``business 
days'' instead of ``days,'' \414\ and given the size and sophistication 
of the persons eligible to file as QIIs, we do not expect that this new 
filing deadline under Rule 13d-2(c) will be unduly burdensome.
---------------------------------------------------------------------------

    \412\ See supra notes 138-144 and accompanying text for some 
examples of those advancements and developments.
    \413\ See Filing and Disclosure Release (adopting the 
predecessor to current Rule 13d-2(c)).
    \414\ The five-business day deadline after month-end, as 
compared to a hypothetical five-calendar day deadline, will give 
beneficial owners additional time before their Schedule 13G 
amendment is due if the filing period encompasses days that are not 
business days (i.e., Saturday, Sunday, or a Federal holiday).
---------------------------------------------------------------------------

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

    \415\ See Proposing Release at 13858.
    \416\ See supra section II.A.3.c.
---------------------------------------------------------------------------

5. Rules 13(a)(4) and 201(a) of Regulation S-T
    Regulation 13D-G states that Schedules 13D and 13G should be 
prepared in accordance with Regulation S-T, which governs the 
preparation and submission of documents filed electronically on the 
Commission's EDGAR system.\417\ In accordance with 17 CFR 232.12, 
electronic filings may be submitted to the Commission Monday through 
Friday, except Federal holidays, from 6 a.m. to 10 p.m. Eastern 
Time.\418\ Under Rule 13(a) of Regulation S-T, however, most filings 
must be submitted by direct transmission commencing on or before 5:30 
p.m. Eastern Time in order to be deemed filed on the same business 
day.\419\ Most filings submitted by direct transmission commencing 
after 5:30 p.m. will be deemed filed as of the next business day.\420\ 
Rule 13(a)(4) of Regulation S-T, however, sets forth certain exceptions 
from that 5:30 p.m. ``cut-off'' time. Specifically, it provides that 
certain filings--namely, Forms 3, 4 and 5, Form 144, and Schedule 14N--
``submitted by direct transmission on or before 10 p.m. [Eastern Time] 
shall be deemed filed on the same business day.'' \421\ Rule 13(a)(4), 
therefore, effectively extends the ``cut-off'' time for these filings 
from 5:30 p.m. to 10 p.m.
---------------------------------------------------------------------------

    \417\ The preamble to Regulation 13D-G states, in relevant part, 
that ``[t]his regulation should be read in conjunction with 
Regulation S-T (part 323 of this chapter), which governs the 
preparation and submission of documents in electronic format'' (all 
capitalized letters in the original).
    \418\ 17 CFR 232.12(c).
    \419\ See 17 CFR 232.13(a)(2).
    \420\ Id.
    \421\ 17 CFR 232.13(a)(4). Rule 13(a)(3) also provides the same 
accommodation for registration statements or any post-effective 
amendment thereto filed pursuant to 17 CFR 230.462(b) (``Rule 
462(b)''). See 17 CFR 232.13(a)(3).
---------------------------------------------------------------------------

    In addition, Rule 201 of Regulation S-T and 17 CFR 232.202 (``Rule 
202 of Regulation S-T'') address hardship exemptions from EDGAR filing 
requirements, and Rule 13(b) of Regulation S-T addresses the related 
issue of filing date adjustments. A filer may obtain a temporary 
hardship exemption under current Rule 201 of Regulation S-T if it 
experiences unanticipated technical difficulties that prevent the 
timely submission of an electronic filing by submitting a properly 
formatted paper copy of the filing under cover of Form TH.\422\ 
Alternatively, instead of pursuing a hardship exemption, a filer may 
request a filing date adjustment under Rule 13(b) of Regulation S-T. 
That rule addresses circumstances in which a filer attempts in good 
faith to file a document with the Commission in a timely manner, but 
the filing is delayed due to technical difficulties beyond the filer's 
control.\423\ In those instances, the filer may request a filing date 
adjustment.\424\ The staff may grant the request if it appears that the 
adjustment is appropriate and consistent with the public interest and 
the protection of investors.\425\
---------------------------------------------------------------------------

    \422\ 17 CFR 232.201(a).
    \423\ 17 CFR 232.13(b).
    \424\ Id.
    \425\ Id.
---------------------------------------------------------------------------

a. Proposed Amendments
    In the Proposing Release, the Commission proposed to amend Rule 
13(a)(4) of Regulation S-T to provide that any Schedule 13D or Schedule 
13G, including any amendments thereto, submitted by direct transmission 
on or before 10 p.m. Eastern Time on a given business day will be 
deemed filed on the same business day.\426\ Conversely, under the 
proposed amendment, any Schedule 13D or 13G filing not submitted by 
direct transmission by 10 p.m. on its due date will be assigned a 
filing date of the next business day, and for purposes of compliance 
with the applicable reporting requirements, would be considered late. 
The Commission proposed this extension of the ``cut-off'' time to ease 
filers' administrative burdens in connection with the proposed 
accelerated filing deadlines for Schedule 13D and 13G filings, 
including those filers located in different time zones.\427\
---------------------------------------------------------------------------

    \426\ Notwithstanding the proposed extension of the time period 
in which accepted Schedule 13D and 13G filings may be made and still 
be considered timely, the Commission stated that filer support hours 
would not be extended. Proposing Release at 13859, n.82. Thus, filer 
support would continue to remain available only until 5:30 p.m. 
Eastern Time as is currently the case.
    \427\ Proposing Release at 13859.
---------------------------------------------------------------------------

    The Commission also proposed to amend Rule 201(a) of Regulation S-T 
to remove a Schedule 13D or 13G filer's ability to rely on a temporary 
hardship exemption under that rule. The Commission noted that this 
proposal would be consistent with the treatment of Forms 3, 4, and 5, 
which have a 10 p.m. ``cut-off'' time under Rule 13(a)(4) of Regulation 
S-T and are ineligible for a temporary hardship exemption under Rule 
201(a) of Regulation S-T.\428\ The Commission also based this proposal 
on the following factors: the relative ease of using the EDGAR on-line 
filing system; the proposed extended 10 p.m. Eastern Time filing 
deadline; the limited value to the public of paper filings; and the 
availability of a filing date adjustment under the same circumstances 
as a temporary hardship exemption would have been available but for the 
proposed amendment.\429\
---------------------------------------------------------------------------

    \428\ Id.
    \429\ Id. at 13859-60.
---------------------------------------------------------------------------

b. Comments Received
    Commenters largely supported the proposed amendments to Rules 
13(a)(4) and 201(a) of Regulation S-T,\430\ with only one commenter 
expressly opposing the proposed amendment to Rule 201(a)

[[Page 76926]]

of Regulation S-T.\431\ One of the supporting commenters asserted that 
additional time to file would be critical under the Commission's 
proposed acceleration of the Schedule 13D and 13G filing 
deadlines.\432\ Another supporting commenter noted that the proposed 
amendment to Rule 13(a)(4) would conform to the section 16 filing 
deadlines and help ease the compliance burdens of shortened filing 
deadlines and time zone differences.\433\
---------------------------------------------------------------------------

    \430\ See letters from EIM I (supporting only the proposed 
amendment to Rule 13(a)(4)); Engineer; Hoak (same); IAA (same); ICI 
I.
    \431\ See letter from EIM I.
    \432\ See letter from ICI I.
    \433\ See letter from IAA.
---------------------------------------------------------------------------

    Some commenters also made recommendations in connection with the 
proposed amendments to Rules 13(a)(4) and 201(a) of Regulation S-T. One 
supporting commenter recommended that the Commission extend filer 
support hours beyond 6 p.m. Eastern Time.\434\ Another commenter, which 
neither clearly supported nor opposed the proposed amendment to Rule 
201(a), stated that it would not object to making a temporary hardship 
exemption unavailable to Schedules 13D and 13G filers as long as a 
filer may request a filing date adjustment under Rule 13(b) of 
Regulation S-T if it experiences unanticipated technical difficulties 
that prevent the timely submission of an electronic filing.\435\
---------------------------------------------------------------------------

    \434\ See letter from ICI I.
    \435\ See letter from IAA.
---------------------------------------------------------------------------

c. Final Amendments
    We are amending Rules 13(a)(4) and 201(a) of Regulation S-T as 
proposed. Thus, the filing ``cut-off'' time for Schedules 13D and 13G 
under Rule 13(a)(4) of Regulation S-T will be extended from 5:30 p.m. 
to 10 p.m. Eastern Time. In addition, the temporary hardship exemption 
under Rule 201(a) of Regulation S-T will be made unavailable for 
Schedule 13D and 13G filers. Schedule 13D and 13G filers will, however, 
remain eligible to request a filing date adjustment under Rule 13(b) of 
Regulation S-T.\436\
---------------------------------------------------------------------------

    \436\ One commenter requested that we allow Schedule 13D and 13G 
filers to request a filing date adjustment under Rule 13(b) of 
Regulation S-T if they experience unanticipated technical 
difficulties. See supra note 435 and accompanying text. For example, 
as noted above and consistent with the Commission's statement in the 
Proposing Release, ``[f]iling date adjustments may . . . be made if 
a filer is unable to submit its Schedule 13D or 13G as a result of 
an EDGAR outage . . . under Rule 13(b) of Regulation S-T on the 
grounds that such outage constitutes technical difficulties beyond 
the filer's control.'' Proposing Release at 13860, n.84.
---------------------------------------------------------------------------

    We are adopting these amendments as proposed for the same reasons 
the Commission discussed in the Proposing Release,\437\ which were 
largely supported by the commenters.\438\ We note that a commenter also 
requested that we extend filer support hours beyond 6 p.m. Eastern 
Time.\439\ As the Commission noted in the Proposing Release, however, 
the amendment to Rule 13(a)(4) of Regulation S-T mirrors the existing 
filing ``cut-off'' time for Forms 3, 4, and 5.\440\ In extending the 
filing ``cut-off'' time for those forms, the Commission declined to 
extend filer support hours.\441\ We also decline to do so here in light 
of the relative ease of using the EDGAR on-line filing system, the 
extension of the ``cut-off'' time by four and a half hours, and the 
availability of a filing date adjustment if the filer experiences 
unanticipated technical difficulties as previously described.
---------------------------------------------------------------------------

    \437\ See Proposing Release at 13859-60 (``We are proposing to 
amend Rule 201(a) of Regulation S-T to make temporary hardship 
exemptions unavailable to filers of Schedules 13D and 13G because 
of: The relative ease of using the EDGAR on-line filing system; the 
proposed extended 10 p.m. eastern time filing deadline; the limited 
value to the public of paper filings; and the availability of a 
filing date adjustment under the same circumstances as a temporary 
hardship exemption would have been available but for the proposed 
amendment.''); see also supra section II.A.5.a.
    \438\ See supra section II.A.5.b.
    \439\ See supra note 434 and accompanying text.
    \440\ Proposing Release at 13859, n.82.
    \441\ See Mandated Electronic Filing and Website Posting for 
Forms 3, 4 and 5, Release No. 34-47809 (May 7, 2003) [68 FR 25788 at 
25793 (May 13, 2003)] (``[W]e have amended Rule 13(a) to provide 
that any Form 3, 4 or 5 submitted by direct transmission on or 
before 10 p.m. Eastern time is deemed filed on the same business 
day. However, filer support hours will not be correspondingly 
extended . . . .'').
---------------------------------------------------------------------------

B. Proposed Amendment to Rule 13d-3 Regarding the Use of Cash-Settled 
Derivative Securities

    Neither section 3(a) nor section 13(d) of the Exchange Act defines 
the term ``beneficial owner'' or ``beneficial ownership.'' Regulation 
13D-G similarly does not expressly define those terms. To provide 
clarity, the Commission adopted Rule 13d-3, which provides standards 
for the purpose of determining whether a person is a beneficial owner 
subject to section 13(d) and section 13(g).\442\ Over the years, some 
observers have raised concerns about the ability of investors in cash-
settled derivative securities to influence or control an issuer by, for 
example, pressuring a counterparty to the derivative transaction to 
make certain decisions regarding the voting and disposition of 
substantial blocks of securities of the reference issuer.\443\ To 
address these and related concerns,\444\ the Commission proposed new 
Rule 13d-3(e).
---------------------------------------------------------------------------

    \442\ Adoption of Beneficial Ownership Disclosure Requirements, 
Release No. 34-13291 (Feb. 24, 1977) [42 FR 12342 (Mar. 3, 1977)]. 
The Commission emphasized that ``[a]n analysis of all relevant facts 
and circumstances in a particular situation is essential in order to 
identify each person possessing the requisite voting power or 
investment power.'' Id. at 12344.
    \443\ See, e.g., Maria Lucia Passador, The Woeful Inadequacy of 
Section 13(d): Time for a Paradigm Shift?, 13 VA. L. & Bus. Rev. 
279, 296-99 (2019) (``[I]n the recent past, cash-settled equity 
derivatives--mainly call and security-based options--were frequently 
used not only with a speculative and hedging purpose, but also with 
the immediate, explicit, and specific aim of silently accumulating a 
leading (or even control) position in public companies.''); Wachtell 
Petition, supra note 139, at 8 (``Even in the absence of voting or 
dispositive power, participants in large hedging transactions gain 
influence in a number of ways. . . . [V]oting of the shares may be 
subject to counterparty influence or control, either directly or 
because the counterparty is motivated to vote the hedged shares in a 
way that will please the investor and induce them to continue to 
transact with such counterparty. . . . Even those derivatives that 
are characterized as `cash-settled' may ultimately be settled in 
kind, creating further market pressure as the participants need to 
acquire shares for such settlement.'').
    \444\ Proposing Release at 13861.
---------------------------------------------------------------------------

1. Proposed Amendment
    The Commission proposed to add new paragraph (e) to Rule 13d-3 to 
deem certain holders of cash-settled derivative securities, other than 
SBS, to be the beneficial owners of the reference covered class. 
Proposed Rule 13d-3(e)(1) would have treated a holder of a cash-settled 
derivative security, excluding SBS, as the beneficial owner of the 
equity securities in the covered class referenced by the cash-settled 
derivative security if such person held the cash-settled derivative 
security with the purpose or effect of changing or influencing the 
control of the issuer of the class of equity securities, or in 
connection with or as a participant in any transaction having that 
purpose or effect.\445\ The Commission included this control-based 
standard in proposed Rule 13d-3(e) to ease the administrative burdens 
associated with the application of this proposed provision by employing 
a familiar standard under Regulation 13D-G.\446\ In addition, proposed 
Rule

[[Page 76927]]

13d-3(e) would have set forth the formula for calculating the number of 
equity securities that a holder of a cash-settled derivative security 
would be deemed to beneficially own.\447\
---------------------------------------------------------------------------

    \445\ Proposing Release at 13862. Proposed paragraph (e)(1) also 
would have included a provision stating that any securities that are 
not outstanding but are referenced by the relevant cash-settled 
derivative security would be deemed to be outstanding for the 
purpose of calculating the percentage of the relevant covered class 
beneficially owned by the holder of the derivative security. Id. at 
13862-63. Those reference securities, however, would not have been 
deemed to be outstanding for the purpose of any other person's 
calculation of the percentage of the covered class it beneficially 
owns. Id.
    \446\ Id. (noting that ``the concept `purpose or effect of 
changing or influencing the control of the issuer' is a familiar one 
under Regulation 13D-G, both in the context of determining whether a 
person is a beneficial owner under Rule 13d-3 and for purposes of 
determining whether a beneficial owner is eligible to report on 
Schedule 13G in lieu of Schedule 13D under Rule 13d-1'').
    \447\ See id. at 13863 (describing that formula and providing 
illustrative examples of its application). The Commission also 
proposed three notes to Rule 13d-3(e) that would have clarified the 
application of the proposed rule's formula. Id. at 13863-64.
---------------------------------------------------------------------------

    In proposing Rule 13d-3(e), the Commission noted that non-SBS cash-
settled derivative securities held with the purpose or effect of 
changing or influencing control of the issuer may be used to influence 
the voting, acquisition, or disposition of any shares the holder's 
counterparty may have acquired in a hedge, proprietary investment, or 
otherwise.\448\ The Commission also stated that a non-SBS cash-settled 
derivative holder's probability of success in exerting influence or 
control over the issuer of the reference security may increase given 
that any voting power the derivative holder held would be magnified by 
minimizing the number of shares that potentially could be voted against 
the holder's plans or proposals.\449\ Finally, the Commission 
recognized that holders of non-SBS cash-settled derivative securities 
may position themselves to acquire any reference securities that the 
counterparty may acquire to hedge the economic risk of that 
transaction.\450\ The Commission also noted that holders of non-SBS 
cash-settled derivative securities may present their economic positions 
to persuade an issuer or its shareholders to engage with them.\451\ The 
Commission concluded, therefore, that these persons' holdings of non-
SBS cash-settled derivative securities may implicate the policies 
underlying section 13(d).\452\
---------------------------------------------------------------------------

    \448\ Id. at 13862.
    \449\ Id. The Commission acknowledged the possibility that 
derivative counterparties may have a business relationship to 
develop and protect, and thus may ultimately cast votes in 
accordance with the preference of the derivative holder or not vote 
the shares. See id.
    \450\ Id.
    \451\ Id.
    \452\ Id. (citing the Filing and Disclosure Release, which notes 
that section 13(d)'s legislative history indicates that the purpose 
of that section is ``to provide information to the public and the 
affected issuer about rapid accumulations of its equity securities'' 
by ``persons who would then have the potential to change or 
influence control of the issuer.'').
---------------------------------------------------------------------------

2. Comments Received
    Commenters were divided on proposed Rule 13d-3(e). Many commenters 
expressed general support for the proposed amendment.\453\ A number of 
these commenters indicated that proposed Rule 13d-3(e) would add needed 
market transparency.\454\ One commenter expressed the view that the 
proposal would mitigate what it described as ``hidden risk 
concentration.'' \455\ Another commenter stated that the proposal would 
provide ``the markets more generally with full information'' and allow 
stockholders to better assess whether to support or oppose activists' 
proposals.\456\ Some commenters asserted that an investment fund used 
derivatives (reportedly forward purchase contracts) to conceal an 
economic interest in an issuer that it later converted into a 
profitable beneficial ownership stake ultimately reported on Schedule 
13D.\457\
---------------------------------------------------------------------------

    \453\ See, e.g., letters from Andres Loubriel (Feb. 19, 2022) 
(``A. Loubriel''); AFL-CIO; AFREF; AFREF, et al.; Anonymous (Feb. 
25, 2022) (``Anonymous 7''); Better Markets I; Convergence; Dan 
Pierce (Feb. 20, 2022) (``D. Pierce''); Freeport-McMoRan; FundApps; 
HMA I; Justin G. (Feb. 19, 2022) (``Justin G.''); Labor Unions; Mark 
C.; NIRI; P. Worts; PL Salvati; Henry T Hu, Allan Shivers Chair in 
the Law of Banking and Finance at the University of Texas Law School 
(Apr. 11, 2022) (``Prof. Hu''); Robert Rutkowski (Apr. 12, 2022) 
(``R. Rutkowski''); Samuel Ryan, Senior Battery Test Engineer, ESS 
Inc. (Feb. 18, 2022) (``S. Ryan''); SCG; Sen. Baldwin, et al.; T. 
Reilly; Todd; WLRK I; WLRK II; see also Letter Type C.
    \454\ See, e.g., letters from AFL-CIO; AFREF; Better Markets I; 
Convergence; D. Pierce; FundApps; Justin G.; Labor Unions; NIRI; P. 
Worts; PL Salvati; Prof. Hu; SCG; WLRK I; WLRK II.
    \455\ See letter from Better Markets I.
    \456\ See letter from WLRK II.
    \457\ See letters from NIRI; SCG.
---------------------------------------------------------------------------

    Opposing commenters, by contrast, raised numerous objections to 
proposed Rule 13d-3(e).\458\ Some of these commenters questioned 
whether there was a sound basis for the proposal.\459\ One commenter 
asserted that the proposal was not based on empirical analysis or 
``evidence to establish . . . an actual problem in the marketplace'' 
and is a ``solution in search of a problem.'' \460\ Other commenters 
asserted that holders of cash-settled derivative securities should not 
be deemed beneficial owners because such derivative securities confer 
no control or influence over the voting or disposition of the reference 
equity securities.\461\ Some commenters asserted that in actuality, a 
counterparty would not look to the derivative holder as to whether to 
acquire for hedging purposes, or how to vote and/or dispose of, any 
securities of the reference class or that doing so would be contrary to 
market practice and/or standard industry legal documentation.\462\ 
Several opposing commenters asserted that investors in cash-settled 
derivative securities already may be subject to regulation as 
beneficial owners under existing Rule 13d-3 in applicable circumstances 
or that the Commission could proceed via interpretation or other means 
and without a rule amendment.\463\ Similarly, one commenter stated that 
it may not be necessary to deem investors in cash-settled derivative 
securities beneficial owners if the Commission is satisfied that 
derivative counterparties can effectively and irrevocably contract out 
of the right to convert such derivatives to either physical ownership 
of underlying shares or any other form of voting rights.\464\
---------------------------------------------------------------------------

    \458\ See, e.g., letters from ABA; AIMA; B. Mason; CIRCA I; 
CIRCA III; EIM I; IAA; ICI I; ICM; J. Kennedy; MFA; Robert 
Plesnarski, O'Melveny & Myers LLP (June 27, 2023) (``O'Melveny & 
Myers''); Perkins Coie; Prof. Gordon; Profs. Bishop and Partnoy I; 
Profs. Bishop and Partnoy II; Profs. Bishop and Partnoy III; Profs. 
Eccles and Rajgopal; SIFMA; SIFMA AMG; SIFMA & SIFMA AMG; STB; TIAA. 
We note that several commenters expressed concern that proposed Rule 
13d-3(e) would ``[a]ssign[] voting rights to derivative holders.'' 
See, e.g., letter from Susanne Trimbath, Ph.D., Economist, Author, 
Retired Professor (June 24, 2023); see also Letter Type B; Letter 
Type D, available at https://www.sec.gov/comments/s7-06-22/s70622-typed.htm; Letter Type E, available at https://www.sec.gov/comments/s7-06-22/s70622-typee.htm. For avoidance of doubt, we note that 
neither proposed Rule 13d-3(e) nor any of the other Proposed 
Amendments, nor any of the final amendments we are adopting, would 
have that effect.
    \459\ See letters from CIRCA I; MFA; Profs. Bishop and Partnoy 
III; SIFMA; SIFMA AMG.
    \460\ See letter from EIM I.
    \461\ See letters from ABA; AIMA; CIRCA I; EIM I; IAA; MFA; STB; 
TIAA.
    \462\ See letters from ABA; CIRCA I; EIM I; O'Melveny & Myers; 
SIFMA; SIFMA AMG; STB.
    \463\ See letters from AIMA; CIRCA I; EIM I; IAA; ICI I; MFA; 
Profs. Bishop and Partnoy II; Profs. Bishop and Partnoy III; SIFMA; 
SIFMA AMG. One commenter expressly recommended that the Commission 
issue interpretive guidance on this point. See letter from Profs. 
Bishop and Partnoy II; see also letter from Profs. Bishop and 
Partnoy III. Similarly, another commenter suggested that the 
Commission ``publish clarifying guidance explaining that the 
beneficial ownership determination for all cash-settled derivatives 
is consistent with the treatment of SBS, as described in the 2011 
Release.'' See letter from IAA. The ``2011 Release'' that the 
commenter refers to is Beneficial Ownership Reporting Requirements 
and Security-Based Swaps, Release No. 34-64628 (June 8, 2011) [76 FR 
34579 (June 14, 2011)], which we henceforth refer to as the 
``Security-Based Swaps Release.''
    \464\ See letter from Wm. Robertson Dorsett, Columbia Law School 
(Feb. 11, 2022).
---------------------------------------------------------------------------

    In addition, some opposing commenters expressed concerns regarding 
proposed Rule 13d-3(e) related to the APA or the Commission's statutory 
authority to adopt the proposal. For example, some commenters said that 
the proposal represents an inappropriate expansion of the applicable 
statutory provisions \465\

[[Page 76928]]

or would be arbitrary and capricious, if adopted.\466\ Further, one 
commenter emphasized that ``[b]y focusing on speculative harms; failing 
to engage seriously with the question whether new or different rules 
were needed to combat them; and failing to consider costs, the Proposed 
Rule falls short of providing a sound justification for the proposals 
being made.'' \467\ The commenter stated that ``[f]or these reasons, 
the Commission has not satisfied its obligations under sections 3(f) 
and 23(a)(2) of the Exchange Act.'' \468\
---------------------------------------------------------------------------

    \465\ See letters from ABA; IAA; MFA; Wm. Robertson Dorsett, 
Columbia Law School (Apr. 11, 2022). One of these commenters also 
stated that the proposal would be inconsistent with the Commission's 
interpretation in the Security-Based Swaps Release. See letter from 
MFA. Another commenter questioned the Commission's authority to 
adopt proposed Rule 13d-3(e) ``when Rule 13d-3(a) and all relevant 
authority relating to an understanding of beneficial ownership has 
historically required a showing of control over the voting or the 
disposition of securities.'' See letter from ABA.
    \466\ See letter from EIM I.
    \467\ See letter from SIFMA; see also letter from SIFMA & SIFMA 
AMG.
    \468\ See letter from SIFMA. The commenter also recommended that 
the Proposed Amendments be revised and re-proposed for notice and 
comment. See id.
---------------------------------------------------------------------------

    Finally, some opposing commenters discussed other concerns 
regarding proposed Rule 13d-3(e). Some commenters expressed concern 
that the proposal would inhibit activist investment strategies.\469\ 
Other commenters expressed concern that the proposed rule, including 
its ``change of control'' standard, is overly broad, unclear, and would 
be difficult to administer.\470\ Many commenters indicated that the 
proposal's computational methodology, including the need to conduct 
daily calculations, would be complex or increase the compliance burden 
of the rule.\471\ In addition, one commenter noted that the ``concept 
of beneficial ownership is used . . . in many other federal and state 
laws and rules, as well as in contracts'' and, therefore, ``expanding 
the definition of `beneficial ownership' '' as proposed in Rule 13d-
3(e) could have ``significant unintended consequences.'' \472\ Further, 
another commenter indicated that the proposed rule's expansion of the 
scope of the matters that may give rise to beneficial ownership ``could 
result in potential and significant overreporting by [investment] 
advisers, leading to unfounded inferences from public filings that 
holders of cash-settled derivatives may have voting and investment 
power over securities that they do not, in fact, have, nor do they have 
the right to acquire.'' \473\
---------------------------------------------------------------------------

    \469\ See letters from CIRCA I; MFA.
    \470\ See letters from ABA; CIRCA I; EIM I; IAA; MFA; Perkins 
Coie; SIFMA; SIFMA AMG; TIAA; see also IAC Recommendations (stating 
that the proposed rule, together with the Commission's proposed 17 
CFR 240.10B-1 (``Rule 10B-1''), could ``cause confusion in the 
markets and make compliance difficult for market participants'' and 
recommending that the two proposed rules be better aligned).
    \471\ See letters from ABA; AIMA; IAA; ICI I; Profs. Bishop and 
Partnoy I; SIFMA; SIFMA AMG; SIFMA & SIFMA AMG; STB; TIAA; see also 
letter from MFA & NAPFM.
    \472\ See letter from ICI I.
    \473\ See letter from IAA; see also letters from MFA and Perkins 
Coie that expressed similar concerns about excessive beneficial 
ownership reporting and potential market confusion even though the 
persons holding cash-settled derivatives ordinarily have mere 
economic exposure and no power to vote a reference security or 
influence or change control of an issuer.
---------------------------------------------------------------------------

3. Commission Guidance
    We are not adopting proposed paragraph (e) to Rule 13d-3 to deem 
certain holders of cash-settled derivative securities as beneficial 
owners of the reference covered class. Consistent with the views 
expressed by several commenters, we have determined that Commission 
guidance on the applicability of existing Rule 13d-3 to cash-settled 
derivative securities, similar to the guidance provided in the 
Security-Based Swaps Release,\474\ would provide sufficient 
clarity.\475\
---------------------------------------------------------------------------

    \474\ See supra note 463 and accompanying text.
    \475\ See letter from IAA; see also letter from Profs. Bishop 
and Partnoy II (stating that, under existing Rule 13d-3, holders of 
cash-settled derivative securities may be subject to regulation as 
beneficial owners of the reference equity securities in applicable 
circumstances, and recommending that the Commission not adopt 
proposed Rule 13d-3(e) but instead issue ``guidance on cash-settled 
derivatives'' and ``articulat[e] how the Commission's current rules 
continue to prohibit problematic conduct related to the [Proposing 
Release]'').
---------------------------------------------------------------------------

    The Commission explained in the Security-Based Swaps Release the 
circumstances under which a holder of a SBS may become a beneficial 
owner as determined under Rule 13d-3. It noted that ``our existing 
regulatory regime may require the reporting of beneficial ownership'' 
in cases in which a SBS (1) ``confers voting and/or investment power 
(or a person otherwise acquires such power based on the purchase or 
sale of a [SBS]),'' (2) ``is used with the purpose or effect of 
divesting or preventing the vesting of beneficial ownership as part of 
a plan or scheme to evade the reporting requirements,'' or (3) ``grants 
a right to acquire an equity security.'' \476\ Although the 
determination under Rule 13d-3 as to whether the holder of any cash-
settled derivative security is the beneficial owner of the reference 
covered class ultimately will depend on the relevant facts and 
circumstances, the above-described reasoning in the Security-Based 
Swaps Release (the three elements of which correspond to Rule 13d-3(a), 
(b), and (d)(1), respectively) provides an instructive analytical 
framework with respect to cash-settled derivative securities.
---------------------------------------------------------------------------

    \476\ Security-Based Swaps Release at 34582.
---------------------------------------------------------------------------

    As is the case with persons holding cash-settled SBS, Rule 13d-3 
similarly may be applied to holders of non-SBS cash-settled derivatives 
\477\ to treat those persons as beneficial owners in applicable 
instances. Although non-SBS derivative securities settled exclusively 
in cash generally are designed to represent only an economic interest, 
discrete facts and circumstances could arise where the holder of these 
securities may have voting or investment power as described in Rule 
13d-3(a) or otherwise could be deemed to be a beneficial owner as 
determined under Rule 13d-3(b) or (d), as described below. First, under 
Rule 13d-3(a), to the extent a non-SBS cash-settled derivative security 
provides its holder, directly or indirectly, with exclusive or shared 
voting or investment power, within the meaning of that rule, over the 
reference covered class through a contractual term of the derivative 
security or otherwise, the holder of that derivative security may 
become a beneficial owner of the reference covered class. Second, to 
the extent a non-SBS cash-settled derivative security is acquired with 
the purpose or effect of divesting its holder of beneficial ownership 
of the reference covered class or preventing the vesting of that 
beneficial ownership as part of a plan or scheme to evade the reporting 
requirements of section 13(d) or 13(g), the derivative security may be 
viewed as a contract, arrangement, or device within the meaning of 
those terms as used in Rule 13d-3(b). The holder of such cash-settled 
derivative security, therefore, may be deemed a beneficial owner under 
Rule 13d-3(b) in this context. Finally, under Rule 13d-3(d)(1), a 
person is deemed a beneficial owner of an equity security if the person 
(1) has a right to acquire beneficial ownership of the equity security 
within 60 days or (2) acquires the right to acquire beneficial 
ownership of the equity security with the purpose or effect of changing 
or influencing the control of the issuer of the security for which the 
right is exercisable, or in connection with or as a participant in any 
transaction having such purpose or effect, regardless of when the right 
is

[[Page 76929]]

exercisable.\478\ As the Commission stated in the Security-Based Swaps 
Release, Rule 13d-3(d)(1) applies regardless of the origin of the right 
to acquire the equity security.\479\ If such a right originates in a 
derivative security that is nominally ``cash-settled'' or from an 
understanding in connection with that derivative security, Rule 13d-
3(d)(1) would apply.
---------------------------------------------------------------------------

    \477\ Some commenters expressed the view that non-SBS cash-
settled derivatives only represent an economic interest and that 
section 13 generally should not or does not apply to these 
securities. See letters from ABA; IAA; MFA; Perkins Coie.
    \478\ See Rule 13d-3(d)(1)(i). The first prong described above 
(i.e., the lead-in of Rule 13d-3(d)(1)(i)) applies to any ``right to 
acquire,'' including but not limited to those enumerated in Rule 
13d-3(d)(1)(i)(A) through (D). The second prong described above 
(i.e., the proviso of Rule 13d-3(d)(1)(i)) applies to any ``security 
or power'' specified in Rule 13d-3(d)(1)(i)(A) through (C), thereby 
excluding Rule 13d-3(d)(1)(i)(D) (namely, ``any right to acquire . . 
. pursuant to the automatic termination of a trust, discretionary 
account or similar arrangement'') from the types of securities or 
powers that, if held, can result in the holder being deemed a 
beneficial owner regardless of when the right is exercisable. Thus, 
the holder of any right to acquire beneficial ownership as described 
in Rule 13d-3(d)(1)(i)(D) will be subject to being deemed a 
beneficial owner pursuant to Rule 13d-3(d)(1) if the right creates 
an entitlement to acquire securities of the underlying covered class 
within 60 days.
    \479\ Security-Based Swaps Release at 34582.
---------------------------------------------------------------------------

C. Proposed Amendments to Rule 13d-5

    In the Proposing Release, the Commission proposed to amend Rule 
13d-5 to, among other things:
     Revise Rule 13d-5(b)(1) to remove the potential 
implication that it sets forth the exclusive legal standard for group 
formation under section 13(d)(3) or 13(g)(3);
     Add new paragraph (b)(1)(ii) to specify that if a person, 
in advance of filing a Schedule 13D, discloses to any other person that 
such filing will be made and such other person acquires securities in 
the covered class for which the Schedule 13D will be filed, those 
persons will have formed a group within the meaning of section 
13(d)(3); and
     Add new paragraph (b)(2)(i) to specify that when two or 
more persons ``act as'' a group under section 13(g)(3) of the Act, the 
group will be deemed to have become the beneficial owner, for purposes 
of section 13(g)(1) and (2) of the Exchange Act, of the beneficial 
ownership held by its members.
    Rather than adopt these amendments, we instead are issuing guidance 
on the operation of existing Rule 13d-5(b) and sections 13(d)(3) and 
13(g)(3) that clarifies and affirms that, among other matters, two or 
more persons who ``act as'' a group for purposes of acquiring, holding, 
or disposing securities may be treated as a group.
    In addition to the foregoing, we are adopting certain amendments to 
Rule 13d-5 that the Commission included in the Proposing Release. 
Specifically, we are:
     Adding new paragraph (b)(1)(ii) to specify that a group 
subject to reporting obligations under section 13(d) shall be deemed to 
acquire any additional equity securities acquired by a member of the 
group after the group's formation;
     Adding new paragraph (b)(1)(iii) to carve out from 
paragraph (b)(1)(ii) any intra-group transfers of equity securities;
     Adding new paragraph (b)(2)(i) to specify that a group 
regulated under section 13(g) shall be deemed to acquire any additional 
equity securities acquired by a member of the group after the group's 
formation;
     Adding new paragraph (b)(2)(ii) to carve out from 
paragraph (b)(2)(i) any intra-group transfers of equity securities;
     Redesignating current Rule 13d-5(b)(1) as Rule 13d-
5(b)(1)(i) to accommodate the inclusion of these amendments, but 
otherwise not altering the substance of that rule; and
     Making other technical changes to Rule 13d-5.\480\
---------------------------------------------------------------------------

    \480\ See supra note 22.
---------------------------------------------------------------------------

    Those amendments, as well as our guidance, are discussed in more 
detail below.
1. Proposed Rule 13d-5(b)(1)(i), (b)(2)(i), and (b)(1)(ii)
a. Proposed Amendments
    In the Proposing Release, the Commission proposed to amend Rule 
13d-5 to track the statutory text of sections 13(d)(3) and (g)(3) and 
specify that two or more persons who ``act as'' a group for purposes of 
acquiring, holding, or disposing of securities are treated as a 
group.\481\ Specifically, the Commission proposed to redesignate Rule 
13d-5(b)(1) as Rule 13d-5(b)(1)(i) and revise it to, among other 
things, remove the reference to an agreement between two or more 
persons and instead indicate that when two or more persons act as a 
group under section 13(d)(3), the group will be deemed to have acquired 
beneficial ownership of all of the equity securities of a covered class 
beneficially owned by each of the group's members as of the date on 
which the group is formed. The Commission also proposed new Rule 13d-
5(b)(2)(i), which would contain nearly identical language to proposed 
Rule 13d-5(b)(1)(i), with conforming changes to address circumstances 
in which two or more persons act as a group under section 13(g)(3) and 
the group is deemed to become the beneficial owner of all of the equity 
securities of a covered class beneficially owned by each of the group's 
members as of the date on which the group is formed.
---------------------------------------------------------------------------

    \481\ Proposing Release at 13868-69.
---------------------------------------------------------------------------

    The Commission proposed these amendments, among other things, to 
(1) make clear that ``the determination [under sections 13(d)(3) and 
13(g)(3)] as to whether two or more persons are acting as a group does 
not depend solely on the presence of an express agreement and that, 
depending on the particular facts and circumstances, concerted actions 
by two or more persons for the purpose of acquiring, holding or 
disposing of securities of an issuer are sufficient to constitute the 
formation of a group,'' and (2) eliminate any potential for Rule 13d-
5(b)(1) to be misconstrued as the definition of a group and 
consequently used as a basis to narrow the application of sections 
13(d)(3) and 13(g)(3).\482\
---------------------------------------------------------------------------

    \482\ Id.
---------------------------------------------------------------------------

    In addition, the Commission proposed to amend Rule 13d-5 to include 
new paragraph (b)(1)(ii). The proposed paragraph would provide that a 
person who shares information about an upcoming Schedule 13D filing 
such person is or will be required to make with respect to a covered 
class, to the extent this information is not yet public and was 
communicated with the purpose of causing others to make purchases of 
securities of the same covered class, and a person who subsequently 
purchases securities of that class based on this information, will have 
formed a group within the meaning of section 13(d)(3).
b. Comments Received
    Commenters expressed a wide range of views on proposed Rule 13d-
5(b)(1)(i) and (b)(2)(i).\483\ A number of commenters supported the 
amendments.\484\ One supporting commenter expressed the view that the 
proposed amendments would ensure that the terms of sections 13(d) and 
(g) will be applied as originally intended.\485\ Another commenter 
observed that the proposed amendments appear designed to simply adhere 
to the underlying statutory language in the Exchange Act.\486\ One 
commenter stated

[[Page 76930]]

that it supported the proposed amendments and observed that, under the 
proposed amendments, compliance with the group formation rules would 
not depend on whether an express or implied agreement exists among the 
parties that are acting together.\487\ One commenter asserted that the 
proposed amendments ``could prevent sophisticated investors from 
skirting reporting requirements when coordinating accumulations of 
significant stakes'' which could ``help[ ] ensure retail investors have 
fair insight.'' \488\
---------------------------------------------------------------------------

    \483\ Although commenters generally focused on proposed Rule 
13d-5(b)(1)(i) and did not explicitly address proposed Rule 13d-
5(b)(2)(i), given the substantial similarity of those proposed 
rules, we treat comments on proposed Rule 13d-5(b)(1)(i) as also 
applying to proposed Rule 13d-5(b)(2)(i) unless the comment letter 
stated otherwise.
    \484\ See letters from AFREF; AFREF, et al.; BRT; Freeport-
McMoRan; Labor Unions; Nasdaq; NIRI; P. Worts; Perkins Coie; R. 
Rutkowski; SCG; Sen. Baldwin, et al.; T. Reilly; WLRK I; WLRK II.
    \485\ See letter from NIRI.
    \486\ See letter from WLRK II.
    \487\ See letter from SCG.
    \488\ See letter from P. Worts.
---------------------------------------------------------------------------

    Several commenters expressed views rejecting criticism that the 
proposed amendments would interfere with shareholder activism or 
collaboration.\489\ One of these commenters disagreed with the 
contention by other commenters that such amendments would prevent the 
build-up of ownership stakes and chill shareholder communications.\490\ 
Another commenter disagreed with concerns that the proposal ``would put 
mainstream institutional investors at risk of being deemed part of a 
group simply because they take a meeting with an activist or management 
and indicate that they may be inclined to vote in favor of their 
proposed course of action.'' \491\ This commenter further stated that 
it did not view the proposal as propounding a definition of ``group'' 
that would consider a ``regular passive institutional investor'' as a 
member of a group with an activist simply because it met with an 
activist, heard its proposed plans, and signaled it would likely use 
its voting power to support the activist's proposed campaign.\492\ One 
commenter stated a similar view, asserting that nothing in the proposal 
would limit the ability of investors to engage with company 
management.\493\
---------------------------------------------------------------------------

    \489\ See letters from AFL-CIO; Sen. Baldwin, et al.; WLRK II.
    \490\ See letter from Sen. Baldwin, et al.
    \491\ See letter from WLRK II.
    \492\ See id.
    \493\ See letter from Sen. Baldwin, et al.
---------------------------------------------------------------------------

    In addition, although the IAC did not make a recommendation with 
respect to the proposed amendments to Rule 13d-5 ``because of a lack of 
consensus on the effects of the proposed definition of a `group' and 
how that would impact shareholder communication,'' the IAC stated that 
it ``agree[d] with the SEC's description of existing case-law regarding 
the definition of `group' '' and ``would support the inclusion of such 
description in any final rulemaking regarding Schedule 13D reporting to 
highlight to market participants the scope of such case law when 
considering the applicability of the `group' rules.'' \494\
---------------------------------------------------------------------------

    \494\ See IAC Recommendations.
---------------------------------------------------------------------------

    Numerous commenters opposed the proposed amendments, largely 
because, in their view, the proposed amendments would eliminate a 
requirement that there be some form of ``agreement'' among members of a 
group.\495\ Some opposing commenters expressed the view that the 
proposal--particularly the removal of some form of an ``agreement''--
would exceed the Commission's authority under the Exchange Act or raise 
concerns under the APA or the U.S. Constitution.\496\ One commenter 
asserted that eliminating the ``agreement'' requirement in determining 
whether a group has been formed would contravene the plain meaning of 
the statutory text, disregard the legislative history, and depart from 
``long-established'' judicial precedent.\497\ The same commenter 
asserted that the initial adoption of Rule 13d-5, with what the 
commenter described as its express requirement for an agreement to 
exist in order to establish group status, simply reflected the 
Commission's affirmation of established judicial precedent, not an 
unwarranted departure from the statutory language.\498\ A number of 
commenters expressed similar points of view, and, among other things, 
used canons of construction or statutory analysis to assert that 
persons can only ``act as'' a group under section 13(d)(3) if an 
agreement exists among the group members.\499\ Another commenter 
suggested the absence of the term ``agreement'' from section 13(d)(3) 
did not restrict the Commission's capacity to use the term ``agree'' in 
Rule 13d-5(b) because administrative rulemakings commonly include 
language not present in a statute in order to implement congressional 
intent.\500\
---------------------------------------------------------------------------

    \495\ See letters from Andrew L. Stern, SEIU (Apr. 11, 2022) 
(``A. Stern''); ABA; AIMA; Steven M. Rothstein, Managing Director, 
Ceres Accelerator for Sustainable Capital Markets, Ceres, Inc. (Apr. 
11, 2022) (``Ceres''); CIRCA I; CIRCA III; Dodge & Cox; EIM I; HMA 
II; IAA; ICI I; ICM; MFA; Neuberger Berman Group LLC (Apr. 11, 2022) 
(``NBG''); O'Melveny & Myers; Benjamin Edwards, Associate Professor 
of Law, University of Nevada, Las Vegas, William S. Boyd School of 
Law, Sarah C. Haan, Professor of Law and Cary Martin Shelby, 
Professor of Law, Washington and Lee University School of Law, 
Geeyoung Min, Assistant Professor of Law, Michigan State University 
College of Law, Faith Stevelman, Professor of Law, New York Law 
School (Apr. 12, 2022) (``Prof. Edwards, et al.''); Prof. Gordon; 
David H. Webber, Professor of Law and Paul M. Siskind Scholar, 
Boston University School of Law (Apr. 11, 2022) (``Prof. Webber''); 
Profs. Bishop and Partnoy I; Profs. Bishop and Partnoy II; Profs. 
Bishop and Partnoy III; Halit Coussin, Chief Legal Officer & Chief 
Compliance Officer, Pershing Square Capital Management, L.P. (Apr. 
11, 2022) (``PSCM''); Rice Management; SIFMA; SIFMA AMG; SIFMA & 
SIFMA AMG; SSC; STB; TRP.
    \496\ See letters from CIRCA I; EIM I; ICI I; MFA; Prof. 
Edwards, et al.; PSCM; SIFMA.
    \497\ See letter from EIM I.
    \498\ See id.
    \499\ See letters from CIRCA I; EIM I, MFA; SIFMA; SIFMA AMG.
    \500\ See letter from PSCM.
---------------------------------------------------------------------------

    Some opposing commenters expressed concern that the proposed 
amendments would introduce a standard that was overly broad and that 
could chill or eliminate shareholder communications with other 
shareholders, issuers' management and/or other parties.\501\ One 
commenter expressed the view that the proposal could deter investors 
from engaging in ``socially valuable activism'' and noted that to the 
extent that the proposed rules resulted in restraints on shareholder 
communications, that may lead to claims that the proposed rules burden 
investors' First Amendment rights.\502\ The commenter also stated that 
the Commission ``should take care to minimize any burdens on investors' 
expression.'' \503\ Other commenters anticipated that under the 
proposed amendments, ordinary course business transactions or 
conversations, without more, could result in a finding of group 
formation.\504\ One commenter raised the concern that the proposed rule 
would produce disruptive collateral consequences, including in relation 
to ownership reporting under the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976 Act as it is uncertain whether being deemed a 
member of a group would deprive an investor of relying on the ``passive 
investor'' exemption from the antitrust notification requirements under 
that statute.\505\ A number of commenters also asserted that the 
proposed amendments would prompt litigation over whether communications 
between parties resulted in group formation.\506\ Some commenters 
expressed the view that the resulting increase in uncertainty that 
would be caused by the proposed amendments also would result in 
additional legal exposure under

[[Page 76931]]

Exchange Act section 16 for persons alleged to have formed a 
group.\507\
---------------------------------------------------------------------------

    \501\ See letters from A. Stern; ABA; Ceres; CIRCA I; Dodge & 
Cox; EIM I; IAA; MFA; NBG; Prof. Edwards, et al.; Prof. Gordon; 
Prof. Webber; Profs. Bishop and Partnoy II; Rice Management; SIFMA; 
STB; TRP; see also letter from MFA & NAPFM.
    \502\ See letter from Prof. Edwards, et al.
    \503\ Id.
    \504\ See letters from HMA II; IAA; MFA; Perkins Coie; Prof. 
Gordon; Profs. Bishop and Partnoy I; SIFMA; SIFMA AMG; SSC; TRP.
    \505\ See letter from PSCM.
    \506\ See letters from ABA; Dodge & Cox; EIM I; Prof. Edwards, 
et al.; Prof. Gordon; PSCM; Rice Management; SIFMA.
    \507\ See letters from ABA; EIM I; SIFMA; see also letter from 
MFA & NAPFM.
---------------------------------------------------------------------------

    Opposing commenters also criticized the proposed amendments as 
inconsistent with those Federal court opinions that have addressed the 
standard for group formation.\508\ One commenter asserted that courts 
have recognized an ``agreement'' as being a necessary element of group 
formation based on the need for a ``workable compromise'' between the 
regulatory objective of having a statute's policies implemented, on one 
hand, and the market's need for clear rules, on the other hand.\509\ 
Another commenter expressed concern that the proposed amendments would, 
in its view, dispense ``with more than 40 years of practice and court 
decisions'' and replace them ``with a vague, circular rule . . . 
impossibly burdensome to market participants.'' \510\ One commenter 
noted that Federal courts ``have consistently held that the existence 
of an agreement is necessary to establish the existence of a `group' 
under Section 13(d).'' \511\ Other commenters expressed the view that 
the existing standards in Rule 13d-5(b) have worked well for decades or 
are not in need of reform.\512\ Notwithstanding these and other similar 
criticisms,\513\ we note that multiple opposing commenters recognized 
that, even today, the determination of whether or not a group exists is 
ultimately dependent upon the facts and circumstances.\514\
---------------------------------------------------------------------------

    \508\ See letters from AIMA; CIRCA I; EIM I; ICI I; MFA; PSCM; 
SIFMA; SIFMA AMG.
    \509\ See letter from SIFMA.
    \510\ See letter from SIFMA AMG.
    \511\ See letter from EIM I (``Until now, courts have sensibly 
required and the markets have understood that there must be an 
agreement (whether implicit or explicit) between shareholders before 
they could be legally found to be a group and subject to the 
consequences of such a finding.'').
    \512\ See letters from AIMA; EIM I; ICI I; Profs. Bishop and 
Partnoy II; PSCM; SSC; STB.
    \513\ See letters from AIMA; CIRCA I; ICI I; MFA; PSCM.
    \514\ See letters from EIM I; ICI I; Profs. Bishop and Partnoy 
I; PSCM; SIFMA; STB.
---------------------------------------------------------------------------

    A number of commenters offered suggestions on how the Commission 
should proceed with respect to the proposed amendments.\515\ Some 
commenters expressed the view that the Commission should set forth more 
specific parameters of what joint conduct or communications may result 
in group formation.\516\ A few commenters offered alternative language 
to be used in any revision the Commission may ultimately adopt.\517\ 
One commenter encouraged the Commission to consider exempting QIIs from 
any new ``group formation'' provisions so long as QIIs act consistently 
with the requirements of Rule 13d-1(b).\518\ One commenter suggested 
that the Commission adopt the equivalent of an exemption from section 
16 for any groups formed pursuant to the proposed amendments.\519\ 
Another commenter suggested that the proposed amendments should not be 
adopted unless a safe harbor is created for securities dealing 
activities.\520\ One commenter recommended no change to the proposal 
but expressed the view that the proposed rules would not interfere with 
shareholder rights to engage in, among other things, shareholder 
activism on ESG issues, collaboration on shareholder proposals under 17 
CFR 240.14a-8 (``Rule 14a-8''), and ``vote no'' initiatives and any 
concerns regarding the filing obligations of such investor groups could 
be clarified by the Commission in an explanatory statement issued with 
any final rule.\521\ Another commenter stated the Commission should 
consider whether the public dissemination of information on message 
boards or through media interviews, and, by extension, social media 
platforms, could result in group formation.\522\ A number of commenters 
recommended no change be made to current Rule 13d-5(b)(1),\523\ which, 
according to some of these commenters, would result in retention of the 
``agreement'' standard. One commenter made reference to existing Rule 
13d-5(b) and advocated for the Commission to retain what it referred to 
as the ``current `group' definition,'' including the requirement that 
there be an agreement to act as a group, because the current provision 
does not: (1) chill shareholder engagement; (2) create the challenge to 
determine whether a group has been formed or if an exemption applies; 
or (3) make activist campaigns more difficult to pursue.\524\
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    \515\ See letters from ABA; AFREF; AIMA; HMA II; IAA; ICI I; 
Labor Unions; MFA; Perkins Coie; Profs. Bishop and Partnoy II 
(expressing the view that it would be sufficient for the Commission 
to issue guidance instead of adopting a rule change and recommending 
that the Commission take the position that it ``intends to enforce 
the `group' definition as it stands''); SIFMA; SSC; STB; TRP.
    \516\ See letters from ABA; HMA II; IAA; Perkins Coie; TRP.
    \517\ See letters from ABA; MFA.
    \518\ See letter from ABA.
    \519\ See letter from SIFMA. One commenter, which generally 
supported the proposal, similarly recommended that the Commission 
address concerns that the proposal could result in a ``regular 
passive institutional investor'' becoming a member of a group with 
an activist simply because it met with the activist, heard its 
proposed plans, and signaled that it would likely use its voting 
power to support the activist's proposed campaign. See letter from 
WLRK II.
    \520\ See letter from SIFMA.
    \521\ See letter from Labor Unions.
    \522\ See letter from STB.
    \523\ See letters from AIMA; ICI I; SIFMA; SSC.
    \524\ See letter from AIMA.
---------------------------------------------------------------------------

    Commenters also expressed differing views on proposed Rule 13d-
5(b)(1)(ii). Some commenters expressly supported the proposal.\525\ One 
commenter stated that because information about a planned Schedule 13D 
filing is clearly material to investors, it makes sense to deem tippers 
and tippees to be acting as a group even without an explicit 
agreement.\526\ Another commenter, while expressing the view that 
modifications should be made to the Commission's overall proposed 
amendments relating to group formation, stated that the ``definition of 
who should constitute a `group' under the proposal . . . should only 
apply to the sharing of material nonpublic information related to not 
yet disclosed large positions instead of efforts to improve the long-
term corporate governance of companies.'' \527\
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    \525\ See letters from Perkins Coie; R. Rutkowski; Reilly Steel, 
Ph.D. Candidate, Department of Politics, Princeton University, and 
Zohar Goshen, Jerome L. Greene Professor of Transactional Law, 
Columbia Law School (May 22, 2023) (``R. Steel and Prof. Goshen'') 
(supporting the proposal conditionally, if Congress does not take 
the action that the commenter recommended as the primary course of 
action and if the Commission actively enforces the proposed rule and 
seeks expansive remedies); SCG.
    \526\ See letter from SCG.
    \527\ See letter from R. Rutkowski.
---------------------------------------------------------------------------

    Other commenters opposed the proposal.\528\ One commenter analyzed 
the proposed rule text and observed that linking ``indirectly 
discloses'' to the ``with the purpose of causing'' clause appears 
intended to establish a presumption, for all practical purposes, that 
an acquisition by ``such other person'' was ``based on such 
information.'' \529\ Another commenter similarly expressed the view 
that such a rule would be unfair given that an adviser may also have 
independently determined to acquire or even continue to hold the same 
securities and disclosure of the imminent Schedule 13D may have been 
outside of the adviser's control and without his or her input or 
expression of approval.\530\

[[Page 76932]]

Another commenter similarly asserted that the proposed rule would place 
those who receive information from a blockholder at risk of 
inadvertently becoming subject to group reporting obligations in 
circumstances that were ``never intended to be covered by Section 13.'' 
\531\
---------------------------------------------------------------------------

    \528\ See letters from Dodge & Cox; EIM I; HMA I (stating its 
belief that ``straightforward application of existing law'' is 
sufficient); IAA; PSCM (citing proposed Rule 13d-5(b)(1)(iii) but 
apparently referring to proposed Rule 13d-5(b)(1)(ii)); SIFMA; SIFMA 
AMG.
    \529\ See letter from SIFMA AMG (adding that this apparent 
presumption would be unfair, inappropriate, and poorly tailored, and 
citing to the example of a client acquiring shares from a dealer who 
also coincidentally acquires shares).
    \530\ See letter from IAA (observing that that adoption of any 
such rule would be unfair absent some intent to form a group because 
certain parties could be restricted from buying shares just because 
a third party told an adviser that it was going to file a Schedule 
13D).
    \531\ See letter from PSCM.
---------------------------------------------------------------------------

    Some commenters provided recommendations to revise the 
proposal.\532\ One commenter suggested the Commission alternatively 
``impose a prohibition on tipping by an activist as soon as it reaches 
the 5 percent disclosure threshold until it files a Schedule 13D.'' 
\533\ One commenter recommended that the Commission address concerns 
that the proposal could result in a passive institutional investor 
becoming a member of a group with an activist simply because it met 
with the activist, heard its proposed plans, and signaled that it would 
likely use its voting power to support the activist's proposed campaign 
by revising proposed Rule 13d-5(b)(1)(ii) to include its suggested 
alternative text.\534\ One commenter, who neither clearly supported nor 
opposed the proposal, stated that it would be ``deeply troubled if the 
Commission were to invent a new, extremely difficult to establish 
element to insider trading law, such as a requirement that the 
recipient of the tip have an intention of coordinating with the tipper 
or make its purchases in reliance on the non-public information that 
the tipper provided.'' \535\ A commenter objected to the concept of 
``indirect'' disclosure within proposed Rule 13d-5(b)(1)(ii) on grounds 
that the term ``indirect'' is ``intrinsically ill-defined'' and could 
create a presumption that certain transactions in the ordinary course 
of a market-making business were executed ``based on such [indirect] 
information.'' \536\ Another commenter similarly suggested that the 
rule, if adopted, should only apply to situations where an express or 
implied intent by parties exists to form a group.\537\
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    \532\ See letters from AIMA; IAA; Prof. Gordon; SIFMA; SIFMA 
AMG; STB.
    \533\ See letter from Prof. Gordon; see also letter from R. 
Steel and Prof. Goshen.
    \534\ See letter from WLRK II. Another commenter, which objected 
to the proposed amendments to Rule 13d-5 in the Proposing Release, 
specifically responded to that commenter's recommended alternative, 
intimating that the Commission should not adopt this suggested 
change for a variety of reasons. See letter from Profs. Bishop and 
Partnoy II.
    \535\ See letter from HMA I.
    \536\ See letter from SIFMA.
    \537\ See letter from IAA.
---------------------------------------------------------------------------

    Commenters also expressed observations concerning the collateral 
consequences to an investor that received information about an 
impending Schedule 13D filing. One commenter implicitly asked the 
Commission to consider that once the tippee has the information, 
``[t]his quasi-lock-up period not only discourages other shareholders 
from meeting with the activist but also, effectively, removes the 
liquidity these other shareholders may provide to the market in that 
issuer.'' \538\ Another commenter suggested the rule should clarify for 
how long a recipient of information that a Schedule 13D filing would be 
forthcoming must remain ``frozen'' from making further purchases, 
particularly if such filing does not get filed in the near term.\539\
---------------------------------------------------------------------------

    \538\ See letter from AIMA.
    \539\ See letter from STB.
---------------------------------------------------------------------------

c. Commission Guidance
    As noted above, we are not adopting proposed Rule 13d-5(b)(1)(i) 
and (ii) and (b)(2)(i). The Commission's stated objectives were to (1) 
align the text of Rule 13d-5(b) with the statutory provisions that it 
serves to implement while clarifying and affirming its application and 
operation and (2) provide clarity on whether a group is formed if a 
person shares information about an upcoming Schedule 13D filing that 
the person is or will be required to make.\540\ The proposed amendments 
were not intended to change how the Commission views what is meant by 
``act as a group'' for purposes of sections 13(d)(3) and 13(g)(3). They 
were intended to codify through a rule amendment our views that ``the 
determination of whether two or more persons are acting as a group does 
not depend solely on the presence of an express agreement and that, 
depending on the particular facts and circumstances, concerted actions 
by two or more persons for the purpose of acquiring, holding or 
disposing of securities of an issuer are sufficient to constitute the 
formation of a group.'' \541\ Several commenters generally shared our 
view that the formation of a group does not depend on the presence of 
an express agreement.\542\ However, some commenters raised objections 
to the proposal based on their view that the amendments could result in 
a group being formed for purposes of sections 13(d)(3) and 13(g)(3) 
absent some evidence of agreement, arrangement, understanding, or 
concerted action. That was not the Commission's intent. Upon 
consideration of the comments received, we believe that the better 
approach is not to adopt the proposed amendment to Rule 13d-5 but 
instead to provide guidance as to the application of the existing legal 
standard established in sections 13(d)(3) and 13(g)(3) with respect to 
the formation of a group.\543\
---------------------------------------------------------------------------

    \540\ See Proposing Release at 13869.
    \541\ Id. at 13868-69.
    \542\ See, e.g., letters from EIM I (``[A]n agreement can be 
constituted informally, and without a writing. The Commission, in 
adopting Rule 13d-5 in 1977, selected the word `agreement' rather 
than `contract' for a reason--an agreement is a less formal 
arrangement, which is consistent with the requirement of Section 
13(d)(3) that the persons `act together.'''); PSCM (``Courts, 
whether looking to the existence of an agreement out of an 
interpretation that Rule 13d-5(b) requires it, or as an 
administrable evidentiary standard for establishing action in 
concert, have interpreted the term `agreement' broadly to include 
informal and unwritten arrangements, and have relied on 
circumstantial evidence in order to establish that some manner of 
agreement existed.''); SIFMA (``[T]he existence of a group surely 
does not depend on the intent of the members to create and wear the 
label of a `Section 13(d) group.' It does, however, depend on an 
intent to take the coordinated actions that will create that 
relationship.''). Cf., letter from ABA (explaining that an agreement 
need not be ``written'' or ``formal'' and acknowledging that Rule 
13d-5(b) could be modified to add ``arrangement or understanding'' 
to address any concern that the term ``agreement'' has been 
misconstrued in the context of Rule 13d-5(b)).
    \543\ In addition to the guidance set forth in this section, we 
provide additional guidance in section II.D.3 in connection with the 
discussion regarding our final disposition of the proposed 
exemptions under Rule 13d-6.
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i. Background of the Regulatory Framework
    Sections 13(d)(3) and 13(g)(3) are identical, and each of these 
provisions provides that ``[w]hen two or more persons act as a . . . 
group for the purpose of acquiring, holding, or disposing of securities 
of an issuer, such . . . group shall be deemed a `person.' '' As the 
Commission noted in the Proposing Release, Congress enacted these 
provisions based on two practical considerations.\544\ First, sections 
13(d)(1) and 13(g)(1), by their terms, apply to, and impose filing 
obligations upon, a single ``person.'' \545\ Second, Congress 
recognized the need to protect against the evasion of disclosure 
requirements by persons who collectively sought to change or influence 
control of an issuer yet who each acquired and held an amount of

[[Page 76933]]

beneficial ownership at or just below the reporting threshold.\546\
---------------------------------------------------------------------------

    \544\ See Proposing Release at 13865.
    \545\ Because sections 13(d)(3) and 13(g)(3) ``deem'' a group to 
be a single ``person,'' the correct articulation of how the 
statutory framework applies in this context is to a ``person, 
including any group'' and not a ``person or group.'' Thus, under 
sections 13(d) and 13(g) and Regulation 13D-G, groups are regulated 
no differently from natural persons or companies described in the 
definition of ``person'' under section 3(a)(9) of the Exchange Act.
    \546\ Section 13(d)(3) was enacted to prevent ``easy avoidance 
of section 13(d)'s disclosure requirements by a group of investors 
acting together in their acquisition or holding of securities.'' S. 
Rep. No. 550, at 8 (1967); H.R. No. 1711, at 8-9 (1968); see also 
113 Cong. Rec. Bill S. 510 (Jan. 18, 1967) (noting that the specific 
provision applicable to groups was added to ``close the loophole 
that now exists which allows a syndicate, where no member owns more 
than 10 percent, to escape the reporting requirements of the 
Securities Exchange Act'').
---------------------------------------------------------------------------

    Congress sought to address this problem of coordinated 
circumvention by deeming two or more persons to be one person for 
purposes of sections 13(d) and 13(g). Based on the statutory treatment 
of two or more persons as if they were a single person when they ``act 
as'' a group for at least one of the three purposes specified in the 
statutory provisions (i.e., acquiring, holding, or disposing of 
securities of an issuer), the beneficial ownership collectively held by 
the group members is imputed to the group. If the aggregate amount of 
beneficial ownership exceeds five percent of a covered class, the group 
may be required to file a beneficial ownership report. The 
determination of which statutory provision (i.e., section 13(d)(3) or 
13(g)(3)) applies to a group depends on whether a non-exempt 
acquisition of beneficial ownership has been made that can be imputed 
to the group and, when on its own or added to any other beneficial 
ownership held by the group, results in the group's beneficial 
ownership exceeding five percent of the covered class. If such an 
acquisition occurs, the group is subject to regulation under section 
13(d).\547\ If no such acquisition attributable to the group has 
occurred, but the collective amount of beneficial ownership held by the 
group members exceeds five percent of a covered class at the end of a 
calendar year under current rules \548\ (or at the end of a calendar 
quarter based on the amendments to Rule 13d-1 we are adopting in this 
release), the group is subject to section 13(g).
---------------------------------------------------------------------------

    \547\ The operative term ``after acquiring'' in section 13(d)(1) 
makes the application of section 13(d) contingent upon the existence 
of an acquisition. Determining that an acquisition has occurred--in 
particular, an acquisition that is neither exempt nor otherwise not 
recognized under section 13(d)(1)--is thus necessary to establish 
the application of section 13(d).
    \548\ See 17 CFR 240.13d-1.
---------------------------------------------------------------------------

ii. Guidance
    Neither the statute nor our rules provide a definition of a 
``group.'' The appropriate legal standard for determining whether a 
group is formed is found in sections 13(d)(3) and 13(g)(3). While some 
may view the language of Rule 13d-5(b) as providing a definition of 
``group,'' we reiterate that neither the current rule nor its 
predecessor \549\ was designed or adopted by the Commission to serve as 
a substitute for the legal standard expressly stated in sections 
13(d)(3) and 13(g)(3) for determining when two or more persons form a 
group.\550\
---------------------------------------------------------------------------

    \549\ The predecessor rule, Rule 13d-6, was redesignated Rule 
13d-5 in 1978. See Filing and Disclosure Release. Unless otherwise 
noted, references to Rule 13d-5 in this section of the release also 
refer to the predecessor Rule 13d-6.
    \550\ When proposing Rule 13d-5(b), the Commission did not 
present the rule as a proposed definition of ``group,'' solicit 
comment on the sufficiency or any limitations of any such 
definition, or use any reference to the term ``group'' in the 
proposed rule text. See Disclosure of Corporate Ownership, Release 
No. 34-11616 (Aug. 25, 1975) [40 FR 42212 (Sept. 11, 1975)]. 
Instead, the Commission explained that it was proposing to define 
the term ``acquisition'' to address certain technical issues with 
respect to section 13(d) and the determination of the due date for a 
Schedule 13D.
---------------------------------------------------------------------------

    Whether two or more persons have formed a group as contemplated by 
sections 13(d)(3) and 13(g)(3) depends on a determination of whether 
they acted together for the purpose of ``acquiring,'' ``holding,'' or 
``disposing of'' securities of an issuer.\551\ Such persons could be 
viewed as acting together if they are taking concerted actions in 
furtherance of any of these purposes.\552\ The determination depends on 
an analysis of all the relevant facts and circumstances and not solely 
on the presence or absence of an express agreement, as two or more 
persons may take concerted action or agree informally.\553\ This 
approach is consistent with the statutory language of sections 13(d)(3) 
and 13(g)(3) and with the purpose of these statutory provisions.\554\ 
It also is consistent with views previously expressed by courts and the 
Commission, which have determined that groups were established by 
activities that fell short of an express agreement.\555\ Indeed, the 
Commission recognizes that for a finder of fact, including the 
Commission itself, to determine that a group has been formed under 
section 13(d)(3) or 13(g)(3), the evidence must show, at a minimum, 
indicia, such as an informal arrangement or coordination in 
furtherance, of a common purpose to acquire, hold, or dispose of 
securities of an issuer. If two or more persons took similar actions, 
that fact is not conclusive in and of itself that a group has been 
formed.\556\ We therefore disagree with the comments raising 
constitutional concerns, as well as the comments concerning the scope 
of our authority under the Exchange Act and the APA. We note, however, 
that those comments were directed at the proposed amendment to Rule 
13d-5 and the belief that the contemplated rule change meant the 
Commission was taking a position that a group could be formed without 
some type of an agreement, arrangement, understanding, or concerted 
action. As explained above, this is not the Commission's view, and we 
are not adopting the proposed amendment to Rule 13d-5. Further, the 
commenters' concerns are not implicated by the guidance we provide 
here.
---------------------------------------------------------------------------

    \551\ The Commission, in adopting Rule 13d-5(b)(1), indicated 
that it viewed the term ``holding'' as subsuming the term 
``voting,'' but nevertheless expressly referenced the term 
``voting'' in the rule for the avoidance of doubt. See Proposing 
Release at 13869 n.135 (citing Filing and Disclosure Release at 
18492).
    \552\ See, e.g., SEC v. Levy, 706 F. Supp. 61, 69 (D.D.C. 1989) 
(``In order to find that a `group' exists under Section 13(d)(3), a 
court must find that two or more people have formed a combination in 
support of a common objective.''); In the Matter of John A. Carley, 
Release No. 34-50695 (Nov. 18, 2004) (``A group need not be formally 
organized, nor memorialize its intentions in writing . . . . All 
that is required is that its members combine in furtherance of a 
common objective.''); In the Matter of John Joslyn, Joseph Marsh, P. 
David Lucas, Steven Sybesma, Stanley Thomas and Jon Thompson, 
Release No. 34-50588 (Oct. 26, 2004).
    \553\ Proposing Release at 13868.
    \554\ Both the House and Senate Reports accompanying the bill 
reflect an effort to prevent circumvention of the reporting 
threshold in this situation with the inclusion of a provision ``that 
would prevent a group of persons who seek to pool their voting or 
other interests from evading the . . . statute because no one 
individual owns more than [five] percent.'' See Disclosure of 
Corporate Equity Ownership, H.R. Rep. No. 1711, at 9 (1968) and Full 
Disclosure of Corporate Equity Ownership and in Corporate Takeover 
Bid, S. 510, Report of the S. Comm. On Banking and Currency, 90th 
Cong. 1, 8 (1967). As such, the reports noted that section 13(d)(3) 
``is designed to obtain full disclosure of the identity of any 
person or group obtaining the benefits of ownership [b]y reason of 
any contract, understanding, relationship, agreement or other 
arrangement'' (emphasis added). S. Rep. No. 550, at 8 (1967); H.R. 
Rep. No. 1711, at. 8-9 (1968), as reprinted in 1968 U.S.C.C.A.N. 
2811, 2818. Id.
    \555\ Group activity may be demonstrated by circumstantial 
evidence. See Proposing Release at 13868, n. 132 (citing SEC v. 
Savoy Indus., Inc., 587 F.2d 1149, 1162 (D.C. Cir. 1978) and noting 
as indicia of group formation: (1) the presence of a common plan or 
goal, Fin. Gen. Bankshares, Inc. v. Lance, 1978 WL 1082, at *9 
(D.D.C. 1978); (2) ``considerable dissatisfaction'' with certain 
officers and a ``desire to reduce'' those officers' role in company 
management, Id. at *10; (3) strategy meetings with, among others, 
attorneys, SEC v. Levy, 706 F. Supp. 61, 70 (D.D.C. 1989); (4) a 
pattern of coordinated stock purchases, Hallwood Realty Partners, LP 
v. Gotham Partners, LP, 286 F.3d 613, 618 (2d Cir. 2002); (5) the 
solicitation of others to join the group, Wellman v. Dickinson, 682 
F.2d 355 363-364 (2d Cir. 1979), cert. denied sub. nom. Dickinson v. 
SEC, 460 U.S. 1069 (1983); or (6) the existence of communications 
between and among group members. Gen. Aircraft Corp. v. Lampert, 556 
F.2d 90, 95 (1st Cir. 1977)); see also supra note 482.
    \556\ The Commission recognizes that inadvertent or coincidental 
contact would not be sufficient to satisfy the standard given the 
absence of volitional acts made in concert or in coordination with 
others.

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

[[Page 76934]]

    Relatedly, we recognize the concern expressed by some commenters 
that the Commission's proposal to amend Rule 13d-5 could chill 
shareholder engagement, with, some commenters asserted, shareholders 
unable to communicate freely with each other or with the issuer's 
management without forming a group. In response to some of the concerns 
raised by commenters, we provide guidance below on the application of 
the current legal standard found in section 13(d)(3) and 13(g)(3) to 
certain common types of shareholder engagement activities.\557\
---------------------------------------------------------------------------

    \557\ Each illustration assumes that the rules adopted in this 
release are in effect and that the securities of the subject company 
are in a covered class.
---------------------------------------------------------------------------

    Question: Is a group formed when two or more shareholders 
communicate with each other regarding an issuer or its securities 
(including discussions that relate to improvement of the long-term 
performance of the issuer, changes in issuer practices, submissions or 
solicitations in support of a non-binding shareholder proposal, a joint 
engagement strategy (that is not control-related), or a ``vote no'' 
campaign against individual directors in uncontested elections) without 
taking any other actions?
    Response: No. In our view, a discussion whether held in private, 
such as a meeting between two parties, or in a public forum, such as a 
conference that involves an independent and free exchange of ideas and 
views among shareholders, alone and without more, would not be 
sufficient to satisfy the ``act as a . . . group'' standard in sections 
13(d)(3) and 13(g)(3). Sections 13(d)(3) and 13(g)(3) were intended to 
prevent circumvention of the disclosures required by Schedules 13D and 
13G, not to complicate shareholders' ability to independently and 
freely express their views and ideas to one another. The policy 
objectives ordinarily served by Schedule 13D or Schedule 13G filings 
would not be advanced by requiring disclosure that reports this or 
similar types of shareholder communications. Thus, an exchange of views 
and any other type of dialogue in oral or written form not involving an 
intent to engage in concerted actions or other agreement with respect 
to the acquisition, holding, or disposition of securities, standing 
alone, would not constitute an ``act'' undertaken for the purpose of 
``holding'' securities of the issuer under section 13(d)(3) or 
13(g)(3).
    Question: Is a group formed when two or more shareholders engage in 
discussions with an issuer's management, without taking any other 
actions?
    Response: No. For the same reasons described above, we do not 
believe that two or more shareholders ``act as a . . . group'' for the 
purpose of ``holding'' a covered class within the meaning of those 
terms as they appear in section 13(d)(3) or 13(g)(3) if they simply 
engage in a similar exchange of ideas and views, alone and without 
more, with an issuer's management.
    Question: Is a group formed when shareholders jointly make 
recommendations to an issuer regarding the structure and composition of 
the issuer's board of directors where (1) no discussion of individual 
directors or board expansion occurs and (2) no commitments are made, or 
agreements or understandings are reached, among the shareholders 
regarding the potential withholding of their votes to approve, or 
voting against, management's director candidates if the issuer does not 
take steps to implement the shareholders' recommended actions?
    Response: No. Where recommendations are made in the context of a 
discussion that does not involve an attempt to convince the board to 
take specific actions through a change in the existing board membership 
or bind the board to take action, we do not believe that the 
shareholders ``act as a . . . group'' for the purpose of ``holding'' 
securities of the covered class within the meaning of those terms as 
they appear in sections 13(d)(3) or 13(g)(3). Rather, we view this 
engagement as the type of independent and free exchange of ideas 
between shareholders and issuers' management that does not implicate 
the policy concerns addressed by section 13(d) or section 13(g).
    Question: Is a group formed if shareholders jointly submit a non-
binding shareholder proposal to an issuer pursuant to Exchange Act Rule 
14a-8 for presentation at a meeting of shareholders?
    Response: No. The Rule 14a-8 shareholder proposal submission 
process is simply another means through which shareholders can express 
their views to an issuer's management and board and other shareholders. 
For purposes of group formation, we do not believe shareholders 
engaging in a free and independent exchange of thoughts about a 
potential shareholder proposal, jointly submitting, or jointly 
presenting, a non-binding proposal to an issuer in accordance with Rule 
14a-8 (or other means) should be treated differently from, for example, 
shareholders jointly meeting with an issuer's management without other 
indicia of group formation. Accordingly, where the proposal is non-
binding, we do not believe that the shareholders ``act as a . . . 
group'' for the purpose of ``holding'' securities of the covered class 
within the meaning of those terms as they appear in section 13(d)(3) or 
13(g)(3). Assuming that the joint conduct has been limited to the 
creation, submission, and/or presentation of a non-binding 
proposal,\558\ those statutory provisions would not result in the 
shareholders being treated as a group, and the shareholders' beneficial 
ownership would not be aggregated for purposes of determining whether 
the five percent threshold under section 13(d)(1) or 13(g)(1) had been 
crossed.
---------------------------------------------------------------------------

    \558\ The conclusion reflected in this example assumes the Rule 
14a-8 or other non-binding shareholder proposal is submitted jointly 
and without ``springing conditions'' such as an arrangement, 
understanding, or agreement among the shareholders to vote against 
director candidates nominated by the issuer's management or other 
management proposals if the non-binding proposal is not included in 
the issuer's proxy statement or, if passed, not acted upon favorably 
by the issuer's board.
---------------------------------------------------------------------------

    Question: Would a conversation, email, phone contact, or meetings 
between a shareholder and an activist investor that is seeking support 
for its proposals to an issuer's board or management, without more, 
such as consenting or committing to a course of action,\559\ constitute 
such coordination as would result in the shareholder and activist being 
deemed to form a group?
---------------------------------------------------------------------------

    \559\ Examples of the type of consents or commitments given in 
furtherance of a common purpose to acquire, hold (inclusive of 
voting), or dispose of securities of an issuer could include the 
granting of irrevocable proxies or the execution of written consents 
or voting agreements that demonstrate that the parties had an 
arrangement to act in concert.
---------------------------------------------------------------------------

    Response: No. Communications such as the types described, alone and 
without more, would not be sufficient to satisfy the ``act as a . . . 
group'' standard in sections 13(d)(3) and 13(g)(3) as they are merely 
the exchange of views among shareholders about the issuer. This view is 
consistent with the Commission's previous statement that a shareholder 
who is a passive recipient of proxy soliciting activities, without 
more, would not be deemed a member of a group with persons conducting 
the solicitation.\560\ Activities that extend beyond these types of 
communications, which include joint or coordinated publication of 
soliciting materials with an activist investor might, however, be 
indicative of group formation,

[[Page 76935]]

depending upon the facts and circumstances.
---------------------------------------------------------------------------

    \560\ Amendments to Beneficial Ownership Reporting Requirements, 
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854, 2858 (Jan. 16, 
1998)].
---------------------------------------------------------------------------

    Question: Would an announcement or a communication by a shareholder 
of the shareholder's intention to vote in favor of an unaffiliated 
activist investor's director nominees, without more, constitute 
coordination sufficient to find that the shareholder and the activist 
investor formed a group?
    Response: No. We do not view a shareholder's independently-
determined act of exercising its voting rights, and any announcements 
or communications regarding its voting decision, without more, as 
indicia of group formation. This view is consistent with our general 
approach towards the exercise of the right of suffrage by a shareholder 
in other areas of the Federal securities laws.\561\ Shareholders, 
whether institutional or otherwise, are thus not engaging in conduct at 
risk of being deemed to give rise to group formation as a result of 
simply independently announcing or advising others--including the 
issuer--how they intend to vote and the reasons why.
---------------------------------------------------------------------------

    \561\ For example, public announcement of a voting intention 
qualifies for the exclusion from the definition of solicitation 
under 17 CFR 240.14a-1(l)(2)(iv).
---------------------------------------------------------------------------

    Question: If a beneficial owner of a substantial block of a covered 
class that is or will be required to file a Schedule 13D intentionally 
communicates to other market participants (including investors) that 
such a filing will be made (to the extent this information is not yet 
public) with the purpose of causing such persons to make purchases in 
the same covered class, and one or more of the other market 
participants make purchases in the same covered class as a direct 
result of that communication, would the blockholder and any of those 
market participants that made purchases potentially become subject to 
regulation as a group?
    Response: Yes. To the extent the information was shared by the 
blockholder with the purpose of causing others to make purchases in the 
same covered class and the purchases were made as a direct result of 
the blockholder's information, these activities raise the possibility 
that all of these beneficial owners are ``act[ing] as'' a ``group for 
the purpose of acquiring'' securities of the covered class within the 
meaning of section 13(d)(3). Such purchases may implicate the need for 
public disclosure underlying section 13(d)(3) and these purchases could 
potentially be deemed as having been undertaken by a ``group'' for the 
purpose of ``acquiring'' securities as specified under section 
13(d)(3).\562\ Given that a Schedule 13D filing may affect the market 
for and the price of an issuer's securities, non-public information 
that a person will make a Schedule 13D filing in the near future can be 
material.\563\ By privately sharing this material information in 
advance of the public filing deadline, the blockholder may incentivize 
the market participants who received the information to acquire shares 
before the filing is made.\564\ Such arrangements also raise investor 
protection concerns regarding perceived unfairness and trust in 
markets.\565\ The final determination as to whether a group is formed 
between the blockholder and the other market participants will 
ultimately depend upon the facts and circumstances, including (1) 
whether the purpose of the blockholder's communication with the other 
market participants was to cause them to purchase the securities and 
(2) whether the market participants' purchases were made as a direct 
result of the information shared by the blockholder.
---------------------------------------------------------------------------

    \562\ While each group member individually bears a reporting 
obligation arising under Rule 13d-1(k)(2), a tippee would not become 
a member of a group, and thus would not incur a reporting 
obligation, until it makes a purchase of securities of the same 
covered class in response to having been tipped even if the tippee 
already is a beneficial owner of that class.
    \563\ See Alon Brav, Wei Jiang, Frank Partnoy, and Randall S. 
Thomas, Hedge Fund Activism, Corporate Governance and Firm 
Performance, 61 J. Fin. 1729 (2008) (finding on average an abnormal 
short-term return of 7% over the window before and after a Schedule 
13D filing); Marco Brecht, Julian Franks, Jeremy Grant, and Hammes 
F. Wagner, The Returns to Hedge Fund Activism: An International 
Study, Center for Economic Policy Research, Discussion Paper No. 
10507 (Mar. 15, 2015).
    \564\ See, e.g., Susan Pulliam, Juliet Chung, David Benoit, and 
Rob Barry, Activist Investors Often Leak Their Plans to a Favored 
Few, Wall St. J. (Mar. 26, 2014), available at https://www.wsj.com/articles/SB10001424052702304888404579381250791474792 (``Activists, 
who push for broad changes at companies or try to move prices with 
their arguments, sometimes provide word of their campaigns to a 
favored few fellow investors days or weeks before they announce a 
big trade, which typically jolts the stock higher or lower.'').
    \565\ For example, any near-term gains made by these other 
investors attributable to information about the impending filing may 
cause uninformed shareholders who sell at prices reflective of the 
status quo to question the efficacy of existing regulatory 
framework. Even though the demand to acquire shares in the covered 
class may increase as a direct result of the blockholder's 
communications, and in turn increase the prices at which selling 
shareholders exit, such prices may be discounted in comparison to 
the price such shareholders would have realized had the information 
about the impending Schedule 13D filing been public. See, e.g. John 
C. Coffee, Jr. & Darius Palia, The Wolf at the Door: The Impact of 
Hedge Fund Activism on Corporate Governance, 41 J. Corp. L. 545, 596 
(2016) (explaining that ``the gains that activists make in trading 
on asymmetric information--before the Schedule 13D's filing--come at 
the expense of selling shareholders [and] represent[ ] another 
wealth transfer''). Consequently, this informational imbalance 
could, to the extent some perceive it to be unfair, diminish trust 
in markets. See, e.g., 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).
---------------------------------------------------------------------------

2. Proposed Rule 13d-5(b)(1)(iii) and (b)(2)(ii)
a. Proposed Amendments
    The Commission proposed to amend Rule 13d-5 to expressly impute 
acquisitions made by a group member after the date of group formation 
to the group once the collective beneficial ownership among group 
members exceeds five percent of a covered class.\566\ Specifically, 
proposed Rule 13d-5(b)(1)(iii) would provide that a group under section 
13(d)(3) will be deemed to have acquired beneficial ownership of equity 
securities of a covered class if any member of the group becomes the 
beneficial owner of additional equity securities of such covered class 
after the date of the group's formation. Similarly, proposed Rule 13d-
5(b)(2)(ii) would contain nearly identical language, with conforming 
changes to address circumstances in which a member of a group under 
section 13(g)(3) becomes the beneficial owner of additional equity 
securities of a covered class after the date of the group's formation. 
The Commission noted that absent an express provision that would treat 
post-formation acquisitions of beneficial ownership by group members as 
acquisitions by the group, the Commission or other affected parties 
must prove the acquisition is attributable to the group.\567\
---------------------------------------------------------------------------

    \566\ As the Commission noted, groups may form at a time when a 
class of equity securities is not yet registered under section 12 or 
the aggregate beneficial ownership held by the membership in the 
group on the date of its formation is 5% or below of a covered 
class. See Proposing Release at 13870. Expressly capturing post-
formation acquisitions of beneficial ownership by group members 
therefore can become important for purposes of assessing whether a 
group intentionally tried to evade the reporting process, 
determining whether an amendment was due for a pre-existing Schedule 
13D filing, and evaluating the availability of the section 
13(d)(6)(B) exemption. See id.
    \567\ Proposing Release at 13870.
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b. Comments Received
    The Commission did not receive any comments on proposed Rule 13d-
5(b)(1)(iii) and (b)(2)(ii).

[[Page 76936]]

c. Final Amendments
    For the reasons set forth in the Proposing Release,\568\ we are 
adopting the text of Rule 13d-5(b)(1)(iii) and (b)(2)(ii) substantially 
as proposed. We also are redesignating these provisions as Rule 13d-
5(b)(1)(ii) and (b)(2)(i) and slightly modifying them to account for 
the possibility that group members may make acquisitions in furtherance 
of the group's common purpose on the same day the group has been 
formed. Accordingly, the rule text will now attribute acquisitions by 
group members to the group at any time after the group has been formed 
rather than after the date on which the group has been formed.
---------------------------------------------------------------------------

    \568\ See id.
---------------------------------------------------------------------------

3. Proposed Rule 13d-5(b)(1)(iv) and (b)(2)(iii)
a. Proposed Amendments
    The Commission proposed amendments to Rule 13d-5 to carve out from 
the purview of proposed Rule 13d-5(b)(1)(iii) and (b)(2)(ii) intra-
group transfers of equity securities of a covered class.\569\ 
Specifically, proposed Rule 13d-5(b)(1)(iv) would provide that a group 
under section 13(d)(3) will not be deemed to have acquired beneficial 
ownership in a covered class if a member of the group becomes the 
beneficial owner of additional equity securities in such covered class 
through a sale by, or transfer from, another member of the group. 
Proposed Rule 13d-5(b)(2)(iii) would contain nearly identical language, 
with conforming changes to address circumstances in which a member of a 
group under section 13(g)(3) becomes the beneficial owner of additional 
equity securities in a covered class through a sale by, or transfer 
from, another member of the group.
---------------------------------------------------------------------------

    \569\ Id. at 13870-71.
---------------------------------------------------------------------------

b. Comments Received
    The Commission did not receive any comments on proposed Rule 13d-
5(b)(1)(iv) and (b)(2)(iii).
c. Final Amendments
    For the reasons set forth in the Proposing Release, we are adopting 
the text of Rule 13d-5(b)(1)(iv) and (b)(2)(iii) substantially as 
proposed, but redesignating these provisions as Rule 13d-5(b)(1)(iii) 
and (b)(2)(ii). We also are slightly modifying the rule text to account 
for the possibility that group members may make intra-group transfers 
on the same day but after the time at which the group has been formed 
instead of ``after the date of group formation.''

D. Proposed Amendments to Rule 13d-6 To Create Certain Exemptions

    Congress granted the Commission the authority to issue exemptions 
from the application of sections 13(d) and 13(g). The Commission can, 
under section 13(d)(6)(D), exempt acquisitions ``as not entered into 
for the purpose of, and not having the effect of, changing or 
influencing the control of the issuer or otherwise as not comprehended 
within the purposes of [section 13(d)].'' \570\ Congress similarly 
granted the Commission authority, under section 13(g)(6), to exempt any 
person or class of persons from section 13(g) ``as it deems necessary 
or appropriate in the public interest or for the protection of 
investors.'' \571\ The Commission exercised this authority when it 
adopted Rule 13d-6, titled ``Exemption of certain acquisitions.'' Rule 
13d-6 currently sets forth one exemption from section 13(d) for the 
acquisition of securities of an issuer by a person who, prior to such 
acquisition, was a beneficial owner of more than five percent of the 
securities of the same class as those acquired, provided certain 
conditions are met.\572\
---------------------------------------------------------------------------

    \570\ 15 U.S.C. 78(m)(d)(6).
    \571\ 15 U.S.C. 78(m)(g)(6).
    \572\ 17 CFR 240.13d-6.
---------------------------------------------------------------------------

1. Proposed Amendments
    In the Proposing Release, the Commission proposed to exempt certain 
circumstances from resulting in a person being deemed to have acquired 
beneficial ownership of, or otherwise to beneficially own, equity 
securities of a covered class for purposes of sections 13(d) and 13(g). 
Specifically, the Commission proposed to amend Rule 13d-6 to:
     Add new paragraph (c) to create an exemption from sections 
13(d)(3) and 13(g)(3) for certain circumstances in which two or more 
persons take concerted actions with respect to an issuer or a covered 
class; and
     Add new paragraph (d) to create an exemption from sections 
13(d)(3) and 13(g)(3) for certain circumstances in which two or more 
persons enter into an agreement setting forth the terms of a derivative 
security.
    The Commission proposed these amendments to Rule 13d-6 to exempt 
certain actions taken by two or more persons from the scope of sections 
13(d)(3) and 13(g)(3) if those actions do not have the purpose or 
effect of changing or influencing the control of an issuer and thus are 
not within the purpose of section 13(d).
    In light of the proposed amendments to Rule 13d-5, the Commission 
proposed to add new paragraph (c) to Rule 13d-6 to avoid potentially 
chilling communications among shareholders or impeding shareholders' 
engagement with issuers where those activities are undertaken without 
the purpose or effect of changing or influencing control of the issuer 
(and are not made in connection with or as a participant in any 
transaction having such purpose or effect).\573\ Proposed Rule 13d-6(c) 
would provide that two or more persons would not be deemed to have 
acquired beneficial ownership of, or otherwise beneficially own, an 
issuer's equity securities as a group solely because of their concerted 
actions related to an issuer or its equity securities, including 
engagement with one another or the issuer, provided they meet certain 
conditions. The Commission noted that such interactions, depending upon 
the level of coordination and degree to which the persons advocated in 
furtherance of a common purpose specified within the statutory 
framework, could be found to satisfy the ``act as'' a group standard 
under section 13(d)(3) or 13(g)(3) for the purpose of ``holding'' a 
covered class.\574\ To help ensure that the exemption is available only 
where such persons independently determine to take concerted actions, 
the proposed exemption would be available only if such persons are not 
obligated to take such actions (e.g., pursuant to the terms of a 
cooperation agreement or joint voting agreement).\575\
---------------------------------------------------------------------------

    \573\ Proposing Release at 13872.
    \574\ Id. at 13873.
    \575\ Id.
---------------------------------------------------------------------------

    In addition, the Commission proposed to add new paragraph (d) to 
Rule 13d-6, in light of proposed new Rule 13d-3(e), to avoid 
impediments to certain financial institutions' ability to conduct their 
business in the ordinary course.\576\ Proposed Rule 13d-6(d) would have 
provided that two or more persons would not be deemed to have formed a 
group under section 13(d)(3) or 13(g)(3) solely by virtue of their 
entrance into an agreement governing the terms of a derivative 
security. This exemption would have been available if the agreement is 
a bona fide purchase and sale agreement entered into in the ordinary 
course of business. Further, the exemption would have been available 
only if such persons did not enter into the agreement with the purpose 
or effect of changing or influencing control of the issuer, or in 
connection with or as a

[[Page 76937]]

participant in any transaction having such purpose or effect.
---------------------------------------------------------------------------

    \576\ Id.
---------------------------------------------------------------------------

2. Comments Received
    Some commenters supported proposed Rule 13d-6(c),\577\ while others 
generally supported the proposal's intent but expressed some 
reservations regarding Rule 13d-6(c) as proposed.\578\ Some of those 
commenters generally indicated that the exemption (as proposed or as 
modified in accordance with their recommendations) could provide 
clarity that would help prevent the chilling of communications among 
shareholders and shareholder engagement with issuers.\579\ In addition, 
one commenter appeared to support the inclusion of the ``no 
obligation'' to act concept in the second prong of the proposed 
exception and noted that when the institutional investors that are its 
members act jointly, they are acting independently, consistent with 
their fiduciary, legal, and other obligations to their fund 
participants and beneficiaries.\580\
---------------------------------------------------------------------------

    \577\ See, e.g., letters from Anonymous (Mar. 13, 2022) 
(``Anonymous 10''); Kerrie Waring, Chief Executive Officer, ICGN 
(June 27, 2023) (``ICGN''); Kyle (Mar. 13, 2022) (``Kyle''); Perkins 
Coie.
    \578\ See, e.g., letters from Ceres (generally supporting the 
proposal, but stating that the rule, as proposed, could create some 
ambiguity as to the circumstances under which a group is formed and 
suggesting changes to the proposal); Jeff Mahoney, General Counsel, 
Council of Institutional Investors (Apr. 8, 2022) (``CII'') (same); 
ICI I (supporting the intent of the proposal, but stating that the 
exemption, as proposed, would be too narrow and could create 
additional uncertainty regarding the circumstances under which a 
group is formed); Shareholder Rights Group, Interfaith Center on 
Corporate Responsibility and The Shareholder Commons (Apr. 11, 2022) 
(``Interfaith Center, et al.'') (endorsing the comments in the 
letter from Ceres).
    \579\ See letters from Ceres; CII; ICGN; ICI I; Perkins Coie.
    \580\ See letter from CII.
---------------------------------------------------------------------------

    Other commenters opposed the proposed Rule 13d-6(c) exemption.\581\ 
Some commenters appeared to base their opposition on the argument that 
such an exemption would impliedly define what a group is by stating 
what it is not.\582\ Several commenters said that ambiguity in the 
proposed exemption could inhibit market participants' ability to 
readily discern when a ``purpose or effect of changing or influencing 
control'' has been manifested.\583\ One commenter further submitted 
that the subjective ``control intent'' standard likely will create more 
uncertainty and confusion than it will resolve.\584\ One commenter 
indicated, in light of its comments on the proposed amendments to Rule 
13d-5, that ``[t]his rule [exemption] would chill the kind of 
shareholder communications that are central to a proxy contest'' and 
stated that ``[c]onsultation among fellow shareholders and discussion 
with the activist are . . . essential.'' \585\
---------------------------------------------------------------------------

    \581\ See, e.g., letters from B. Mason; CIRCA I; Dennis and Mary 
Spohn (June 25, 2023); EIM I; NBG; Prof. Edwards, et al.; Prof. 
Gordon; Prof. Webber; see also letter from SIFMA AMG (describing the 
proposed exemption as ``problematic'' and recommending that it not 
be adopted if the Commission also does not adopt the proposed 
amendments to Rule 13d-5).
    \582\ See letters from CIRCA I; Prof. Edwards, et al.; Prof. 
Webber. These commenters characterized the proposed exemption as 
setting forth the exclusive circumstances under which two or more 
persons may engage with one another or an issuer without being 
regulated as a group. One of these commenters further said that the 
Commission's description of proposed Rule 13d-6(c) ``indicate[d] 
that two shareholders of the same Covered Security that coordinate 
in any manner regarding the holding would be deemed to be a group'' 
unless those shareholders qualify for the proposed exemption and 
that ``[t]his is not consistent with the legislative history 
underlying the Williams Act.'' See letter from CIRCA I. And, one of 
these commenters asserted that the effect of proposed Rule 13d-6(c), 
in tandem with the proposed amendments to Rule 13d-5, on shareholder 
communications could raise concerns under the First Amendment. See 
letter from Prof. Edwards, et al.; see also supra note 503 and 
accompanying text.
    \583\ See letters from EIM I; SIFMA AMG.
    \584\ See letter from EIM I.
    \585\ See letter from Prof. Gordon.
---------------------------------------------------------------------------

    A number of commenters made recommendations regarding proposed Rule 
13d-6(c).\586\ Some commenters requested that coordination with respect 
to Rule 14a-8 shareholder proposals be expressly made exempt.\587\ 
Several commenters requested that coordination with respect to ``vote 
no'' campaigns be expressly made exempt.\588\ Other commenters 
requested that it be made clear that the state of mind of one person 
would not be imputed to another for purposes of determining the 
availability of the exemption.\589\ Some commenters asked that the ``in 
connection with [any change of control] transaction'' language be 
removed from the exemption.\590\ One of those commenters stated that 
the ``in connection with'' language ``might be read too broadly and 
have an unintended chilling effect of the sort of communications that 
routinely occur today.'' \591\ Some commenters indicated that the 
``indirectly obligated to act'' standard was in need of clearly defined 
boundaries and/or should be deleted.\592\ One of these commenters 
asserted that the ``indirectly obligated'' standard is vague and would 
engender additional uncertainty, and recommended that the Commission 
eliminate the proposed condition that ``[s]uch persons, when taking 
such concerted actions, are not directly or indirectly obligated to 
take such actions.'' \593\ One commenter stated the Commission should 
consider the circumstances under which investors advocating for 
specific changes (e.g., board composition or diversity) might later be 
subjected to an inquiry about whether their communications or 
activities were protected by the exemptions given the terms in the 
proposal such as ``solely,'' ``only,'' ``indirectly,'' ``purpose,'' 
``effect,'' and ``contemplated.'' \594\
---------------------------------------------------------------------------

    \586\ See letters from AFREF; Ceres; CII; IAA; ICGN; ICI I; 
Interfaith Center, et al.; NBG; Prof. Edwards, et al.; SSC; STB.
    \587\ See letters from AFREF; Ceres; ICI I; Interfaith Center, 
et al.
    \588\ See letters from AFREF; Ceres; CII; Interfaith Center, et 
al. For example, one commenter expressed support for the 
recommendations of another commenter that ``the Commission [should] 
clarify the Rule 13d-6(c) exception to ensure it covers launching 
and participating in `vote no' campaigns and communications with 
Schedule 13D filers post-filing.'' See letter from AFREF (indicating 
support of a corresponding recommendation in the letter from CII).
    \589\ See letters from ICI I; Interfaith Center, et al.; SSC.
    \590\ See letters from Ceres; CII.
    \591\ See letter from CII. The commenter stated ``that the 
positive step taken by adopting Rule 13d-6(c) could be undercut if 
there is a concern among investors that communicating with a Rule 
13D `group' could expose investors to being considered as a part of 
that `group.' '' Id.
    \592\ See letters from Ceres; CII; ICI I.
    \593\ See letter from ICI I.
    \594\ See letter from Prof. Edwards, et al.
---------------------------------------------------------------------------

    In response to the Commission's solicitation for comments on 
proposed Rule 13d-6(d), several commenters expressed support for the 
proposal.\595\ One commenter stated that the proposal would ``help 
investors understand when they could become subject to regulation as a 
`group' under these circumstances and avoid costly regulatory filings 
for activity in the ordinary course of business.'' \596\
---------------------------------------------------------------------------

    \595\ See letters from ICGN; O'Melveny & Myers; Perkins Coie.
    \596\ See letter from ICGN.
---------------------------------------------------------------------------

    Several other commenters opposed the proposed Rule 13d-6(d) 
exemption.\597\ Some of those commenters questioned whether the 
proposed exemption is necessary, and implied that the proposal's 
inclusion in this rulemaking intimates that ordinary course of business 
transactions currently present risks of group formation.\598\ One of 
those commenters said that it was fairly settled that a bilateral 
transaction, negotiated at arm's length, would not by itself be 
sufficient to create a group absent other indicia of group status such 
as agreements to vote and other factors.\599\ Another of these 
commenters questioned whether this

[[Page 76938]]

proposed provision or any explicit exemption is necessary or would 
instead create further uncertainty given that market participants have 
been entering into ordinary course derivatives transactions for years 
without treating these transactions as creating a group.\600\ One 
commenter expressed concerns regarding potential negative collateral 
effects of the exemption.\601\ This commenter said that proposed Rule 
13d-6(d) suggests that, ``outside of the safe harbor,'' the parties to 
a derivative security transaction may be deemed to form a ``group'' and 
implied that the exemption's existence would create a risk of eroding 
the confidence of parties to any ``ordinary'' securities purchase and 
sale transactions that they do not constitute a ``group.'' \602\
---------------------------------------------------------------------------

    \597\ See letters from ABA; EIM I; Engineer; Gabriel Morales, 
Retail Investor (Feb. 23, 2022) (``G. Morales''); IAA; ICI I; J. 
Kennedy; PSCM; SIFMA AMG; STB.
    \598\ See letters from ABA; ICI I; STB.
    \599\ See letter from STB.
    \600\ See letter from ICI I.
    \601\ See letter from ABA.
    \602\ See id.
---------------------------------------------------------------------------

    Some commenters indicated that few dealers or market participants 
would be able to rely on the exemption or that it would not serve its 
intended purpose.\603\ Another commenter similarly implied the 
exemption should not be adopted because ``financial institutions would 
not just be apprehensive about, or marginally disincentivized from, 
entering into transactions with an activist counterparty'' but instead 
``would avoid the risk altogether, and wholly refrain from engaging in 
these transactions that are economically useful and unrelated to the 
purposes of Section 13.'' \604\ Another commenter echoed the concerns 
regarding the projected heightened level of risk arising in relation to 
the exemption and stated that the exemption would significantly impair 
ordinary-course derivatives transactions by dealers and financial 
institutions, even with counterparties who do not have any control 
intent.\605\ A similar criticism was offered by a commenter who 
explained that if the proposed exemption were adopted, an implication 
would be created that counterparties to a derivative transaction 
agreement that did not qualify for the exemption would be viewed as 
having formed a group.\606\
---------------------------------------------------------------------------

    \603\ See letters from EIM I; IAA; STB. One of these commenters 
further reasoned that the exemption is arbitrary and capricious 
because it would treat similarly situated parties differently 
inasmuch as only a subset of dealer transactions may be viewed as 
having contributed to an activist's goals. See letter from EIM I.
    \604\ See letter from PSCM.
    \605\ See letter from STB. The commenter added that ``the 
uncertainty caused by proposed Rule 13d-6(d) may increase risks for 
market participants in otherwise established financial transactions 
which may inhibit such activity.'' Id.
    \606\ See letter from ABA.
---------------------------------------------------------------------------

    Some commenters expressed doubt that proposed Rule 13d-6(d) would 
operate to only exempt legitimate business activity, suggesting the 
purpose of the proposed amendments regarding group formation and 
derivatives would be undermined.\607\ One of these commenters said that 
the proposal ``sounds like this is an open invitation for high profile 
firms to actually work together as a group without [repercussion] of 
regulation.'' \608\ Another of these commenters appeared to refer to 
proposed Rule 13d-6(d) and expressed concern that the proposed 
exemption ``will get taken advantage of too easily and will obscure 
transactions that might substantially and singlehandedly affect a 
security.'' \609\ A different commenter impliedly alluded to the 
undermining of the proposed change to Rule 13d-5(b) and speculated that 
no benefit of other proposed rule changes will be received if 
derivative position holders can claim an exemption under a different 
law.\610\
---------------------------------------------------------------------------

    \607\ See letters from Engineer; G. Morales; J. Kennedy.
    \608\ See letter from J. Kennedy.
    \609\ See letter from Engineer.
    \610\ See letter from G. Morales.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the proposed redesignation of current Rules 13d-6 
and 13d-5(b)(2) as Rule 13d-6(a) and (b), respectively, for the reasons 
set forth in the Proposing Release and as discussed above.\611\ As 
discussed in more detail below, however, we are not adopting proposed 
Rule 13d-6(c) or (d).
---------------------------------------------------------------------------

    \611\ See supra note 22 for a discussion of our redesignation of 
current Rules 13d-6 and 13d-5(b)(2) as Rule 13d-6(a) and (b), 
respectively.
---------------------------------------------------------------------------

    The Commission proposed Rule 13d-6(c) in connection with proposed 
Rule 13d-5(b)(1)(i) and (b)(2)(i).\612\ As discussed above, we are not 
adopting those amendments.\613\ Proposed Rule 13d-6(c) was intended to 
avoid potentially chilling communications among shareholders or 
impeding shareholders' engagement with issuers where those activities 
are undertaken without the purpose or effect of changing or influencing 
control of the issuer (and are not made in connection with or as a 
participant in any transaction having such purpose or effect).\614\ 
Some commenters, however, expressed concern that the exemption would in 
fact have the opposite effect.\615\ This concern appears to be based on 
their view that the exemption would be too narrow and impliedly define 
what actions would be sufficient to constitute ``acting as a group'' 
(i.e., any actions that would not qualify for the proposed 
exemption).\616\ To address those concerns, and in light of the fact 
that we are not adopting the amendments to Rule 13d-5 that prompted the 
proposal of the exemption in Rule 13d-6(c), we are not adopting Rule 
13d-6(c). We also believe that the discussion and guidance we provided 
in section II.C.1.c above will help to address the Commission's goals 
of preserving shareholder communications and engagement with issuers 
that are undertaken without the purpose or effect of changing or 
influencing control.
---------------------------------------------------------------------------

    \612\ Proposing Release at 13872.
    \613\ See supra section II.C.1.
    \614\ Proposing Release at 13872.
    \615\ See supra notes 585-591 and accompanying text.
    \616\ See supra notes 582-584 and accompanying text.
---------------------------------------------------------------------------

    Similarly, after considering the comments received regarding 
proposed Rule 13d-6(d),\617\ we also do not believe adoption of that 
exemption is necessary. Under sections 13(d)(3) and 13(g)(3), formation 
of a group requires that two or more persons be found to have acted as 
a group for the purpose of acquiring, holding, or disposing ``of 
securities of an issuer.'' Many cash-settled derivatives, including 
those that were intended to be covered by proposed exemption, are not 
considered ``securities of [the] issuer.'' Those derivatives originate 
with persons other than the issuer and simply reference a class of an 
issuer's securities. The holders of such cash-settled derivative 
securities are, therefore, generally not owed a fiduciary duty by the 
issuer and do not generally have legal standing to bring a claim 
against the issuer. Moreover, holders of such derivative securities are 
not, by virtue of those instruments, debt or equity holders of the 
issuer and are not entitled to a right to vote or dispose of any 
security ``of an issuer'' based on their investment in these 
derivatives. Absent the circumstances in which a holder of a derivative 
settled exclusively in cash that did not originate with the issuer 
could become a beneficial owner of the reference security,\618\ the 
Commission does not believe that persons who, in the ordinary course of 
business, acquire derivative securities settled exclusively in cash 
would generally be deemed to ``act as a . . . group'' under sections 
13(d)(3) and 13(g)(3) with the financial

[[Page 76939]]

institutions that sell such derivatives. Simply put, such persons 
cannot be found, as a matter of law, to have acquired, held, or 
disposed ``of securities of an issuer'' as that term is used in 
sections 13(d)(3) and 13(g)(3).
---------------------------------------------------------------------------

    \617\ See supra notes 595-610 and accompanying text.
    \618\ See supra section II.B.3 for a discussion of those 
circumstances.
---------------------------------------------------------------------------

    While investors in a cash-settled equity-based derivative security, 
in order to acquire the derivative security, may need to enter into an 
agreement governing the terms of such instrument with a financial 
institution that, in the ordinary course of its business, acts as a 
counterparty to such investors, that agreement, without more, does not 
result in group formation. We believe that a bilateral transaction, 
negotiated at arm's length and entered into solely for commercial 
purposes, as described, would not by itself introduce facts sufficient 
to find that a group exists. In our view, an agreement between an 
investor in a cash-settled derivative security and a counterparty 
entered into for the ordinary course of business would fail to satisfy 
the ``act as a . . . group'' element in sections 13(d)(3) and 13(g)(3) 
absent other indicia of group status such as agreements to vote or 
other factors.
    To offset any risk exposure to that derivative security, including 
any obligations that may arise at settlement, the financial institution 
counterparty may, in practice, purchase securities in the reference 
covered class and hold such reference security for the duration of the 
agreement. While it may be true that but for the joint actions of the 
parties in entering into the agreement, that specific acquisition of 
beneficial ownership in the covered class by the financial institution 
would not have occurred, we believe that if the counterparty acts on 
its own initiative and not at the direction of the investor or 
otherwise on its behalf, there is no basis to assert that the investor 
and counterparty acted in concert and thus subjected themselves to 
regulation as a group. As such, entry into such an agreement will not 
implicate sections 13(d)(3) and (g)(3) because the two persons cannot 
be viewed as acting as a group even given the financial institution's 
foreseeable acquisition of securities of a covered class. Assuming that 
the investor and the financial institution did not enter into the 
agreement with the purpose or effect of changing or influencing control 
of the issuer, the regulatory purposes of sections 13(d) and 13(g) 
would not be furthered by treating the investor and the financial 
institution as members of a group under section 13(d)(3) or section 
13(g)(3) solely by virtue of their entrance--for strictly commercial 
purposes and not for purposes of acquiring, holding, or disposing of a 
covered class--into that agreement. Accordingly, we have elected not to 
adopt proposed Rule 13d-6(d) as the exemption is not needed in order 
for such ordinary course of business transactions in derivative 
securities to freely occur.

E. Amendment to Schedule 13D To Clarify Disclosure Requirements 
Regarding Derivative Securities

    Schedule 13D sets forth the information that beneficial owners 
reporting pursuant to section 13(d)(1) and Rule 13d-1(a) must disclose. 
Item 6 of Schedule 13D requires beneficial owners to ``[d]escribe any 
contracts, arrangements, understandings or relationships (legal or 
otherwise) among the persons named in Item 2 [of Schedule 13D] and 
between such persons and any person with respect to any securities of 
the issuer'' and sets forth a non-exclusive list of examples of such 
contracts, arrangements, understandings or relationships.\619\ Because 
cash-settled derivative securities were not expressly included among 
these examples, questions may arise as to whether beneficial owners 
should report their holdings of these derivative securities as 
contracts ``with respect to'' an issuer's securities under the 
rationale that (1) only a purely economic, but no legal, interest is 
generally held through such derivatives in any class of an issuer's 
securities and (2) the issuer's securities are only used as a reference 
security. Further, as discussed below, the current requirement could be 
interpreted as excluding the disclosure of cash-settled options not 
offered or sold by the issuer, or other derivatives not originating 
with the issuer, including other cash-settled derivatives such as SBS.
---------------------------------------------------------------------------

    \619\ 17 CFR 240.13d-101, Item 6.
---------------------------------------------------------------------------

1. Proposed Amendment
    In the Proposing Release, the Commission proposed to amend Schedule 
13D to clarify the disclosure requirements with respect to derivative 
securities held by a person reporting on that schedule. The Commission 
noted that, at present, the formulation ``with respect to securities of 
the issuer'' in Item 6 might be read to suggest that contracts, 
arrangements, understandings or relationships that only create economic 
exposure to the issuer's equity securities or are otherwise considered 
synthetic could be excluded.\620\ Accordingly, to remove any ambiguity 
as to the scope of the required disclosures, the Commission proposed to 
revise Item 6 to expressly state that the use of derivative securities, 
including cash-settled SBS and other derivatives settled exclusively in 
cash, which use the issuer's securities as a reference security are 
included among the types of contracts, arrangements, understandings and 
relationships which must be disclosed.\621\ The Commission also 
proposed the amendment to clarify that the derivative security need not 
have originated with the issuer or otherwise be part of its capital 
structure in order for a disclosure obligation to arise.\622\ The 
proposed amendment thus specified that a person filing a Schedule 13D 
would be required to disclose interests in all contracts, arrangements, 
understandings, or relationships, including derivative securities, that 
use the issuer's equity security as a reference security.
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    \620\ Proposing Release at 13874.
    \621\ Id. To further minimize any potential ambiguity regarding 
what interests need to be disclosed, the Commission also proposed to 
eliminate the ``including but not limited to'' regulatory text that 
precedes the itemization of the instruments or arrangements covered. 
Id.
    \622\ Id.
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2. Comments Received
    Commenters expressed various views on the proposed amendment to 
Item 6 of Schedule 13D. Some commenters supported the proposed 
amendment.\623\ One commenter, which did not clearly support or oppose 
the proposal with respect to Item 6, appeared to indicate, in 
connection with a response to a request for comment with respect to 
Item 7, Exhibits, that Item 6 may already apply to cash-settled 
derivatives.\624\
---------------------------------------------------------------------------

    \623\ See, e.g., letters from AFL-CIO; D. Pierce; Mark C.
    \624\ See letter from STB. Specifically, the commenter said that 
the filing of the cash-settled derivative instruments as an exhibit 
to Schedule 13D is unnecessary because the ``material terms of such 
arrangements . . . can be described in'' Item 6. Id. The commenter 
also stated that the filing of such instruments as exhibits would 
present logistical difficulties if the proposed ``compressed'' 
timeframes for reporting Schedule 13D amendments are adopted. Id.
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    Other commenters opposed the proposed amendment to Item 6 of 
Schedule 13D, stating that requiring disclosure of SBS arrangements in 
Item 6 would be confusing and indicating that it did not believe this 
disclosure would serve any additional purpose.\625\ One commenter 
explained that determining which type of derivative security to include 
in different parts of Schedule 13D would present a logistical 
challenge.\626\ The commenter anticipated that the compliance-related 
challenge would arise, from an operational point of view, because of 
the

[[Page 76940]]

regulatory inconsistency created by the exclusion of SBS from the 
beneficial ownership calculation under proposed Rule 13d-3(e) but the 
inclusion of SBS under Item 6 (to the extent they use the issuer's 
equity security as a reference security).\627\ The commenter expressed 
additional concern that requiring disclosure of SBS arrangements under 
Item 6 would negate the benefits to these holders of non-disclosure of 
counterparties in proposed Schedule 10B.\628\
---------------------------------------------------------------------------

    \625\ See, e.g., letters from IAA; Slade Thornburg (June 25, 
2023) (``S. Thornburg'').
    \626\ See letter from IAA.
    \627\ Id. According to the commenter, ``[n]ot only would this be 
confusing, but we do not believe such disclosure would serve any 
additional purpose.'' Id.
    \628\ Id. Specifically, the commenter noted that proposed 
``Schedule 10B . . . would not require identification of the swap 
counterparty'' while ``the instruction to Item 6 requires `naming 
the persons with whom such contracts, arrangements, understandings, 
or relationships have been entered into.''' Id. Schedule 10B is a 
proposed disclosure statement containing information regarding large 
SBS positions and other information that would be required by 
proposed 17 CFR 240.10B-101. The Commission proposed this disclosure 
statement in a proposing release titled Prohibition Against Fraud, 
Manipulation, or Deception in Connection with Security-Based Swaps; 
Prohibition against Undue Influence over Chief Compliance Officers; 
Position Reporting of Large Security-Based Swap Positions, Release 
No. 34-93784 (Dec. 15, 2021) [87 FR 6652 (Feb. 4, 2022)] (``Schedule 
10B Proposal'').
---------------------------------------------------------------------------

3. Final Amendment
    We are adopting the amendment to Item 6 of Schedule 13D as 
proposed. Specifically, we are amending Rule 13d-101 to expressly state 
that derivative contracts, arrangements, understandings, and 
relationships with respect to an issuer's securities, including cash-
settled SBS and other derivatives which are settled exclusively in 
cash, would need to be disclosed under Item 6 of Schedule 13D in order 
to comply with section 13(d)(1) and Rule 13d-1(a). We also are 
eliminating the ``including but not limited to'' language in Item 6 
that currently precedes the itemization of the instruments or 
arrangements covered to remove any implication that additional 
interests may need to be disclosed.
    We believe that investors could benefit from a more complete 
disclosure of a Schedule 13D filer's economic interests in the relevant 
issuer, including economic interests via positions in cash-settled 
derivatives. For example, disclosure of any such cash-settled 
derivatives may help investors evaluate whether their interests with 
respect to the issuer's securities are aligned with the Schedule 13D 
filer's. In addition, disclosure of this information is consistent with 
other interests required to be disclosed under Item 6, such as, for 
example, ``division of profits or loss.''
    Our adoption of the amendment also furthers the congressional 
purpose of section 13(d)(1), as demonstrated by the legislative history 
accompanying Congress' enactment of this provision.\629\ The 
disclosures required under Item 6 of Schedule 13D originated with a 
congressional mandate. Congress specified certain information within 
sections 13(d)(1)(A) through (E) that beneficial owners must report 
once they incur a filing obligation. In addition to the disclosure 
required under sections 13(d)(1)(A) through (E), Congress also 
authorized the Commission to require disclosure of ``such additional 
information'' it prescribes as ``necessary or appropriate in the public 
interest or for the protection of investors.'' \630\ Under section 
13(d)(1)(E), Congress provided that a beneficial owner must report 
``information as to any contracts, arrangements, or understandings with 
any person with respect to any securities of the issuer, including 
[the] transfer of any of the securities, joint ventures, loan or option 
arrangements, puts or calls, guaranties of loans, guaranties against 
loss or guaranties of profits, division of losses or profits, or the 
giving or withholding of proxies.'' \631\ Consistent with the mandate 
of section 13(d)(1)(E), which forms part of the basis for the 
disclosure requirements of existing Item 6, this baseline disclosure 
requirement has existed in Schedule 13D since 1968.
---------------------------------------------------------------------------

    \629\ See Disclosure of Corporate Equity Ownership, H.R. Rep. 
No. 1711, at 8 (1968) (``The purpose of section 13(d) is to require 
disclosure of information by persons who have acquired a substantial 
interest, or increased their interest in the equity securities of a 
company by a substantial amount, within a relatively short period of 
time.'' (Emphasis added)).
    \630\ 15 U.S.C. 78m(d)(1).
    \631\ Id.
---------------------------------------------------------------------------

    We note that one commenter opposed the proposed amendment to Item 
6. The commenter stated, among other things, that requiring disclosure 
of SBS holdings in Item 6 would be confusing.\632\ Specifically, the 
commenter pointed out that proposed Rule 13d-3(e) would have excluded 
SBS and stated that there would be a ``logistical challenge'' 
associated with excluding SBS from the beneficial ownership calculation 
but including them in the narrative disclosure in response to Item 
6.\633\ We disagree. Item 6 (as well as the other items in Schedule 
13D) already requires disclosure of various information that does not 
factor into calculating a Schedule 13D filer's beneficial 
ownership.\634\ We do not believe that requiring disclosure in Item 6 
of SBS that may be excluded from a Schedule 13D filer's beneficial 
ownership calculation would present any unique complications or be more 
complex than disclosure of this other information, and the commenter 
did not present any specific ``logistical challenges'' that could arise 
from this requirement. Moreover, we are not adopting proposed Rule 13d-
3(e),\635\ further diminishing this concern about potential confusion.
---------------------------------------------------------------------------

    \632\ See supra notes 626-627 and accompanying text.
    \633\ See id.
    \634\ For example, Item 6 requires a description of ``any 
contracts, arrangements, understandings or relationships . . . with 
respect to any securities of the issuer, including . . . puts or 
calls.'' 17 CFR 240.13d-101, Item 6. If any such ``puts or calls'' 
include call options with respect to the issuer's covered class that 
are not exercisable within 60 days (and were not acquired with a 
change of control purpose or effect), then they would be required to 
be disclosed in response to Item 6, but they would not factor into 
the Schedule 13D filer's beneficial ownership. See Rule 13d-
3(d)(1)(i). Similarly, Item 4(a) of Schedule 13D requires a 
description of ``any plans or proposals which the reporting persons 
may have which relate to or would result in . . . [t]he acquisition 
by any person of additional securities of the issuer, or the 
disposition of securities of the issuer.'' 17 CFR 240.13d-101, Item 
4(a). Although such plans for potential future acquisitions or 
dispositions of securities of the issuer could, if consummated, 
result in changes to the Schedule 13D filer's beneficial ownership, 
they generally would not factor into the beneficial ownership amount 
reflected in the Schedule 13D filing in which such plans are 
disclosed.
    \635\ See supra section II.B.3.
---------------------------------------------------------------------------

    The commenter also noted that the proposed amendment to Item 6 
would be unnecessary in light of, and could conflict with, the 
disclosure of SBS positions in proposed Rule 10B-1.\636\ While the 
Commission will consider concerns about a potential conflict if it 
takes any final action with respect to proposed Rule 10B-1, we note 
that proposed Rule 10B-1 (along with proposed Schedule 10B) is intended 
to serve a purpose different from Item 6 of Schedule 13D. The 
Commission proposed Rule 10B-1 to, among other things, provide market 
participants (including counterparties, issuers, and issuers' 
stakeholders) and regulators with access to information that may 
indicate that a person (or a group of persons) is building up a large 
SBS position, and to alert market participants and regulators to the 
existence of concentrated exposures to a limited number of 
counterparties, which should inform those market participants and 
regulators of the attendant risks, allow counterparties to risk manage 
and lead to better pricing of the SBS with respect to transactions with 
persons holding large positions in those SBS (as a result of all market 
participants having

[[Page 76941]]

access to the information about the positions).\637\ Item 6 of Schedule 
13D, on the other hand, is intended to implement section 13(d)(1)(E), 
where Congress specifically mandated that the disclosure statement 
filed would include information as to any contracts, arrangements, or 
understandings with any person with respect to any securities of the 
issuer, including the names of relevant parties, as part of its intent 
to require disclosures to security holders regarding persons with 
significant holdings. Thus, in light of that congressional mandate, we 
believe it is appropriate to require disclosure of such information 
pursuant to Item 6 of Schedule 13D.
---------------------------------------------------------------------------

    \636\ See supra note 628 and accompanying text.
    \637\ Prohibition Against Fraud, Manipulation, or Deception in 
Connection with Security-Based Swaps; Prohibition against Undue 
Influence over Chief Compliance Officers; Position Reporting of 
Large Security-Based Swap Positions, Release No. 34-93784 (Dec. 15, 
2021) [87 FR 6652, 6667, 6678 (Feb. 4, 2022)].
---------------------------------------------------------------------------

F. Structured Data Requirement for Schedules 13D and 13G

    Currently, the EDGAR Filer Manual requires Schedules 13D and 13G to 
be filed electronically on the Commission's EDGAR system in HTML or 
ASCII format.\638\ HTML and ASCII are both unstructured data languages; 
thus, the disclosures reported on Schedules 13D and 13G are not 
currently machine-readable.\639\ As a result, information disclosed on 
Schedules 13D and 13G is generally more difficult for investors and 
other market participants to access, compile, and analyze as compared 
to information that is submitted in a machine-readable data language.
---------------------------------------------------------------------------

    \638\ EDGAR Filer Manual (Volume II) version 67 (Sept. 2023) 
(``EDGAR Filer Manual''), at 5-1 (requiring EDGAR filers generally 
to use ASCII or HTML for their document submissions, subject to 
certain exceptions). Schedule 13D and 13G filers are required, by 
rule, to comply with the requirements of the EDGAR Filer Manual. See 
17 CFR 232.301 (``Filers must prepare electronic filings in the 
manner prescribed by the EDGAR Filer Manual, promulgated by the 
Commission, which sets forth the technical formatting requirements 
for electronic submissions.'').
    \639\ The term ``machine-readable'' is defined in 44 U.S.C. 3502 
as ``data in a format that can be easily processed by a computer 
without human intervention while ensuring no semantic meaning is 
lost.''
---------------------------------------------------------------------------

    While the majority of EDGAR filings under the Commission's rules 
are submitted in HTML or ASCII, certain EDGAR filings are submitted 
using machine-readable, XML-based languages that are each specific to 
the particular EDGAR document type being submitted.\640\ This includes 
filings that, like Schedules 13D and 13G, are submitted by individuals 
and entities other than the registrant of the class of securities.\641\ 
For these EDGAR XML filings, filers are typically provided the option 
to either submit the filing directly to EDGAR in XML, or manually input 
their disclosures in a fillable web form as part of an online web 
application developed by the Commission that converts the completed 
form into an EDGAR-specific XML document.
---------------------------------------------------------------------------

    \640\ See Securities and Exchange Commission, Current and Draft 
Technical Specifications, available at https://www.sec.gov/edgar/filer-information/current-edgar-technical-specifications.
    \641\ Examples include the section 16 beneficial ownership 
reports (Forms 3, 4, and 5) and Form 13F. See id.
---------------------------------------------------------------------------

1. Proposed Amendment
    In the Proposing Release, the Commission proposed to require that 
beneficial ownership reports on Schedules 13D and 13G be filed using a 
structured, machine-readable data language. In particular, the 
Commission proposed to require that Schedules 13D and 13G be filed in 
part using an XML-based language specific to Schedules 13D and 13G 
(``13D/G-specific XML'').\642\ For both Schedules, all disclosures, 
including quantitative disclosures, textual narratives, and 
identification checkboxes, would be structured in 13D/G-specific XML 
under the proposal, with the exception of the exhibits to the 
Schedules, which would remain unstructured. The Commission stated that 
a structured data requirement for the disclosures reported on Schedules 
13D and 13G would greatly improve the accessibility and usability of 
the disclosures, allowing investors to access, aggregate and analyze 
the reported information in a much more timely and efficient 
manner.\643\
---------------------------------------------------------------------------

    \642\ The Commission noted that this would be consistent with 
the approach used for other XML-based structured data languages 
created by the Commission for certain EDGAR Forms, including the 
data languages used for reports on each of Form 13F, Form D and the 
section 16 beneficial ownership reports (Forms 3, 4, and 5). 
Proposing Release at 13874, n. 154.
    \643\ Id. at 13875. These considerations are generally 
consistent with objectives of the Financial Data Transparency Act of 
2022, which directs the establishment by the Commission and other 
financial regulators of data standards for collections of 
information. Such data standards must meet specified criteria 
relating to openness and machine-readability and promote 
interoperability of financial regulatory data across members of the 
Financial Stability Oversight Council. See James M. Inhofe National 
Defense Authorization Act for Fiscal Year 2023, Public Law 117-263, 
tit. LVIII, 136 Stat. 2395, 3421-39 (2022).
---------------------------------------------------------------------------

2. Comments Received
    Commenters largely supported the proposed structured data 
requirement for Schedules 13D and 13G.\644\ Other commenters objected 
to the proposed structured data requirement for Schedules 13D and 13G, 
with one commenter expressing concern that the proposed structured data 
requirement would be unduly burdensome for small beneficial 
owners.\645\
---------------------------------------------------------------------------

    \644\ See, e.g., letters from Aaron Leonard (June 28, 2023); 
Anonymous 12; Benjamin Ng (Feb. 21, 2022) (``B. Ng''); Convergence; 
David Kraft (June 26, 2023); FundApps; HMA I; IAA; ICI I; J. 
Kennedy; J. Pieper; J. Soucie; Mike Slavens, Retail Investor and 
Mechanical Engineer (Feb. 19, 2022) (``M. Slavens''); Mark C.; P. 
Worts; Todd; XBRL US (Apr. 11, 2022) (``XBRL'').
    \645\ See, e.g., letter from A. Day; see also letters from B. 
Mason; S. Thornburg.
---------------------------------------------------------------------------

    Some of the supporting commenters asserted that the proposed 
structured data requirement would improve the fairness and transparency 
of the markets.\646\ One commenter asserted that the proposal would be 
a fundamental step toward ensuring that the beneficial ownership 
reporting requirements remain modern and comprehensible.\647\ One 
commenter noted that the proposed structured data requirement would not 
impose significant costs to beneficial owners of more than five percent 
of a covered class and stated that the requirement would allow the 
Commission to make use of advancing technologies in order to reduce 
costs to taxpayers and more speedily provide the public with the 
information it needs to accurately assess the conditions of the 
market.\648\ Another commenter asserted that the proposal would enable 
the Commission to process filings instantaneously and therefore allow 
for real-time analysis and if necessary, remedial action and stated 
that any data which cannot be easily processed by machines will become 
largely useless as the century progresses.\649\ In addition, one 
commenter agreed with the Commission that tagging the data reported on 
Schedules 13D and 13G will make it easier for investors and other 
market participants to access, compile, and analyze this information 
and expressly supported the Commission's development of electronic 
``style sheets'' that, when applied to the reported XML data, would 
represent that data in ``human readable'' format.\650\
---------------------------------------------------------------------------

    \646\ See letters from Anonymous 12; J. Kennedy; M. Slavens.
    \647\ See letter from B. Ng.
    \648\ See letter from J. Soucie.
    \649\ See letters from Convergence; FundApps.
    \650\ See letter from ICI I.
---------------------------------------------------------------------------

    Some of the supporting commenters also made recommendations to the 
Commission regarding the proposed structured data requirement. One 
commenter requested that the Commission release the taxonomy at least 
six months in advance of the date by which any revised Schedules 13D or 
13G must be filed so that reporting

[[Page 76942]]

persons can incorporate the taxonomy into their filing system.\651\ 
Similarly, other commenters recommended that the Commission provide for 
a test period in which reporting persons can make test filings using 
the taxonomy in advance of the date by which the revised schedules must 
be filed.\652\ Finally, one commenter suggested that the Commission opt 
for the XBRL data language, rather than creating an XML schema designed 
specifically for beneficial ownership reporting as proposed.\653\
---------------------------------------------------------------------------

    \651\ Id.
    \652\ See letters from IAA; ICI I.
    \653\ See letter from XBRL. The commenter asserted that, among 
other purported benefits, an XBRL-based standard will result in 
significantly lower costs and efficiencies across both reporting 
entities and data users, consistent datasets that can be easily 
commingled with other datasets, and enhanced validation capabilities 
to improve data quality. Id.
---------------------------------------------------------------------------

3. Final Amendment
    We are adopting the structured data requirement for Schedules 13D 
and 13G as proposed. Specifically, we are replacing the current HTML or 
ASCII requirement for Schedules 13D and 13G in the EDGAR Filer Manual 
with a requirement to use 13D/G-specific XML for the disclosures 
reported on those Schedules.\654\ As is the case with other EDGAR XML 
filings, reporting persons will be able to, at their option, submit 
filings directly to EDGAR in 13D/G-specific XML or use a web-based 
reporting application developed by the Commission that will generate 
the Schedule in 13D/G-specific XML in connection with the submission of 
the filing to EDGAR.\655\
---------------------------------------------------------------------------

    \654\ Section 13(g)(5) of the Exchange Act provides, in part, 
that ``the Commission shall take such steps as it deems necessary or 
appropriate in the public interest or for the protection of 
investors . . . to tabulate and promptly make available the 
information contained in any report filed pursuant to this 
subsection in a manner which will, in the view of the Commission, 
maximize the usefulness of the information to . . . the public.'' 15 
U.S.C. 78m(g)(5). The requirement proposed in this section would be 
consistent with this mandate. Although this statutory language 
applies only to beneficial ownership reports filed pursuant to 
section 13(g)--i.e., a Schedule 13G filed by an Exempt Investor--we 
believe these public benefits would be furthered by applying the 
requirement proposed in this section to all Schedule 13D and 13G 
filers.
    \655\ In addition, the Commission's staff intends to develop 
electronic ``style sheets'' that, when applied to the reported XML 
data, will represent that data in human-readable form on EDGAR.
---------------------------------------------------------------------------

    In adopting the structured data requirement as proposed, we note 
that commenters overwhelmingly supported the proposal.\656\ Although 
one commenter opposed the proposed structured data requirement on the 
basis that it would be unduly burdensome for small beneficial 
owners,\657\ we believe the web-based reporting application that will 
generate the Schedule in 13D/G-specific XML should serve to reduce the 
burden of preparing a Schedule 13D or 13G for small beneficial owners 
(and other Schedule 13D and 13G filers), as compared to the current 
system whereby beneficial owners generally use third-party software to 
prepare their Schedule 13D or 13G.\658\ In addition, because 13D/G-
specific XML lends itself more readily to the development of a web-
based reporting application on EDGAR than XBRL does, we believe 13D/G-
specific XML is more suitable than XBRL for structuring Schedules 13D 
and 13G.\659\ In response to commenters requesting a test period for 
the revised Schedules and requesting a taxonomy (i.e., schema) release 
at least six months before compliance is required, we are providing an 
extended voluntary compliance period during which the schema will be 
publicly available.\660\ The compliance period is discussed in further 
detail in section II.G below.
---------------------------------------------------------------------------

    \656\ See supra section II.F.2.
    \657\ See supra note 645 and accompanying text.
    \658\ For example, this web-based reporting application will 
contain and prompt a beneficial owner to respond to the Schedule 13D 
and 13G disclosure requirements, as set forth in Rules 13d-101 and 
13d-102, respectively, which should make the preparation process 
more streamlined and convenient.
    \659\ See also infra section IV.D.3.
    \660\ See supra notes 651-652 and accompanying text.
---------------------------------------------------------------------------

G. Compliance Dates

    The Commission did not propose a transition period for any of the 
Proposed Amendments. Some commenters suggested, however, that the 
Commission should provide for an extended compliance period with 
respect to the proposed structured data requirement for Schedules 13D 
and 13G.\661\ Based on this feedback, we believe that an extended 
transition period for compliance with the structured data requirement 
is appropriate. As such, compliance with the structured data 
requirement for Schedules 13D and 13G will not be required until 
December 18, 2024. We welcome, however, early compliance with this 
requirement, and Schedule 13D and 13G filers may begin to voluntarily 
comply with the structured data requirement on December 18, 2023.
---------------------------------------------------------------------------

    \661\ See id.
---------------------------------------------------------------------------

    In order to further reduce some of the potential burdens that 
commenters described, compliance with the revised Schedule 13G filing 
deadlines under Rules 13d-1 and 13d-2 will not be required before 
September 30, 2024. Thus, notwithstanding the fact that the final 
amendments will become effective on February 5, 2024, beneficial owners 
will continue to be required to comply with the current Schedule 13G 
filing deadlines through September 29, 2024. Beginning on September 30, 
2024, however, beneficial owners will be required to comply with the 
revised Schedule 13G filing deadlines. For example, under Rule 13d-
2(b), as amended, a Schedule 13G filer will be required to file an 
amendment within 45 days after September 30, 2024, if, as of end of the 
day on that date, there were any material changes in the information 
the filer previously reported on Schedule 13G.

III. Other Matters

    If any of the provisions of these amendments, or the application 
thereof to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or the application of such 
provisions to other persons or circumstances that can be given effect 
without the invalid provision or application.
    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated these amendments a ``major 
rule,'' as defined by 5 U.S.C. 804(2).

IV. Economic Analysis

A. Overview

    As discussed in section II, the final amendments generally shorten 
the filing deadlines for initial Schedule 13D and 13G filings, together 
with other changes described below. These filings are required in 
accordance with sections 13(d) and 13(g) of the Exchange Act. Section 
13(d) was enacted in 1968 with the intent to alert issuers and the 
marketplace to rapid accumulations of equity securities by persons who 
would then have the potential to change or influence control of the 
issuer.\662\ Section 13(g), subsequently enacted in 1977, was intended, 
together with section 13(d), to provide a ``comprehensive disclosure 
system of corporate ownership'' applicable to all persons who are the 
beneficial owners of more than five percent of a covered class.\663\
---------------------------------------------------------------------------

    \662\ See H.R. Rep. No. 1711, at 8 (1968).
    \663\ See S. Rep. No. 114, at 14 (1977).

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[[Page 76943]]

    The efficiency of financial markets rests on material information 
becoming public in a timely fashion. In addition to protecting 
investors, greater availability of information allows securities prices 
to better reflect their issuers' fundamental value, and ultimately 
promotes capital formation. The widespread enactment of laws and 
regulations that restrict the use of information obtained by virtue of 
insider status, as well as regulations that restrict selective 
disclosure to certain persons in the absence of public disclosure, 
point to the public-good nature of rules requiring public disclosure.
    This same principle motivates the requirement to disclose 
beneficial ownership of significant shareholders with the potential to 
change or influence control of the issuer. Knowledge of who is 
influencing control is highly material.\664\ Investors benefit from 
this information just as they benefit from material information 
regarding their investments more broadly. The five-business day 
deadline balances the interest of investors to be in possession of 
material information with the interest of investors seeking changes in 
control that may benefit shareholders, and is longer than the filing 
deadline for other settings involving ownership changes, such as for 
Form 4 under Exchange Act section 16 reporting.\665\
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    \664\ For the purpose of this economic analysis, the term 
``significant shareholders'' is used to represent persons with a 
large shareholding in a particular issuer. The terms 
``blockholders'' and ``significant stockholders'' were used to 
represent such persons in the Proposing Release.
    \665\ Some commenters indicated that the Commission failed to 
appropriately justify the shortened filing deadlines or identify an 
associated market failure, or stated that the information asymmetry 
between a filer and the market is not a market failure or otherwise 
problematic. See, e.g., letters from AIMA; EIM I; IAA; ICM; Profs. 
Bishop and Partnoy I; Profs. Eccles and Rajgopal; Profs. Swanson, 
Young, and Yust; SIFMA; SIFMA AMG; TIAA. We agree that the initial 
information asymmetry between a prospective filer and the market is 
not a market failure because in its absence, the filer may not be 
sufficiently rewarded for the expenses of its efforts expended in 
information acquisition and in pursuing changes at the issuer, which 
often have market-level benefits. Nevertheless, an earlier 
resolution of this information asymmetry is expected to have the 
benefits discussed in this economic analysis.
---------------------------------------------------------------------------

    Moreover, as we discuss below, studies suggest that traders other 
than the filer may be in a position to become aware of a potential 
activist campaign and buy stock of the target issuer immediately prior 
to a Schedule 13D filing, thereby benefiting directly from 
foreknowledge of the filing rather than their own efforts.\666\ 
Shortened filing deadlines may lessen the opportunity for these traders 
to gain such an advantage, as discussed below, which could enhance 
trust in markets and thereby capital formation. Finally, shortening the 
deadline is expected to reduce overall informational asymmetries in the 
market. Both theoretical and empirical studies have connected 
information asymmetry, and in particular the presence of informed 
traders, to wider bid-ask spreads.\667\ We therefore expect shortening 
the initial Schedule 13D filing deadline to improve liquidity.\668\
---------------------------------------------------------------------------

    \666\ See infra section IV.C.1.a.iii.
    \667\ See infra section IV.C.1.a.iv.
    \668\ See id.
---------------------------------------------------------------------------

    Shortening the initial Schedule 13D filing deadline will have 
costs. Specifically, activist investors will have less time in which to 
accumulate shares before the filing deadline and, therefore, before the 
price of the stock reflects their plans. This may reduce their expected 
profit, and accordingly some of the incentives for activism. However, 
although we cannot predict with precision the magnitude of the ultimate 
effect on activism and how the overall markets and activists themselves 
will respond to these changes, we believe it is likely that the 
shortened deadline will not significantly reduce the level of activism 
as we expect most campaigns will not be affected by the amended 
deadline, based on our analysis of historical campaigns, and most 
activists will have ability to adapt to the shortened deadline through 
various alternatives.
    We are also, among other things, revising the filing deadlines for 
Schedule 13D and 13G amendments and amending Item 6 of Schedule 13D, 
which requires the disclosure of certain contracts, arrangements, 
understandings, and relationships, to remove any implication that a 
person is not required to disclose interests in all derivative 
securities that use a covered class as a reference security. Each of 
these final amendments may allow investors and other market 
participants to make better-informed decisions by accelerating the 
disclosure of information or expanding the amount of information 
disclosed. The final amendments also require that Schedule 13D and 
Schedule 13G be filed using a structured, machine-readable data 
language, which may facilitate the extraction and analysis of 
information in the filings, and make technical changes to Regulation S-
T associated with extending the filing ``cut-off'' time from 5:30 p.m. 
to 10 p.m., which may ease the compliance costs for filers.
    We are mindful of the costs and benefits of the final 
amendments.\669\ Below, we discuss in more detail the economic effects 
of the final amendments, including their anticipated costs and benefits 
and, integrated into that discussion, the likely effects of the final 
rules on efficiency, competition, and capital formation.\670\ We also 
analyze the potential costs and benefits of significant alternatives to 
the final amendments.
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    \669\ Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] 
requires the Commission, when engaging in rulemaking where it is 
required to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action will promote efficiency, 
competition, and capital formation. Further, section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when 
making rules under the Exchange Act, to consider the impact that the 
rules would have on competition, and prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the Exchange Act.
    \670\ Several commenters raised concerns about the Proposing 
Release's discussion of potential effects on efficiency, 
competition, and/or capital formation. See, e.g., Craig Lewis, 
Review of the Economic Analysis for Proposed Rule Amendments to 
Modernize Beneficial Ownership Reporting, exhibit to letter from EIM 
I (``Lewis Study I (exhibit to letter from EIM I)'') (stating that 
the discussion of efficiency, competition, and capital formation in 
the Proposing Release ``appears to be an afterthought and glosses 
over or fails to address many important points''); see also letters 
from AIMA; B. Sharfman; Profs. Schwartz and Shavell I; Profs. 
Schwartz and Shavell II. Our analysis of potential effects on 
efficiency, competition, and capital formation has been revised and 
expanded from the Proposing Release and has been integrated into the 
discussion of the benefits and costs of the final amendments.
---------------------------------------------------------------------------

B. Baseline

    The baseline against which the costs, benefits, and the effects on 
efficiency, competition, and capital formation of the final amendments 
are measured consists of the current state of the market and the 
current regulatory framework. The economic analysis considers existing 
regulatory requirements, including recently adopted rules, as part of 
its economic baseline against which the costs and benefits of the final 
amendments are measured.\671\
---------------------------------------------------------------------------

    \671\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. 
Cir. 2022). This approach also follows Commission staff guidance on 
economic analysis for rulemaking. See Staff's ``Current Guidance on 
Economic Analysis in SEC Rulemaking'' (Mar. 16, 2012), available at 
https:/www.sec.gov/divisions/riskfin/
rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic 
consequences of proposed rules (potential costs and benefits 
including effects on efficiency, competition, and capital formation) 
should be measured against a baseline, which is the best assessment 
of how the world would look in the absence of the proposed 
action.''); Id. at 7 (``The baseline includes both the economic 
attributes of the relevant market and the existing regulatory 
structure.''). The best assessment of how the world would look in 
the absence of the proposed or final action typically does not 
include recently proposed actions, because that would improperly 
assume the adoption of those proposed actions.

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[[Page 76944]]

1. Current Schedule 13D and 13G Filing Requirements
    The current Schedule 13D and Schedule 13G filing requirements are 
discussed in detail in section II.A above.\672\ Briefly, an initial 
Schedule 13D is currently required to be filed within 10 days after any 
acquisition of beneficial ownership of a covered class that results in 
a person directly or indirectly being the beneficial owner of more than 
five percent of the covered class. Among other disclosures, the 
reporting person must describe, pursuant to Item 6 of Schedule 13D, any 
contracts, arrangements, understandings, or relationships among the 
reporting persons or between the reporting persons and any other person 
with respect to any securities of the issuer. In addition, a Schedule 
13D amendment must be filed ``promptly'' upon any material change in 
the facts reported in the Schedule 13D filing, inclusive of any 
amendments thereto.\673\
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    \672\ Other disclosure requirements may also apply to 
significant shareholders. For example, persons deemed beneficial 
owners of more than 10% of any class of equity securities (other 
than certain exempted securities) registered under Exchange Act 
section 12 are also considered to be insiders for the purpose of 
Exchange Act section 16 and subject to the associated disclosure 
requirements. For example, these persons must file with the 
Commission an initial report on Form 3 either within 10 days after 
becoming an insider of an issuer that already has a class of equity 
securities registered under section 12, or upon the issuer's initial 
registration of the class of equity security under section 12. 15 
U.S.C. 78p(a)(2)(A)-(B). Also, acquisitions of ownership stakes 
exceeding certain dollar thresholds trigger the premerger 
notification requirements of the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976. Public Law 94-435, 90 Stat. 1383 (1976), 
as administered by the Federal Trade Commission and Department of 
Justice. In general, we do not expect these additional disclosure 
requirements to significantly affect the costs and benefits of the 
final rules.
    \673\ As noted supra in section II.A.3 the Commission has 
expressed that under the current standard, ``[a]ny delay beyond the 
date the filing reasonably can be filed may not be prompt'' and an 
amendment to a Schedule 13D reasonably could be filed in as little 
as one day following the change (citing In re Cooper Laboratories, 
Release No. 34-22171 (June 26, 1985)). Some commenters indicated 
that the requirement for Schedule 13D amendments to be made 
``promptly'' has generally been understood to mean within two 
business days. See letters from EIM I; IAA.
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    The initial filing deadline for the initial Schedule 13G varies by 
investor category. QIIs and Exempt Investors must file an initial 
Schedule 13G within 45 days after the end of the calendar year in which 
their beneficial ownership exceeds five percent of a covered class at 
the end of the last day of that calendar year. Further, if a QII 
beneficially owns more than 10 percent of a covered class as of the 
last day of any month, then the initial Schedule 13G must be filed 
within 10 days after the end of that month. Passive Investors must file 
an initial Schedule 13G within 10 days of acquiring beneficial 
ownership of more than five percent of a covered class.
    For all Schedule 13G filers, if, as of the end of the calendar 
year, there are any changes in the information previously reported in a 
Schedule 13G filing, a Schedule 13G amendment must be filed within 45 
days after the end of that calendar year. In addition, QIIs must file a 
Schedule 13G amendment within 10 days after the end of the first month 
in which their beneficial ownership either exceeds 10 percent of a 
covered class, or, once across that threshold, increases or decreases 
by more than five percent of the covered class. Similarly, Passive 
Investors must ``promptly'' file a Schedule 13G amendment upon 
acquiring beneficial ownership of more than 10 percent of a covered 
class, or, once across that threshold, if they increase or decrease 
their beneficial ownership by more than five percent of the covered 
class.
2. Market Trends
    There have been significant changes in the technological, financial 
market, and regulatory environment since the enactment of the Williams 
Act.\674\ In particular, various new technologies developed over this 
time period facilitate the filing process, including both the 
preparation and submission of a filing. For example, communications 
have become easier and faster over this time, facilitating the 
gathering of information to be disclosed and any necessary coordination 
among parties. Further, information technologies used to compile the 
necessary data and prepare and transmit filings may have helped to 
reduce the time required to produce and submit filings. Also, 
electronic submission relieves filers of the need to mail or hand 
deliver filings. On the other hand, as some commenters noted, some of 
the tasks necessary for filers' preparation and submission of filings 
have not been automated or otherwise accelerated.\675\ Further, as one 
commenter noted, information technologies have also facilitated easier 
and faster access to filings, which may reduce the time for the 
information in filings to reach market participants even under the same 
deadline.\676\ Modern information technologies and the faster pace of 
communication may also allow investors and other market participants to 
react more quickly to disclosures, such that they may benefit more from 
disclosures being made a few days earlier than they might have in 
earlier decades, when decision-making may have proceeded at a slower 
pace.
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    \674\ See Proposing Release at 13851. Several commenters 
identified trends that were not discussed in the Proposing Release 
or indicated that the economic analysis in the Proposing Release 
could have been enhanced by considering additional evidence 
regarding changes over time. See letters from Charlie Penner and Bob 
Eccles (Apr. 12, 2022) (``C. Penner and Prof. Eccles''); CIRCA I; 
CIRCA IV; ICM; Prof. Gordon; PSCM; SCG; Lewis Study I (exhibit to 
letter from EIM I) (requesting ``evidence that efficiency 
enhancements have increased the pace at which investors build 
beneficial ownership positions''). In response to these comments, 
this discussion has been expanded relative to the discussion in the 
Proposing Release with respect to changes since the enactment of the 
Williams Act. See supra notes 138-141 and accompanying text.
    \675\ See infra notes 866-867 and accompanying text.
    \676\ See letter from CIRCA IV.
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    In addition to the ease of communication, the introduction of 
electronic trading, new types of financial contracts and instruments, 
and advances in order-splitting and other trade execution optimization 
techniques, as well as the rise of dark pools,\677\ may facilitate an 
investor accumulating a large equity stake more quickly than at the 
time of the enactment of the Williams Act. On the other hand, we also 
recognize that accumulating significant ownership could instead be more 
difficult in the face of modern algorithmic and high-frequency trading, 
more sophisticated surveillance of equity trading and ownership by 
other traders, market participants, and issuers,\678\ and the defenses 
and tactics currently used by issuers with respect to potential 
unsolicited takeover bids or shareholder activism.\679\
---------------------------------------------------------------------------

    \677\ See letter from SCG. A dark pool is a private forum for 
trading securities. See also Order Competition Rule, Release No. 34-
96495 (Dec. 14, 2022) [88 FR 128 (Jan. 3, 2023)] (for further 
discussion on dark pools).
    \678\ See letter from ICM.
    \679\ Researchers have found that the increased use of low-
threshold poison pills within the last decade or two could increase 
the difficulty of accumulating an equity stake beyond a certain 
size. See, e.g., Ofer Eldar et al., The Rise of Anti-Activist Poison 
Pills (Working Paper, Jan. 2023), available at https://ssrn.com/abstract=4198367; Nicole Boyson & Pegaret Pichler, Hostile 
Resistance to Hedge Fund Activism, 32 Rev. Fin. Stud. 771 (2019) 
(``Boyson & Pichler 2019 Study''). Commenters discussed an increased 
use of poison pills as well as a more general increase in anti-
takeover or ``anti-activist'' defenses. See letters from CIRCA I; 
EIM III; ICM; Prof. Gordon; PSCM.
---------------------------------------------------------------------------

    At least one study presents evidence that, despite variations in 
the number of filings from month to month and from year to year, the 
absolute number of initial or total Schedule 13D filings

[[Page 76945]]

made per year did not increase overall from 1985 to 2012.\680\ 
Commission staff analysis of more recent filings supports the 
observation that the number of total filings made per year has not 
increased over recent decades; in fact, the number of Schedule 13D 
filings has decreased somewhat in the most recent decade.\681\ Further, 
according to academic research examining different time periods and 
subsets of filings from 1985 through 2018, there has been no 
significant change in the average level of beneficial ownership of a 
covered class reported in individual initial Schedule 13D filings over 
that time horizon.\682\ Commission staff analysis of more recent 
filings supports the observation that the average level of beneficial 
ownership reported in initial Schedule 13D filings has not meaningfully 
changed in recent decades.\683\
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    \680\ See, e.g., Ulf von Lilienfeld-Toal & Jan Schnitzler, What 
is Special About Hedge Fund Activism? Evidence from 13-D Filings, 
Swedish House of Fin. Rsch. Paper No 14-16 (June 4, 2014), available 
at https://ssrn.com/abstract=2506704 (``Lilienfeld-Toal and 
Schnitzler 2014 Study'') (plotting, in Figure 1 therein, the number 
of initial and total Schedule 13D filings per month from 1985 
through 2012, and demonstrating substantial month-to-month variation 
and a slight overall downward trend overall in initial and total 
Schedule 13D filings).
    \681\ Staff reviewed the number of Schedule 13D and 13D/A 
filings on EDGAR each year from 1997 (the first full year after the 
phase-in of electronic filing was complete) through 2022, available 
at https://www.sec.gov/dera/data/dera_edgarfilingcounts, and found 
no clear trend in the number of these filings per year over the last 
decade, but found that the rate of Schedule 13D filings over the 
last decade was somewhat lower than the rate in the earlier part of 
the sample period. For example, for the years 1997 through 2010, the 
average number of filings per year were approximately 2,800 and 
5,200 for initial and amended Schedule 13D filings respectively, 
which are generally consistent with the monthly rates of filings 
reported for 1985 through 2012 in the Lilienfeld-Toal and Schnitzler 
2014 Study. In contrast, for the years 2011 through 2022, the 
average number of filings per year were roughly 1,400 and 4,100 for 
initial and amended Schedule 13D filings respectively. This decline 
is roughly commensurate with the decline in the number of publicly 
listed companies. Staff also reviewed the number of Schedule 13G 
filings on EDGAR each year from 1997 through 2022, from the same 
source, and found no clear trend in the number of such filings per 
year over this period.
    \682\ See, e.g., Lilienfeld-Toal and Schnitzler 2014 Study 
(based on data from all Schedule 13D filings from 1985 through 2005, 
including data from paper filings obtained via Thomson Research); 
Lucian Bebchuk et al., Pre-Disclosure Accumulations by Activist 
Investors: Evidence and Policy, 39 J. Corp. L. 1, 14-17 (2013) 
(``Bebchuk et al. 2013 Study'') (based on data from Schedule 13D 
filings by hedge funds from 1994, the advent of electronic trading, 
through 2007). Subsequent research on more recent samples of 
Schedule 13D filings by hedge funds shows reported average ownership 
levels consistent with the Bebchuk et al. 2013 Study. See, e.g., 
Alon Brav et al., Governance by Persuasion: Hedge Fund Activism and 
Market-Based Shareholder Influence, Oxford Rsch. Encyclopedia of 
Econ. and Fin. (2022) (``Brav et al. 2022 Study'') (based on data 
from Schedule 13D filings by hedge funds from 1994 through 2018).
    \683\ See sections IV.B.3.a.i and ii below for details on the 
filings analyzed by staff.
---------------------------------------------------------------------------

    There is also research that addresses whether other developments 
may have changed the significance of lower ownership stakes in an 
issuer's securities over time. For example, some observers have stated 
that the increase in stock ownership by institutional investors, the 
rise of proxy advisory services,\684\ and regulatory and legal 
developments regarding shareholder communications may have made it 
easier for an investor with a lower ownership stake to influence other 
shareholders, and, ultimately, the issuer.\685\ On the other hand, 
others have stated that the increased presence of institutional 
investors may make it more difficult for an investor with a lower 
ownership stake to exert control, without the support of these 
institutional investors.\686\ Overall, it is unclear whether 
regulatory, legal, and market developments have led activist campaigns 
by investors with lower ownership stakes to become more or less 
effective over time.\687\ That said, researchers have noted that 
today's market for corporate control, in contrast to that at the time 
of the enactment of the Williams Act and the Commission's original 
adoption of the related rules, prominently features investors with 
minority interests in issuers who seek to influence these issuers' 
governance or corporate policies by convincing other shareholders to 
support their causes instead of pursuing direct control of issuers 
through majority ownership.\688\
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    \684\ Proxy advisory firms (or proxy voting advice businesses) 
provide voting services that can help shareholders, primarily 
investment advisers and institutional investors, manage their 
substantive and procedural proxy voting needs with respect to the 
public companies they own, including assisting these shareholders in 
making their voting determinations on behalf of their own clients 
and handling other aspects of the voting process. See, e.g., 
Exemptions from the Proxy Rules for Proxy Voting Advice, Release No. 
34-89372 (July 22, 2020) [85 FR 55082 (Sept. 3, 2020)].
    \685\ See, e.g., John C. Coffee, Jr. & Darius Palia, The Wolf at 
the Door: The Impact of Hedge Fund Activism on Corporate Governance, 
41 J. Corp. L. 545, 553-71 (2016); see also letter from SCG (stating 
that ``activists today have more resources, often win the support of 
highly influential proxy advisors, can readily share their views on 
financial news networks, and have access to . . . modern financial 
instruments that they can use to postpone disclosure'').
    \686\ See, e.g., Ian Appel et al., Standing on the Shoulders of 
Giants: The Effect of Passive Investors on Activism, 32 Rev. Fin. 
Stud. 2720 (2019) (``Appel et al. 2019 Study'').
    \687\ It is difficult to measure how the effectiveness of 
activist campaigns may have changed over time because, among other 
things, the outcomes of campaigns are heterogeneous and thus 
difficult to compare, the costs of most campaigns are not 
observable, and the threat of a campaign can have significant 
effects without being associated with an observable campaign. 
Commenters expressed mixed views on whether activist campaigns have 
become more or less effective over time. See, e.g., letters from 
WLRK II (describing an ``increasing effectiveness of activist 
campaigns and their decreased cost''); Profs. Bishop and Partnoy I 
(stating that ``the impact that shareholder activists are having on 
corporate America is modest and in decline'' and citing a 
practitioner study ``describing the number of board seats secured by 
activists as `lower than in recent years''' and ``describing the 
number of activist campaigns in 2021 as `in line with 2020's slower 
pace''').
    \688\ See, e.g., Brav et al. 2022 Study; see also letter from 
Profs. Bishop and Partnoy I (stating that ``public company boards 
are no longer monitored by hostile takeovers, so activism is the 
remaining recourse'').
---------------------------------------------------------------------------

3. Affected Parties and Current Market Practices \689\
---------------------------------------------------------------------------

    \689\ Commenters specifically suggested the Commission consider 
the interaction between the final amendments and the Short Position 
Reporting Proposal, its proposal relating to the reporting of 
securities loans, and the security-based swap reporting portion of 
the Schedule 10B Proposal. See letters from Profs. Bishop & Partnoy 
I; EIM IV at 4-5; ICI II at 7 n. 13; see also Reporting of 
Securities Loans, Release No. 34-94315 (Feb. 25, 2022) [87 FR 
11659]. These proposals, or portions of proposals, have not been 
adopted and thus have not been considered as part of the baseline 
here. To the extent those proposals or portions of proposals are 
adopted in the future, the baseline in those subsequent rulemakings 
will reflect the regulatory landscape that is current at that time.
---------------------------------------------------------------------------

    The parties affected by the final amendments include: all investors 
that are required or potentially required to report their beneficial 
ownership of covered classes on Schedules 13D and 13G; the issuers of 
covered classes; shareholders of these issuers who are not Schedule 13D 
or 13G filers; and other investors, market participants, and issuers. 
Below we provide information about the current nature of Schedule 13D 
and Schedule 13G filings and filers, which has not changed markedly 
since publication of the Proposing Release.
a. Schedule 13D Filings
i. Number of Filings, Filer Types, and Time To File
    During calendar year 2022, the Commission received a total of 5,179 
Schedule 13D filings, including 1,161 initial filings and 4,018 
amendments.\690\

[[Page 76946]]

Overall, these initial filings and amendments involved 2,194 unique 
lead filers.\691\ Additional details specific to the initial filings, 
including their breakdown and characteristics by filer type, are 
presented in Table 1.\692\
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    \690\ These estimates are based on staff analysis of EDGAR 
filings. The Proposing Release reported that the Commission received 
10,542 Schedule 13D filings (2,288 initial filings and 8,254 
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 13D filings received in 2020 was 5,288 filings 
(1,148 initial filings and 4,140 amendments), which is similar to 
the counts provided for 2022 above. One commenter addressing the 
DERA Memorandum questioned whether data pertaining to other filing 
years used in the analyses in that memorandum include ``similar 
double counting.'' See letter from EIM IV. Staff reviewed to verify 
that duplicate records were not included in the statistics and 
analyses in the DERA Memorandum or in this economic analysis.
    \691\ 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 and their beneficial ownership of securities.
    \692\ These estimates are based on staff analysis of EDGAR 
filings. The ``Prominent Activists'' category is based on the 
classification of the filer as either (or both) (i) a member of the 
Insightia (previously Activist Insight) ``Activist Top Ten'' list in 
any of the 10 years (2014 to 2023) that this list has been 
published, which represent Insightia's ranking of the most 
influential activists over the past year, based on the quantity, 
size, and performance of their activist investments; or (ii) a 
``Sharkwatch 50'' activist in the FactSet SharkRepellent database as 
of 2021, which represents FactSet's compilation of the 50 most 
significant activists based on, e.g., the number and impact of their 
campaigns as of that date. The ``Other Institutions'' category is 
based on filings by institutions (primarily partnerships, 
corporations, investment advisors, and banks) that do not fall in 
the ``Prominent Activist'' category. The ``Other Individuals'' 
category is based on filings that report holdings of individuals and 
no other filer type and that do not fall in the ``Prominent 
Activist'' category; filings that report holdings of individuals who 
are co-filing as affiliates or part of a group with institutions 
(none of whom fall in the ``Prominent Activist'' category) are 
included in the ``Other Institutions'' category. Information about 
the number of days from the trigger date to the filing date of the 
Schedule 13D and the beneficial ownership percentage reported in the 
Schedule 13D, respectively, are based on a subset of filings (about 
98% of the filings) for which we were able to extract the required 
information. The ``median ownership reported in filing'' row 
represents the median, across filings, of the maximum beneficial 
ownership percentage separately reported in a filing and may thus 
understate the aggregate ownership of a group of co-filers. Based on 
hand-collection of aggregate ownership in a random subsample of 2021 
filings, we estimate that this approach does not fully aggregate all 
of the ownership reported by a group of co-filers in approximately 
7% of the filings. In contrast, alternative algorithms we considered 
to aggregate ownership reported in different fields in a given 
filing very often vastly overstated ownership due to the double-
counting of shares whose beneficial ownership could be attributed to 
multiple affiliates.

                           Table 1--Initial Schedule 13D Filings in 2022 by Filer Type
----------------------------------------------------------------------------------------------------------------
                                                     Prominent         Other           Other
                                                     activists     institutions     individuals     All filings
----------------------------------------------------------------------------------------------------------------
Number of unique lead filers....................              22             720             252             994
Number of initial filings.......................              60             843             258           1,161
Median calendar days from trigger date * to                    9              10              11              10
 filing date....................................
Median ownership reported in filing.............            6.6%           15.0%           10.5%           13.0%
----------------------------------------------------------------------------------------------------------------
* The trigger date is the date on which the investor has acquired beneficial ownership of more than 5% of a
  class of equity securities described in section 13(d)(1) of the Exchange Act and Rule 13d-1(i), or, for an
  investor previously eligible to file a Schedule 13G in lieu of a Schedule 13D pursuant to Rule 13d-1(b) or
  (c), the date on which the investor becomes ineligible to report on Schedule 13G.

    We present the breakdown of filer type in the initial Schedule 13D 
filings under the baseline in Table 1 to characterize the affected 
parties. We did not limit our analyses of costs and benefits to any of 
these categories.\693\
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    \693\ See letter from EIM IV (stating that the categorization of 
filers by type in the DERA Memorandum implied that ``activists 
(prominent or otherwise) warrant separate regulatory scrutiny''). 
This commenter also raised concerns about the reliability of the 
FactSet SharkRepellent database used to identify ``prominent 
activists,'' including whether the data is ``accurate and current.'' 
We note that the FactSet SharkRepellent database including the 
``Sharkwatch 50'' is used, currently, by both academics (see, e.g., 
Ian Appel & Vyacheslav Fos, Short Campaigns by Hedge Funds (Working 
Paper, Feb. 2023), available at https://ssrn.com/abstract=3242516) 
and practitioners (see, e.g., the activist surveillance tool offered 
at Activist Surveillance, The Conference Board, https://www.conference-board.org/proxyvoting) to identify prominent 
activists. We also note that the categorization ``prominent 
activist'' is used in the production of descriptive statistics that 
characterize Schedule 13D filings and the affected parties but does 
not contribute to key results or estimates of our analyses. 
Nevertheless, given this commenter's concerns, staff revised its 
approach to identifying ``prominent activists'' by supplementing the 
``Sharkwatch 50'' with an annual ranking of top activists published 
by Insightia (including a total of 34 ``top ten'' activists over 10 
years) to compile a broader list of ``prominent activists.'' See 
supra note 692. This revision resulted in the addition of five 
Schedule 13D filers from our 2011-2021 sample to the category of 
``prominent activists.''
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    A detailed day-by-day breakdown of the percentage of the filings 
made each day after the trigger date is provided in Figure 1 
below.\694\
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    \694\ This figure is based on staff analysis of EDGAR filings 
and reflects the subset of filings (1,136 of the total 1,161 filings 
reported in Table 1) for which required information could be 
extracted.

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[[Page 76947]]

[GRAPHIC] [TIFF OMITTED] TR07NO23.001

    About 71 percent of all of the initial Schedule 13D filings in 2022 
were filed within the existing 10-day filing window (represented by the 
dark grey bars),\695\ with about 34 percent of the filings being made 
on the filing deadline.\696\ Approximately 29 percent of the initial 
Schedule 13D filings, representing about 41 percent of all of the 
initial Schedule 13D filings that were filed by the current filing 
deadline, were filed within the amended five-business day deadline.
---------------------------------------------------------------------------

    \695\ We note that approximately 42% of the Schedule 13D filings 
in Figure 1 were made after the tenth day following the trigger 
date. However, not all of these filings are considered late by the 
Commission. By rule, the Commission accepts as timely any filing 
that, if the calendar due date falls on a weekend or holiday, is 
received by the next business day. 17 CFR 240.0-3(a) (``[I]f the 
last day on which [a filing] can be accepted as timely filed falls 
on a Saturday, Sunday or holiday, such [filing] may be [made] on the 
first business day following.''). Therefore, after accounting for 
weekends and holidays, we preliminarily estimate that about 29% of 
the filings (represented by the light grey bars) were late.
    \696\ This statistic includes the 20.7% of initial Schedule 13D 
filings made on the 10th day after the trigger date (i.e., the dark 
gray bar for day 10 in Figure 1) as well as those filings made after 
the 10th day but still considered timely due to holidays or weekends 
(i.e., the dark gray portion of the bar for days 11-14 in Figure 1). 
See supra note 695.
---------------------------------------------------------------------------

ii. Types of Filings
    An initial Schedule 13D filing obligation is triggered by the 
acquisition of beneficial ownership of more than five percent of a 
covered class, which can be achieved through various means, including 
via the purchase of shares on the open market as well as the receipt of 
shares through events involving off-market transactions. Initial 
Schedule 13D filings are required in a number of different 
circumstances, only some of which reflect shareholder activism, as 
noted by commenters.\697\ As discussed further below, filings involving 
the acquisition of shares as a result of certain corporate actions and 
other off-market transactions (e.g., compensatory equity grants to 
executives) are less likely to be characterized as announcements of 
activist campaigns.
---------------------------------------------------------------------------

    \697\ See, e.g., letter from STB (stating that ``the Commission 
should recognize that the investors who file on Schedule 13D are by 
no means all activist investors engaging in the types of activities 
the Williams Act seeks to regulate'').
---------------------------------------------------------------------------

    Based on staff review of over a decade of Schedule 13D 
filings,\698\ we believe that the nature of transaction history 
disclosures, which are required pursuant to Item 5(c) of Schedule 
13D,\699\ provide a reasonable means of distinguishing, in a large 
sample, those filings that are likely to reflect the acquisition of 
beneficial ownership through corporate actions or other off-market 
transactions as opposed to those that are more likely to represent 
activist campaigns.\700\ In particular, for those filings for which we 
could not extract a history of transactions in tabular form, we found 
that most reported only one or two transactions, representing off-
market transfers of shares.\701\ We found

[[Page 76948]]

that these filings are typically associated with beneficial ownership 
acquired in events such as the consummation of negotiated mergers and 
acquisitions, IPOs, other restructurings, private placements, or 
compensation awards.\702\ We therefore categorize these filings as 
``corporate action filings.'' \703\ In contrast, we found that filings 
that report a transaction history pursuant to Item 5(c) in tabular form 
are typically associated with the accumulation of shares in open-market 
trading through a series of multiple transactions and are more likely 
to discuss potential plans and proposals that are commonly viewed as 
characteristic of activist campaigns.\704\ We therefore categorize the 
filings for which we are able to extract a transaction history in 
tabular form as ``non-corporate-action filings,'' which we view as more 
likely to involve activist campaigns, acknowledging that we may be 
somewhat over-inclusive in our application of the term ``activist 
campaign.'' \705\ We present a breakdown of the percentages of initial 
Schedule 13D filings in calendar years 2011 through 2021 that we 
characterize as ``non-corporate-action filings'' or ``corporate action 
filings'' based on the nature of transaction histories extracted from 
the filings in Table 2.\706\
---------------------------------------------------------------------------

    \698\ Staff analyzed initial Schedule 13D filings from EDGAR 
from calendar years 2011 to 2021 through programmatic text analysis 
and manual review. In particular, programmatic search terms were 
designed to identify text or data associated with transactions or 
with beneficial ownership obtained through various kinds of events 
(such as initial public offerings (``IPOs'') and equity-based 
compensation awards). Programmatic text analysis was also used to 
extract transaction history data reported in tabular form. Manual 
review of the extracted text and data and of the filings was used to 
better understand the nature of different filings and to what extent 
the extracted text and data were systematically related to the 
different types of underlying filings.
    \699\ See 17 CFR 240.13d-101, Item 5(c) (requiring reporting 
persons to ``[d]escribe any transactions in the class of securities 
reported on that were effected during the past sixty days or since 
the most recent filing of Schedule 13D'').
    \700\ We also note that the nature of transaction history 
disclosures affects staff's ability, in practice, to include filings 
in certain analyses. In particular, data on the share accumulation 
patterns of the filer could only be systematically extracted from 
filings when it was presented in tabular form, and such data is 
required for the analyses presented in Tables 5 and 6 below (in 
sections C.1.a.iii and C.1.b.i).
    \701\ This observation is based on staff review of initial 
Schedule 13D filings from EDGAR from calendar years 2011 to 2021 
through programmatic text analysis and manual review. In particular, 
staff used programmatic text analysis to extract potential 
transaction dates outside of any tabular disclosure by searching for 
any text in the format of a date that seemed to be accompanied by a 
price and/or a quantity of shares. Among the filings for which a 
tabular history of transactions was not extracted, no more than two 
potential transaction dates were extracted for about 70% of the 
filings. Upon manual review of the remaining 30% of the filings for 
which a tabular history of transactions was not extracted, staff 
found that a large number of the additional potential transaction 
dates that were programmatically extracted do not actually reflect 
transactions. We therefore believe that a significant fraction of 
these remaining filings also reflect no more than two transactions.
    \702\ This observation is based on staff review of initial 
Schedule 13D filings from EDGAR from calendar years 2011 to 2021 
through programmatic text analysis and manual review, including 
significant manual review of the disclosures pursuant to Item 3 of 
the Schedule 13D filings to confirm the source of the shares 
acquired. See supra note 698 for more detail on the analysis and 
review undertaken.
    \703\ While we label all of these filings as ``corporate action 
filings'' for simplicity, we acknowledge that some of these filings 
represent transfers that are not strictly related to corporate 
actions, such as bequests of shares, and that our classification 
methodology is subject to some possible error. For example, 3% of 
these filings reflected in Table 2 below are made by Prominent 
Activists, as described supra note 692, (representing 28% of all of 
the filings by Prominent Activists in Table 1 above) and it is 
possible that such filings may represent activist campaigns 
incorrectly classified as corporate action filings.
    \704\ This observation is based on staff review of initial 
Schedule 13D filings from EDGAR from calendar years 2011 to 2021 
through programmatic text analysis and manual review, including 
significant manual review of the disclosures pursuant to Item 4 of 
the Schedule 13D filings regarding the purpose of the transaction. 
See supra note 731 for more detail on the analysis and review 
undertaken. Examples of plans and proposals that were considered 
characteristic of activist campaigns include potential discussions 
or recommendations with respect to board composition, other 
governance matters, business strategy, capital structure and 
dividend policies, and a potential sale process for the issuer or a 
segment of the issuer.
    \705\ In a manual review of these filings, our staff did observe 
many instances of beneficial ownership held for investment purposes, 
with no stated plans or proposals, which are nonetheless included in 
our category of non-corporate-action filings by virtue of their 
filing on Schedule 13D (rather than Schedule 13G) and their 
inclusion of a tabular transaction history. In general, our 
classification methodology is subject to some possible error. 
Further, a filer might not consider itself an ``activist investor'' 
or be viewed as such even if it is involved in what we label as a 
non-corporate-action filing and characterize as a potential activist 
campaign for purposes of this memorandum.
    \706\ These estimates are based on staff analysis of EDGAR 
filings, including programmatic text analysis to extract tabular 
trading histories. See supra note 692 regarding the filer type 
classifications. The classification of filings as late (in the notes 
accompanying the table) accounts for the effect of weekends and 
holidays. See supra note 695.

                           Table 2--Types of Initial Schedule 13D Filings in 2011-2021
----------------------------------------------------------------------------------------------------------------
                                                                              Breakdown by filer type
                                                   Percentage of -----------------------------------------------
                                     Number of      all filings                        Other           Other
                                      filings           (%)          Prominent     institutions     individuals
                                                                   activists (%)        (%)             (%)
----------------------------------------------------------------------------------------------------------------
Non-Corporate-Action Filings *..           3,067              20              28              65               7
Corporate Action Filings **.....          12,657              80               3              67              30
----------------------------------------------------------------------------------------------------------------
* Filings for which tabular trading histories were extracted are categorized as ``Non-Corporate-Action Filings''
  due to the results of our staff's programmatic and manual review of such filings. See note 705 regarding some
  of the limitations of this approach. About 11% of these filings were filed late relative to the current
  deadline (see note 706).
** Filings for which tabular trading histories were not extracted are categorized as ``Corporate Action
  Filings'' due to the results of our staff's programmatic and manual review of such filings. See note 703
  regarding some of the limitations of this approach. About 34% of filings in this category were filed late
  relative to the current deadline (see note 706).

    The categorization of filings presented in Table 2 was also 
included by staff in the DERA Memorandum. One comment letter addressing 
the DERA Memorandum indicated that the analysis presented in that 
memorandum (which is similar to analysis included in this economic 
analysis) was not replicable because it is ``not based on publicly 
available information,'' citing staff's references to programmatic text 
analysis and manual review.\707\ To clarify, the analyses in the DERA 
Memorandum and this economic analysis are based on publicly available 
filings and datasets. The reliance of the staff's analysis on 
programmatic text analysis is limited primarily to the extraction of 
trigger dates, the reported level of beneficial ownership, and the 
tabular trading histories (as discussed in this section) from public 
initial Schedule 13D filings from EDGAR. This data or other data that 
would allow us to understand the share accumulation patterns of filers 
is not available from any third-party sources that we are aware of, and 
our extraction of this data is not novel; other researchers have 
extracted similar transaction history data from public Schedule 13D 
filings for the purpose of academic studies.\708\ Further, the manual 
review (as well as certain additional programmatic text analysis) 
discussed in this section and elsewhere in this economic analysis is 
used to validate our methodologies and not to generate the results of 
the analyses.
---------------------------------------------------------------------------

    \707\ See letter from Profs. Bishop and Partnoy III.
    \708\ See, e.g., Pierre Collin-Dufresne & Vyacheslav Fos, Do 
Prices Reveal the Presence of Informed Trading?, 70 J. Fin. 1555 
(2015) (``Collin-Dufresne & Fos 2015 Study''); Yu Ting Forester 
Wong, Wolves at the Door: A Closer Look at Hedge Fund Activism, 66 
Mgmt. Sci. 2347 (2020) (``Wong 2020 Study'').
    \709\ See letter from EIM IV. That commenter also stated that 
the categorization of filings presented in the DERA Memorandum 
would, in some cases, result in ``potential double counting'' 
whereby ``Schedule 13D filings with respect to a single M&A 
transaction would likely end up in both categories.'' Id. We do not 
believe there is a risk of double-counting in this sample given that 
it is limited to initial Schedule 13D filings and each filing 
appears only in a single category. If a person that is a potential 
acquiror in an M&A transaction files an initial Schedule 13D while 
assembling an initial position, and then files a Schedule 13D 
amendment upon consummation of the acquisition of the issuer, only 
the initial Schedule 13D would appear (in a single category) in our 
analysis.
---------------------------------------------------------------------------

    Another commenter addressing the DERA Memorandum raised concerns 
about potential errors in the classification of filings as ``non-
corporate-action filings'' category, as acknowledged by staff in the 
DERA Memorandum, and questioned why the magnitude of any overstatement 
of this category is not quantified.\709\ In the

[[Page 76949]]

discussion above, we acknowledge that some filings classified as non-
corporate-action filings do not state plans and proposals typical of 
activist campaigns. That said, these filings are still due 
consideration. That is, to the extent the share accumulation patterns 
reported in these filings would be affected by a shortened deadline, 
and to the extent these filings are associated with abnormal stock 
returns, they may still be important to consider in evaluating the 
costs and benefits quantitatively analyzed in this economic analysis. 
We also acknowledge above that some non-corporate-action filings may be 
incorrectly categorized as corporate action filings.\710\ While we 
acknowledge the potential noise in our data, we believe that any large 
dataset or classification approach applied to a large dataset would be 
subject to some degree of error. Another commenter suggested that we 
consider using an alternative database, stating that it ``includes a 
more comprehensive dataset on non-corporate action filings and activist 
campaigns than that created by DERA.'' \711\ Our initial dataset 
includes all Schedule 13D filings on EDGAR, so we expect it to be fully 
comprehensive. As discussed above, the subset of these filings that are 
categorized as non-corporate-action filings may not include every 
filing that some may consider to represent an ``activist campaign.'' 
However, it is not practical to extend the key analyses conducted later 
in this economic analysis to additional filings because staff was, by 
definition, unable to systematically extract transaction history data 
for the filings classified as corporate action filings, and data on the 
share accumulation patterns of the filer are required for these 
analyses.\712\ We do not believe that potential misclassifications have 
a meaningful impact on the results or interpretation of the analyses in 
this economic analysis.\713\
---------------------------------------------------------------------------

    \710\ One commenter suggested that staff ``could have 
alternately analyzed a set of Schedule 13D filed by prominent 
activists to avoid assignment errors.'' See Craig Lewis, Review of 
the Supplemental Data and Analysis on Certain Economic Effects of 
Proposed Amendments Regarding the Reporting of Beneficial Ownership, 
exhibit to letter from EIM IV (``Lewis Study II (exhibit to letter 
from EIM IV)''). We note that prominent activists are responsible 
for a minority of non-corporate-action filings (per Table 2) and 
that we do not believe it would be appropriate to limit our 
assessment of costs and benefits to this subgroup of filers given 
that filings by less prominent activist investors and filers that do 
not consider themselves to be ``activist'' investors are also due 
consideration and may be associated with similar types of costs and 
benefits. Further, it is not necessarily the case that filings by 
prominent activists are misclassified as corporate action filings, 
as many of these filers engage in a variety of activities which 
could include involvement in corporate actions of the types listed 
above.
    \711\ See letter from CIRCA IV (recommending the use of the 13D 
Monitor database).
    \712\ See Tables 5 and 6 below (in sections C.1.a.iii and 
C.1.b.i).
    \713\ For example, staff found that many filings by prominent 
activists that were categorized as ``corporate action filings'' did 
not involve the accumulation of shares on the open market during the 
filing window, which is why staff could not extract a tabular 
transaction history. This finding also means that the risk that the 
filer's acquisition of its beneficial ownership interest could be 
affected by the shortened filing deadline is limited.
---------------------------------------------------------------------------

iii. Timing of Share Accumulation
    Because the final amendments will shorten the window between the 
trigger date and filing deadline for an initial Schedule 13D filing, we 
also consider current practices under the baseline with respect to the 
timing of the filer's accumulation of shares during the filing window.
    As discussed above, for those initial Schedule 13D filings that we 
classify as ``corporate action filings,'' which represent about 80 
percent of initial Schedule 13D filings (per the second row of Table 
2), we found that most reported only one or two transactions 
representing off-market transfers of shares.\714\ These transfers 
typically took place on or very close to the trigger date.\715\ We 
found that very few of these transfers occur following the fifth day 
after the filer \716\ crosses the five percent threshold.\717\
---------------------------------------------------------------------------

    \714\ See supra note 701.
    \715\ This observation is based on staff review of initial 
Schedule 13D filings from EDGAR from calendar years 2011 to 2021 
through programmatic text analysis (to extract potential transaction 
dates, as discussed supra note 701, and to extract trigger dates) 
and manual review.
    \716\ References to the term ``filer'' in this economic analysis 
are inclusive of the beneficial owner before the person actually 
made a Schedule 13D filing.
    \717\ References to a filer ``crossing the five percent 
threshold'' in this economic analysis mean that the filer just 
completed acquiring beneficial ownership totaling more than five 
percent of a covered class or otherwise triggered a responsibility 
to file an initial Schedule 13D. Based on staff analysis of EDGAR 
filings through programmatic text analysis (to extract potential 
transaction dates, as discussed supra note 701, and to extract 
trigger dates), we estimate that about 2% of the potential 
transaction dates extracted from the text of corporate action 
filings between 2011 and 2021 occurred between the fifth day after 
the filer crosses the 5% threshold and the subsequent filing date. 
However, upon manual review, we found that many of these dates do 
not actually reflect transactions (i.e., the dates were extracted 
because they seemed to relate to a number of shares and/or a price, 
but they reflect information other than specific transactions, as in 
the case of a summary of holdings as of the filing date that appears 
in the body of the filing).
---------------------------------------------------------------------------

    For initial Schedule 13D filings that we classify as ``non-
corporate-action filings,'' we use data extracted from the filings to 
examine filers' current patterns of share accumulation. We extracted 
such data from the 3,067 non-corporate-action filings from 2011 through 
2021 reflected in the first row of Table 2. We further refined the 
sample of 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.\718\ Our refinements resulted in a sample 
size of 2,370 non-corporate-action filings, which we use for Figures 2, 
3a, 3b, and Table 3 below. Figure 2 displays the percentage of non-
corporate-action filings for which filers completed acquiring the total 
beneficial ownership reported in their initial Schedule 13D filing by 
the specified day after the trigger date.\719\
---------------------------------------------------------------------------

    \718\ When multiple filings were made on the same date and 
pertain to the same issuer, only the filing reporting the largest 
stake is included in the analysis.
    \719\ These estimates are based on staff analysis of EDGAR 
filings through programmatic text analysis (to extract trigger 
dates, the reported levels of beneficial ownership, and transaction 
histories, which were all used to determine share accumulation 
patterns; and to categorize filings, as discussed in the previous 
section). See supra section IV.B.3.a.ii.

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

[[Page 76950]]

[GRAPHIC] [TIFF OMITTED] TR07NO23.002

    The dark grey bars in Figure 2 represent filers that completed 
acquiring their total reported stake by the amended deadline, i.e., 
five business days after their trigger date.\720\ Summing the dark grey 
bars of the figure,\721\ we find that about 80 percent of the filers 
completed acquiring their reported stake by the amended deadline. The 
remaining approximately 20 percent of filers (represented in the light 
grey bars) continued accumulating shares after the amended deadline.
---------------------------------------------------------------------------

    \720\ See supra note 695.
    \721\ Typically, five business days translates to seven calendar 
days after weekends are accounted for. Occasionally, five business 
days includes more than seven calendar days because of federal 
holidays. For instance, if an investor crosses the 5% threshold on a 
Friday and the following Monday is a federal holiday, then five 
business days will equate to 10 calendar days.
---------------------------------------------------------------------------

    We next explore the significance of additional accumulations of 
shares after the amended deadline. Figures 3a and 3b display, for the 
same sample of filings as in Figure 2, the percentage of filers that 
complete acquiring 90 percent and 75 percent, respectively, of their 
stake on the indicated day after the trigger date.\722\
---------------------------------------------------------------------------

    \722\ These estimates are based on staff analysis of EDGAR 
filings through programmatic text analysis (to extract trigger 
dates, the reported levels of beneficial ownership, and transaction 
histories, which were all used to determine share accumulation 
patterns; and to categorize filings, as discussed in the previous 
section). See section IV.B.3.a.ii. As discussed above, we use the 
maximum ownership separately reported in a filing as our measure of 
the total reported ownership, and, in some cases (approximately 7% 
of all of the Schedule 13D filings in Table 2 above), this approach 
may understate the aggregate ownership of a group of co-filers. See 
supra note 692. Because this measure of total reported ownership is 
used as the denominator to determine the percentage accumulation by 
a given day in these figures, our estimate of the percentage of 
reported ownership that is accumulated after the fifth business day 
following the trigger date may be overestimated in some cases. For 
example, we manually reviewed all filings categorized in the light 
grey bars of Figure 3b (those with 25% or more of their reported 
ownership accumulated after the amended deadline) and determined 
that 1 out of 16 filings in the light grey bars, or 6% of these 
filings, 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.

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[[Page 76951]]

[GRAPHIC] [TIFF OMITTED] TR07NO23.003

[GRAPHIC] [TIFF OMITTED] TR07NO23.004

    The dark grey bars in Figures 3a and 3b represent filers that 
completed acquiring 90 percent or 75 percent, respectively, of their 
reported stake by the amended deadline. Summing the dark grey bars of 
Figure 3a, we find that about 97 percent of the filers completed 
acquiring 90 percent of their reported stake by the amended deadline, 
while the remaining three percent of filers (represented in the light 
grey bars) continued to accumulate shares constituting 10 percent or 
more of their reported stake after the amended deadline. Similarly, 
summing the dark grey bars of Figure 3b, we find that about 99 percent 
of the filers completed acquiring 75 percent of their reported stake by 
the amended deadline, while the remaining one percent of filers 
continued to accumulate shares representing 25 percent or more of their 
reported stake after that date.
    The number and percentage of non-corporate action filings with 
different degrees of accumulation from Figures 2,

[[Page 76952]]

3a, and 3b are summarized in Table 3.\723\
---------------------------------------------------------------------------

    \723\ These estimates are based on staff analysis of EDGAR 
filings through programmatic text analysis. See supra notes 719 and 
722.

    Table 3--Degree of Accumulation by Amended Deadline Non-Corporate-Action Filings of Initial Schedule 13D
                                                   [2011-2021]
----------------------------------------------------------------------------------------------------------------
                                                         Percent of stake accumulated by amended deadline
                                                 ---------------------------------------------------------------
                                                  (1) 100% (full                     (3) <90%        (4) <75%
                                                      stake)         (2) <100%     subset of (2)   subset of (3)
----------------------------------------------------------------------------------------------------------------
Number of campaigns in sample...................           1,907             463              78              16
Percent of campaigns in sample..................             80%             20%              3%              1%
Average number of campaigns/year................             173              42               7               1
----------------------------------------------------------------------------------------------------------------

    Column 1 of Table 3 (representing the same filings as those in the 
dark grey bars of Figure 2) presents information about campaigns in 
which the filer completed accumulating their shares by the amended 
deadline (five business days after crossing the five percent 
threshold). Column 2 (representing the same filings as those in the 
light grey bars of Figure 2) presents information about the remainder 
of the campaigns, in which the filer continued accumulating shares 
after the amended deadline. Columns 3 and 4 (representing the same 
filings as those in the light grey bars of Figure 3a and 3b 
respectively) present the subsets of the campaigns in Column 2 in which 
the filer had accumulated less than 90 or 75 percent, respectively, of 
their stake by the amended deadline (i.e., 10 percent or 25 percent, 
respectively, or more of their stake was accumulated between the 
amended deadline and their actual filing date).\724\
---------------------------------------------------------------------------

    \724\ The figures in Tables 3, 5, and 6 use the same methodology 
as in Table 2 and as discussed in section IV.B.3.a.ii for 
identifying non-corporate action filings. A different methodology, 
such as those proposed in some comment letters (see supra notes 710-
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.

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[[Page 76953]]

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\
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    \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.

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[[Page 76954]]

[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\
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    \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.

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[[Page 76955]]

[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

[[Page 76956]]

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.

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

[[Page 76957]]

    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.

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[[Page 76958]]

[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.
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BILLING CODE 8011-01-P

[[Page 76959]]

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[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

[[Page 76960]]

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

[[Page 76961]]

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

[[Page 76962]]

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.

[[Page 76963]]

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

[[Page 76964]]

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.

[[Page 76965]]



       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-

[[Page 76966]]

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).

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

[[Page 76967]]

    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

[[Page 76968]]

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 
the shareholders who seek to exert influence or control over issuers 
that Congress sought when enacting section 13(d).
---------------------------------------------------------------------------

    \848\ See letters from AFREF; Better Markets I; Labor Unions; 
NIRI; R. Steel and Prof. Goshen; SCG; Sen. Baldwin, et al.; WLRK I.
    \849\ See letters from AFREF; NIRI; SCG; Sen. Baldwin, et al.
    \850\ See letter from SCG.
    \851\ See, e.g., Bebchuk et al. 2015 Study; Kedia et al. 2021 
Study; Boyson & Pichler 2019 Study; Cremers et al. 2018 Study; 
Swanson et al. 2022 Study; deHaan et al. 2019 Study; Brav et al. 
2022 Study; Lilienfeld-Toal & Schnitzler 2020 Study; Swanson et al. 
2022 Study.
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    Some commenters stated that certain types of activist campaigns 
were more likely to be forgone as a result of a shortened deadline. For 
example, some commenters stated that a reduction in campaigns was more 
likely among those campaigns targeting smaller issuers with lower 
trading volumes \852\ or for certain types of activist campaigns (e.g., 
those pursuing changes at an issuer rather than a potential sale of the 
issuer).\853\ Some commenters noted that the final amendments may 
reduce competition among investors who pursue activist campaigns,\854\ 
as more sophisticated and experienced investors may be better able to 
adapt to the final amendments. We acknowledge that the final amendments 
may have differential impacts on different types of activist campaigns. 
For instance, it may be more costly for a filer to accelerate the 
completion of its stake under a shortened filing window for smaller, 
less liquid issuers. However, in Table 6 above, we find that the 
targets of filers who currently continue to accumulate a significant 
fraction of their stake after the five-business day deadline are, on 
average, slightly larger and more liquid than other targets. Further, 
studies cited earlier in this section find that the abnormal stock 
returns around the announcement of activist campaigns are lower for 
larger issuers. These lower expected gains from campaigns at larger 
issuers could make investors less likely to bear additional costs to 
conduct such a campaign by one of the adaptation strategies discussed 
(rather than forgoing the campaign) relative to potential campaigns at 
smaller issuers even if these costs of doing so are lower than they 
would be at smaller, less liquid issuers, as noted above.
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    \852\ See letters from CIRCA I; ICM; Prof. Gordon.
    \853\ See letter from Profs. Swanson, Young, and Yust.
    \854\ See Lewis Study I (Exhibit to letter from EIM I); letter 
from MFA.
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    To summarize, while the amended filing deadline may make a minority 
of campaigns less profitable and, as a result, could potentially reduce 
shareholder value creation, we do not expect a substantial reduction in 
the extent of activism as most historical campaigns would not have been 
impacted by the amended filing deadline and since activists may adapt 
to accommodate the amended deadline and we expect that in most if not 
all cases, they will do so.
Implications of Changes to Activist Campaigns
    As referenced above, filers have various ways to adapt to the 
amended filing deadlines and we expect that many filers will likely use 
these methods of adaption to the amended filing deadline where they 
remain incentivized to pursue their campaigns. For example, some filers 
may proceed with smaller stakes, other filers may accumulate shares 
more quickly during the amended filing window (or add to their stake 
after the filing date), while others may acquire an economic interest 
in the issuer, such as by using cash-settled swaps or other 
derivatives. We expect that such adaptations are most likely to arise 
in the context of non-corporate-action filings in which filers would 
otherwise have continued to accumulate shares on the open market after 
the amended filing deadline (i.e., campaigns like those represented in 
Columns 2, 3, and 4 of Table 6).\855\ Some commenters stated that 
investors have a target share accumulation that would be required to 
make a campaign worthwhile and that in some cases this target would not 
be achievable under the amended deadline.\856\ One of these commenters 
noted that investors may file early if they reach their target 
ownership before the filing deadline, but implied that one should not 
assume

[[Page 76969]]

from observing these filings that they can reach their target ownership 
with the same speed in all instances.\857\ We note also that some 
commenters stated that the proposed five-calendar day filing window 
would provide activist investors ample time to accrue a significant 
stake,\858\ implying that filers would be able to adapt to the revised 
deadline. While a filer's adaptation strategy will ultimately be based 
on its assessment of the benefits and costs of various available 
strategies, which will likely vary across filers and specific 
situations, we expect that most of the profitable campaigns will 
continue to be profitable notwithstanding the five-business day filing 
deadline. In these cases, we expect activists to use adaptation 
strategies rather than forgo the campaigns. And, we expect that most 
campaigns will not be constrained by the amended filing deadline as, 
historically, 97 percent of campaigns achieved 90 percent of their 
position by the amended deadline.\859\
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    \855\ As discussed in section IV.C.1.b.i above, we believe that 
the process of acquiring shares is unlikely to be significantly 
impacted in most other cases.
    \856\ See letters from AIMA; CIRCA I; ICM; Prof. Gordon.
    \857\ See letter from AIMA.
    \858\ See letters from ABA; Better Markets I; NASDAQ; SCG; WLRK 
I.
    \859\ See Table 3 and supra note 724.
---------------------------------------------------------------------------

    The degree to which the benefits associated with earlier disclosure 
under a shortened filing deadline would be achieved also depends on how 
the filers respond to the shortened deadline. As an adaptation 
strategy, some filers may simply proceed with acquiring a smaller stake 
in an issuer, notwithstanding the reduced potential profits.
    Alternatively, filers could adapt to the amended filing deadline by 
accumulating shares more quickly during the modified filing window or 
adding to their stake after the filing date. Such approaches are likely 
to preserve more fully both the current shareholder value impact of the 
campaigns and the benefits of earlier disclosure. We acknowledge that 
these adaptations would entail greater costs to filers because the 
additional shares would likely be purchased at higher prices than under 
the current accumulation pattern.\860\ Further, in some cases post-
filing purchases may be precluded because issuers could react to the 
disclosure by adopting low-threshold poison pills or other defensive 
measures. While some commenters suggest that adaptations that rely on 
accumulating shares more quickly could further reduce market efficiency 
should volatility increase as a result of aggressive purchasing,\861\ 
we do not believe that a temporary increase in volatility would be 
disruptive enough to override the benefits to price informativeness 
mentioned above.
---------------------------------------------------------------------------

    \860\ In the case of stock purchases after an earlier filing 
date, these shares would be purchased at the higher stock price that 
prevails after the filing date (i.e., the price reflecting the 
market's knowledge of the filer's intentions). Accumulating shares 
more quickly would generally entail purchases at higher prices 
because, all else equal, larger order sizes or more aggressive 
trading has greater price impact. See, e.g., Albert S. Kyle, 
Continuous Auctions and Insider Trading, 53 Econometrica 1315 
(1985).
    \861\ See letters from AIMA; EIM I; Rice Management; STB.
---------------------------------------------------------------------------

    Filers could also adapt by instead acquiring an economic interest 
in the issuer, such as by using cash-settled swaps or other 
derivatives.\862\ Although these instruments would not replace the 
ownership of shares in the issuer, and generally do not provide voting 
rights, they may have the effect of providing economic exposure to the 
issuer without triggering the section 13(d) beneficial ownership 
reporting obligation. Such economic exposure would allow filers to 
remain financially incentivized to pursue campaigns that create 
shareholder value, as opposed to forgoing such campaigns solely due to 
the shortened filing deadline.
---------------------------------------------------------------------------

    \862\ Staff have noted that some Schedule 13D filers already 
make use of cash-settled derivatives referencing the issuer in which 
they report beneficial ownership. See, e.g., Memorandum of the Staff 
of the Division of Economic and Risk Analysis, Supplemental Data and 
Analysis Regarding the Proposed Reporting Thresholds in the Equity 
Security-Based Swap Market (June 20, 2023), available at https://www.sec.gov/comments/s7-32-10/s73210-207819-419422.pdf. Thus, it is 
plausible that at least some filers could adapt to the amendments by 
making greater use of these instruments. See Security-Based Swaps 
Release for a discussion of the circumstances in which a holder of a 
SBS currently may be deemed the beneficial owner of the class of 
equity securities referenced by the swap.
---------------------------------------------------------------------------

    Some commenters indicated that such a heavier reliance by activist 
investors on derivatives may be an unintended consequence of a 
shortened Schedule 13D filing window.\863\ Adaptations involving the 
use of derivatives would generally entail some incremental costs to 
these investors because of the premiums charged by counterparties for 
these products, and, as noted, would not provide the investors with 
voting rights beyond those associated with any shares they otherwise 
beneficially own. That said, such approaches may often be the most 
cost-effective alternative for activist investors and may preserve the 
shareholder benefits associated with the campaigns.
---------------------------------------------------------------------------

    \863\ See letter from Profs. Swanson, Young, and Yust.
---------------------------------------------------------------------------

    An increased reliance on these products may, in certain situations, 
reduce the overall benefits associated with a shortened filing deadline 
by reducing the likelihood that disclosure of economic interests would 
occur any earlier than under the status quo. In particular, cash-
settled swaps and related derivatives do not generally give rise to 
beneficial ownership as they do not generally provide voting or 
disposition rights over the reference securities.\864\ They therefore 
generally fall outside the scope of the primary purpose of the Schedule 
13D filings and the section 13(d) beneficial ownership reporting 
system, which are focused on disclosure of a filer's accumulation of 
equity securities that provide rights that could allow the filer to 
control or influence control over an issuer. Nevertheless, it is 
possible that some market participants may look to Schedule 13D filings 
(in particular, Item 6 of Schedule 13D) for information about a filer's 
accumulation of economic interests, such as cash-settled swaps and 
derivatives without voting or disposition rights. Acquisition of these 
instruments could allow a filer to obtain more than five percent of 
economic interest in an issuer's covered class and then, at a later 
point, cross the five percent beneficial ownership threshold through 
holding or acquiring equity securities of the covered class--triggering 
the requirement for a Schedule 13D filing in five business days--at a 
later date. In this scenario, there is no delay in the disclosure of 
the information that Schedule 13D filings and section 13(d) are 
intended to provide--the beneficial ownership of the equity securities 
that provide voting and disposition rights. However, the filer does 
delay disclosure relative to obtaining the purely economic exposure of 
more than five percent of the issuer represented by the cash-settled 
swaps or derivatives. As such, an investor's pattern of accumulation of 
economic interest, relative to when their campaign is revealed to the 
market, may not differ from that under the status quo. In fact, 
depending on the degree of reliance on cash-settled derivative 
securities, complete disclosure of an investor's total economic 
interest in an issuer may, under the final rules, be reduced or further 
delayed than under the baseline, such as in cases where, 
notwithstanding acquisition of these instruments, the investor 
beneficially owns five percent or less of a covered class and no 
Schedule 13D filing obligation is triggered. Still, we cannot predict 
the extent to which investors will adapt by accumulating cash-settled 
swaps or derivatives in lieu of equity securities, including because 
cash-settled swaps and derivatives generally represent only an economic 
interest in the issuer, with no voting rights or disposition rights 
with respect to the reference securities, and therefore cannot be 
presumed to be

[[Page 76970]]

equivalents to equity securities that do provide such rights.
---------------------------------------------------------------------------

    \864\ See supra section II.B.3.
---------------------------------------------------------------------------

    Initial Schedule 13D filings signal to the market that an investor 
may intend to influence an issuer, often through activism. For market 
participants that value such signals, regardless of beneficial 
ownership, an increased reliance by activist investors on financial 
instruments that generally do not trigger the section 13(d) beneficial 
ownership reporting obligations, such as cash-settled swaps or 
derivatives, may reduce the overall benefits associated with a 
shortened filing deadline by reducing the likelihood that disclosure of 
such information would occur any earlier than under the status quo.
    We note that one commenter stated that potential adaptations 
presented in the DERA Memorandum are ``neither cost-free nor viable,'' 
\865\ and we recognize that the amended filing deadline may make a 
minority of campaigns more costly, including as a result of the 
adaptations. Similarly, we acknowledge that there would be costs, and 
reduced benefits, to the extent activism is reduced as a result of the 
final rules. However, we do not expect a substantial reduction in the 
extent of activism as historical evidence suggests most campaigns would 
not be impacted by the amended filing deadline.
---------------------------------------------------------------------------

    \865\ See letter from EIM IV (also stating that potential 
adaptations ``would fundamentally alter how an activist assembles 
its exposure to a given company in ways that would impair the 
ability of an activist to pursue a particular campaign'').
---------------------------------------------------------------------------

ii. Compliance Costs
    A shortened initial Schedule 13D filing deadline may increase 
compliance costs for beneficial owners who have an obligation to file 
an initial Schedule 13D under the final rules. For example, beneficial 
owners who regularly make significant stock investments could incur a 
one-time cost to update their information technology systems to monitor 
securities transactions and generate alerts and reports in time to 
accommodate the rule change. They may also need to allocate more 
resources on an ongoing basis to monitor their holdings in accordance 
with the amended deadline so that they can meet their obligation to 
file an initial Schedule 13D. In addition, external service providers 
and advisers may charge higher fees for expedited processing and/or for 
weekend services, which may be more frequently required under the final 
amendments. Compliance costs may increase both in the context of non-
corporate-action filings and corporate action filings. The compliance 
costs could be more significant for some filers (e.g., those with more 
complex affiliate structures or investment strategies) than others.
    Commenters identified additional compliance challenges that may 
arise as a result of the shortened initial Schedule 13D deadline. For 
example, some commenters noted aspects of the initial Schedule 13D 
filing process that have not become simplified as a result of 
technological advancements, including nuanced legal analysis, drafting 
of narratives, and certain data collection, determinations, and 
computations that are accomplished manually or with reliance on 
external resources.\866\ Others noted issues for first-time filers that 
may be hard to resolve within five business days, such as the 
processing time (including delays) for receiving EDGAR filing 
codes,\867\ or stated that compliance burdens would be greater for non-
institutional filers or smaller institutional filers lacking certain 
infrastructure or personnel,\868\ and that the accelerated filing 
deadline may require an increased reliance on third parties.\869\
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    \866\ See letters from ABA; Dodge & Cox; IAA; MSBA; STB.
    \867\ See letters from MSBA; STB.
    \868\ See letters from A. Day; E. Fraser; Perkins Coie.
    \869\ See letter from E. Fraser.
---------------------------------------------------------------------------

    We acknowledge that not all aspects of preparing and submitting an 
initial Schedule 13D have been simplified by technology, and that the 
amended filing deadline may increase certain compliance costs given the 
need to complete these tasks in a shorter timeframe. We also 
acknowledge that the incremental compliance burdens may be greater for 
smaller, less experienced filers than for other filers due to their 
more limited internal resources and expertise in preparing filings. In 
particular, these filers are less likely to have operational systems 
and processes in place to facilitate compliance with the revised filing 
deadline. They are also likely to be more reliant on external advisers 
and service providers, who may charge higher fees for expedited 
processing and/or for weekend services.
2. Shortened Schedule 13G Filing Deadlines
    The final amendments to Rules 13d-1(b), (c), and (d) and 13d-2(b), 
(c), and (d) shorten the filing deadlines for both initial and amended 
Schedule 13G filings as well as, in certain cases, increasing their 
frequency.\870\ As discussed in more detail in section II.A.2 above, 
under the final amendments, QIIs and Exempt Investors will be required 
to file an initial Schedule 13G within 45 days after calendar quarter-
end if, as of the end of that quarter, their beneficial ownership 
exceeds five percent (rather than the current deadline of 45 days after 
the calendar year-end at which beneficial ownership exceeds five 
percent). The filing obligation for QIIs will be accelerated from 10 
days to five business days after month-end if, as of such month-end, 
their beneficial ownership exceeds 10 percent. Passive Investors will 
be required to file an initial Schedule 13G within five business days 
(rather than the current deadline of 10 days) after crossing the five 
percent beneficial ownership threshold. All three filer types will be 
required to file a Schedule 13G amendment within 45 calendar days after 
any calendar quarter-end at which there is a material change in the 
information previously reported in a Schedule 13G (rather than the 
current deadline of 45 days after any calendar year-end at which there 
are ``any changes'' in the information previously reported). For QIIs 
and Passive Investors, the requirement to file a Schedule 13G amendment 
upon exceeding 10 percent beneficial ownership or an increase or 
decrease in beneficial ownership thereafter of more than five percent 
will be accelerated. Specifically, QIIs will be required to file an 
amendment five business days (rather than the current deadline of 10 
days) after any month-end at which beneficial ownership meets one of 
these thresholds, while Passive Investors will be required to file an 
amendment within two business days (rather than the current deadline of 
``promptly'') after beneficial ownership meets one of these thresholds.
---------------------------------------------------------------------------

    \870\ For the purpose of this economic analysis, we refer to an 
``increased frequency'' of Schedule 13G filings under the final 
amendments because the frequency of Schedule 13G filings is 
generally expected to increase overall. However, the frequency of 
filings will not necessarily increase in all cases. If there is only 
one material change (or no such change) in the information reported 
in a Schedule 13G filing over the course of a year, then the 
reporting frequency generally will be the same as under the current 
regime.
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A. Benefits

    Academic research has provided evidence that at least some Schedule 
13G filings contain value-relevant information that is not already 
incorporated in market prices, as discussed in more detail below.\871\ 
The acceleration of such Schedule 13G filings under the final rules may 
thus benefit market participants. Specifically,

[[Page 76971]]

investors and issuers, with earlier access to the information and an 
updated stock price, may be able to make better-informed investment and 
resource allocation decisions. At an economy level, this better-
informed decision-making may improve the efficiency of resource 
allocation overall.
---------------------------------------------------------------------------

    \871\ See infra notes 883-885 and accompanying text.
---------------------------------------------------------------------------

    Some commenters agreed that the proposed acceleration of beneficial 
ownership reporting as a whole, including the proposed revisions to 
Schedule 13G filing deadlines, would make material information 
available to all investors in a more timely manner.\872\ Some 
commenters also specified reasons that the information in Schedule 13G 
filings in particular is important to investors and issuers.\873\ For 
example, one commenter stated that there are ``significant risks and 
impacts of large holdings on investors irrespective of the stated 
intentions of a large position holder,'' such as the risk of stock 
price volatility if a large shareholding were to be sold.\874\ Another 
commenter stated that the disclosure of beneficial owners in Schedule 
13G filings, together with Schedule 13D filings, ``help inform the 
education and advocacy efforts of those with a stake in . . . important 
votes.'' \875\ Other commenters indicated that information about all 
large shareholders facilitates issuer efforts to identify and engage 
with these shareholders in order to elicit their views and ideas.\876\
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    \872\ See letters from ABA; AFREF; EEI; FedEx; Freeport-McMoRan; 
Nasdaq.
    \873\ See letters from AFREF; HMA I; Nasdaq; SCG.
    \874\ See letter from HMA I.
    \875\ See letter from AFREF.
    \876\ See letters from Nasdaq; SCG.
---------------------------------------------------------------------------

    On the other hand, some commenters stated that they do not believe 
there is a ``harmful'' information asymmetry or other problem that 
justifies an acceleration of the Schedule 13G deadlines,\877\ or 
indicated that the earlier disclosure of the information in Schedule 
13G filings would be of limited, if any, benefit.\878\ For example, 
some indicated that the concerns that could justify accelerating 
Schedule 13D filings would not equally apply to Schedule 13G 
filings.\879\ Some commenters stated that the information in Schedule 
13G filings is unlikely to be material because of the passive intent of 
the filers \880\ or because of existing disclosures (such as Schedule 
13F or Form N-PORT \881\ for some QIIs, or registration statements for 
some Exempt Investors) that provide similar information.\882\
---------------------------------------------------------------------------

    \877\ See letters from ICI I; MFA; MSBA; SIFMA; SIFMA AMG; SSC; 
TIAA; TRP.
    \878\ See letters from ABA; MFA; TRP.
    \879\ See letters from ICI I; MSBA; SIFMA; TIAA.
    \880\ See letters from ABA; MFA; MSBA; STB.
    \881\ Though a commenter referenced Form N-Q, we note that this 
form has been rescinded and similar information is now disclosed in 
Form N-PORT.
    \882\ See letters from ABA; MFA; SIFMA AMG.
---------------------------------------------------------------------------

    Given commenters' statements regarding a lack of material 
information in Schedule 13G filings and limited benefits from the 
acceleration of these filings, we reconsidered the evidence on the 
market impact of these filings. Initial Schedule 13G filings by hedge 
funds in particular have consistently been associated by multiple 
academic studies with, on average, a statistically significant positive 
stock price reaction around the filing date.\883\ Similarly, one study 
found that all initial Schedule 13G filings that are not submitted 45 
days after the end of the calendar year (i.e., generally Schedule 13G 
filings by Passive Investors, including some hedge funds, which are 
required to be made within 10 days of the trigger date) are associated, 
on average, with a statistically significant stock market 
reaction.\884\ This study also finds that initial Schedule 13G filings 
submitted 45 days after the end of the calendar year (i.e., generally 
Schedule 13G filings by QIIs and Exempt Investors, which include some 
hedge funds) are not associated with a meaningful stock market reaction 
on average.\885\ It is unclear whether this finding with respect to 
post-year-end filings, in contrast to the findings with respect to 
other Schedule 13G filings, is attributable to the different types of 
persons filing on a calendar-year-end filing schedule or by an effect 
of the year-end filing schedule itself on the significance of the 
information to the market by the time it is reported on Schedule 13G. 
Overall, this and other studies provide support for commenters' 
assertions that at least some Schedule 13G filings contain market-
moving information.
---------------------------------------------------------------------------

    \883\ See, e.g., Albuquerque et al. 2022 Study (finding that 
Schedule 13G filings by hedge funds are associated with an average 
cumulative abnormal return of about 1.2% over the period from 30 
days before to 10 days after the filing date); Alex Edmans et al., 
The Effect of Liquidity on Governance, 26 Rev. Fin. Stud. 1443 
(2013) (``Edmans et al. 2013 Study'') (finding that Schedule 13G 
filings by hedge funds are associated with an average cumulative 
abnormal return of 0.8% over the period from one day before to one 
day after the filing date); and Christopher Clifford, Value Creation 
or Destruction? Hedge Funds as Shareholder Activists, 14 J. Corp. 
Fin. 323 (2008) (``Clifford 2008 Study'') (finding that Schedule 13G 
filings by hedge funds are associated with an average cumulative 
abnormal return of 1.6% over the period from two days before to two 
days after the filing date, and that there are similar positive 
cumulative abnormal returns around the filing date for filings 
submitted within 10 days of the trigger date and for all Schedule 
13G filings by hedge funds regardless of the timing of the filing). 
These researchers vary in their interpretation of these results, 
with some attributing the positive returns to a governance role of 
the filers (i.e., a contribution to the promotion of corporate 
accountability) and others asserting that the positive return may be 
a reflection of the market's view of the filers' stock-picking 
ability. There may be further potential explanations for the market 
reaction. For example, the presence of certain significant 
shareholders (e.g., an investor known to pursue activist strategies 
at some of the issuers in which they invest, or an institutional 
investor known to have voted in the past in favor of changes 
proposed by activists) could provide information about the 
likelihood of a future activist campaign or the likelihood of 
success of such a campaign. See, e.g., Kedia et al. 2021 Study 
(finding that the composition of institutional ownership of an 
issuer is associated with both the likelihood of being targeted by 
an activist campaign and the outcomes of such campaigns).
    \884\ See Albuquerque et al. 2022 Study (finding, in a sample of 
all Schedule 13G filings from 1996 to 2016, that Schedule 13G 
filings that are not made 45 days after calendar year-end, but are 
instead made on any other day, experience a statistically 
significant cumulative abnormal return of 0.59% around the filing 
date).
    \885\ See Albuquerque et al. 2022 Study (finding, in sample of 
all Schedule 13G filings from 1996 to 2016, that the cumulative 
abnormal return around the filing date for all such filings made 45 
days after calendar year-end is not distinguishable from zero).
---------------------------------------------------------------------------

    Some commenters stated that any benefits of the proposed filing 
deadlines would be limited due to an increase in inaccurate filings as 
a result of the accelerated preparation of filings or due to a risk of 
information overload from the increased number of filings.\886\ The 
filing deadlines we are adopting in the final amendments for Schedule 
13G require, in many cases, less frequent filing, and provide longer 
windows prior to filing, than the proposed filing deadlines. 
Accordingly, the adopted filing deadlines, as compared to the proposed 
filing deadlines, may mitigate the risk of inaccurate filings or 
information overload suggested by commenters.
---------------------------------------------------------------------------

    \886\ See letters from MFA; NVCA; STB.
---------------------------------------------------------------------------

    One commenter stated that the Commission did not address ``which 
investors stand to benefit'' from the proposed accelerated filing 
deadlines, and indicated that, while retail and long-term investors 
would not benefit, ``sophisticated short-term professional investors'' 
would profit at the expense of the investors filing Schedule 13G.\887\ 
While we are unable to predict with a reasonable degree of confidence 
which specific investors or categories of investors are likely to 
benefit most from the acceleration of disclosures, we note that the 
revisions to the final deadlines relative to the proposed amendments in 
many cases should mitigate the commenter's concern that the benefits

[[Page 76972]]

would accrue primarily to short-term traders at the expense of Schedule 
13G filers.\888\ In particular, as discussed below, the lower frequency 
of disclosure and increased filing windows being adopted, relative to 
the proposed amendments, should reduce the risk that parties (including 
short-term professional investors) profit by anticipating and ``front-
running'' the trades of the filer.\889\ We also acknowledge that the 
benefits are likely to vary across filings, across filer types, and 
across issuers. For example, there may be lower benefits in cases where 
alternate, existing disclosures provide similar information on a 
similar timeframe, such as with respect to QIIs that also file Form 
13F.
---------------------------------------------------------------------------

    \887\ See letter from TRP.
    \888\ See letter from TRP.
    \889\ See section IV.C.2.b below for further discussion of 
``front-running'' risks.
---------------------------------------------------------------------------

    The economic analysis in the Proposing Release also indicated that 
the proposed frequency of Schedule 13G filings could have particular 
informational benefits resolving a concern whereby, currently, QIIs and 
Exempt Investors may avoid beneficial ownership reporting by selling 
down their positions by the end of the calendar year.\890\ Some 
commenters indicated that statements in the Proposing Release that 
investors may currently avoid beneficial ownership reporting in this 
way were unsubstantiated or inconsistent with their experience.\891\ We 
acknowledge that it is unclear whether and to what extent investors 
sell down securities holdings before calendar year-end to avoid 
beneficial ownership reporting, as well as what motives would be likely 
to drive such behavior, particularly given that many filers would 
likely be required to disclose such holdings before year-end on other 
forms and schedules in any event. We are unable to undertake a 
systematic quantitative analysis of such behavior because we can only 
observe holdings that are sold before year-end when they are reported 
on Form 13F or through other disclosures, which are precisely the 
situations that present less of a concern with respect to the lack of a 
Schedule 13G filing during that period. We also acknowledge that it is 
unclear how material any information about the filers' beneficial 
ownership may be in these cases in light of the short-term or transient 
nature of this ownership and the academic research discussed 
above.\892\ That said, by requiring disclosure at the end of a quarter, 
the final amendments may reduce the opportunities to avoid a Schedule 
13G filing, which could elicit incremental value-relevant information 
to the benefit of market participants as more filings are disclosed.
---------------------------------------------------------------------------

    \890\ See Proposing Release at 13882.
    \891\ See letters from ICI I; SIFMA; TIAA.
    \892\ See supra note 885 regarding research finding no 
significant stock market return, on average, around year-end filings 
of Schedule 13G. See also supra note 883 regarding potential reasons 
for a significant stock market reaction around some Schedule 13G 
filings, all of which would be weakened in the case of a short-term 
or transient holding.
---------------------------------------------------------------------------

b. Costs
    All Schedule 13G filers may incur one-time compliance costs to 
update their systems and processes to comply with the revised filing 
deadlines, such as updating any information technology systems used to 
monitor beneficial ownership and generate associated alerts and 
reports. All such filers are also likely to incur incremental ongoing 
compliance costs to review beneficial ownership on a more frequent 
basis and potentially (to the extent that there are material changes in 
the information previously reported) prepare more frequent Schedule 13G 
filings. These ongoing costs may include costs associated with 
gathering information from multiple sources, determining whether 
changes are material, and, if changes are deemed to be material, 
drafting a filing, validating its content, obtaining signatures, 
processing the filing into the required format (via internal personnel 
or an external EDGAR filing agent), and submitting it. In addition, 
filing agents (and potentially other external advisers) may charge 
higher fees for expedited processing and/or for weekend services, which 
may be more frequently required (particularly for Passive Investors) 
under the accelerated deadlines.
    Some commenters, although not expressly distinguishing between the 
Schedule 13D and Schedule 13G requirements, stated that they did not 
expect the proposed accelerated deadlines to be overly burdensome on 
filers,\893\ with one stating that filers are ``highly likely to be 
sophisticated and experienced investors with the proper resources to 
file promptly.'' \894\
---------------------------------------------------------------------------

    \893\ See letters from Anonymous 10; Freeport-McMoRan; J. 
Soucie.
    \894\ See letter from Freeport-McMoRan.
---------------------------------------------------------------------------

    Other commenters stated that they expected significant increases in 
compliance burdens from the proposed Schedule 13G filing deadlines 
which were not sufficiently accounted for in the Proposing Release, 
citing, for example, the significant increase in the required frequency 
of reporting and of monitoring holdings; \895\ that many investors must 
file Schedule 13G for many different issuers; \896\ and that filers may 
not already have the required systems in place or have access to the 
required infrastructure and personnel to comply.\897\
---------------------------------------------------------------------------

    \895\ See letters from ABA; ICI I; MFA; SIFMA AMG.
    \896\ See letters from IAA; ICI I; MFA.
    \897\ See letters from ICI I; SIFMA; SIFMA AMG.
---------------------------------------------------------------------------

    Some commenters also noted various practical challenges that would 
make it difficult to complete all of the required steps to submit an 
accurate Schedule 13G within the proposed filing windows (i.e., five 
business days, five calendar days, or one business day), such as steps 
that require manual work or cannot be expedited through the use of 
technology; \898\ constraints with respect to the availability and 
system capacity of any outside staff or services that are used; \899\ 
issues related to the necessary involvement of multiple parties, 
entities, or signatories; \900\ and a lack of sufficient time to 
validate the content of the filing.\901\ Some commenters noted that 
first-time, non-institutional, or smaller filers may face particular 
challenges in complying with the proposed filing deadlines.\902\
---------------------------------------------------------------------------

    \898\ See letters from E. Fraser; IAA; MSBA; STB; TIAA.
    \899\ See letters from MSBA; STB.
    \900\ See letters from MSBA; SSC; STB.
    \901\ See letters from ABA; MFA; SSC; STB.
    \902\ See letters from E. Fraser; ICI I; MFA; MSBA; STB.
---------------------------------------------------------------------------

    In response to the concerns about compliance costs and challenges 
related to the proposed amendments, we note that, for QIIs and Exempt 
Investors, the final amendments require a lower frequency of initial 
and amended filings (generally quarterly as opposed to monthly) and 
allow more time to prepare filings (45 calendar days as opposed to five 
business days) as compared to the proposed amendments. Many of these 
filers (about 84 percent of QIIs and 10 percent of Exempt Investors in 
2022, per Table 4 above) already file Form 13F on a similar schedule. 
As indicated by some commenters,\903\ filers may thus be better 
equipped to assess their holdings and (potentially) prepare Schedule 
13G filings on a quarterly schedule. Further, under the final 
amendments, QIIs should be able to monitor beneficial ownership that 
could exceed 10 percent of a covered class (or, thereafter, change by 
more than five percent) on a monthly basis, as they do now, rather than 
daily, as may have been required under the proposed amendments. Passive 
Investors will also

[[Page 76973]]

be permitted to submit most Schedule 13G amendments on a quarterly 
cadence (rather than monthly, as proposed), with 45 calendar days 
(rather than five business days, as proposed) after the end of the 
period to submit the filings, though their initial filings will be 
required within five business days after the trigger date (rather than 
five calendar days, as proposed). They will also be permitted to file a 
Schedule 13G amendment within two business days of their holdings 
exceeding 10 percent of a covered class (or, thereafter, for changes of 
five percent or more), rather than one business day, as proposed. 
Finally, to provide time to implement the new Schedule 13G filing 
deadlines, compliance is not required until September 30, 2024.
---------------------------------------------------------------------------

    \903\ See letters from IAA; ICI I; SIFMA; SIFMA AMG; SSC; TRP.
---------------------------------------------------------------------------

    We acknowledge that the incremental compliance burdens of the 
revised deadlines may be greater for smaller, less experienced filers 
than for other filers due to their more limited internal resources and 
expertise in preparing filings. In particular, these filers are less 
likely to have operational systems and processes in place that would 
facilitate compliance with the revised filing deadlines. The compliance 
burdens may be greatest for smaller, less experienced Passive Investors 
when filing an initial Schedule 13G, as these investors may, for 
example, be most likely to incur fees for expedited processing and/or 
for weekend services given the revised deadline for their filings (five 
business days after the trigger date) and their likely reliance on 
external advisors and service providers. That said, all of the changes 
relative to the proposed amendments should at least partially mitigate 
commenters' concerns about compliance costs and challenges discussed 
above, including for first-time, non-institutional, or smaller filers. 
For example, under the Proposed Amendments, Schedule 13G filers could 
have been required to file as many as 12 amendments per year under the 
month-end filing deadline in Rule 13d-2(b). Under the final amendments, 
however, Schedule 13G filers' burdens may be significantly lower, as 
the quarter-end filing deadline in amended Rule 13d-2(b) results in a 
maximum of four amendments per year pursuant to that rule.
    We also acknowledge that the accelerated Schedule 13G filing 
deadlines may give rise to incremental free-riding and front-running 
risks. That is, there is a risk that more frequent filings with a 
shorter filing window may reveal a filer's proprietary information or 
trading strategies to other market participants, thus allowing those 
participants to ``free ride'' by copying the filer's strategies without 
incurring the same cost as the fund to research, identify and devise 
profitable strategies.\904\ Further, more frequent filings with a 
shorter filing window could also allow other investors to better 
anticipate trades of the filers. These other investors may attempt to 
``front run'' or trade ahead of filers to capture any impact on the 
prices of traded securities.\905\ Any increase in free-riding and 
front-running may ultimately diminish a filer's investment returns and 
thus harm the filer and any clients or investors of the filer. Such 
risks may also reduce incentives to engage in research and analysis 
about potential shareholdings or to pursue some investment 
opportunities, which may reduce market efficiency and the efficient 
allocation of capital to its most productive uses. Any related 
reduction in the number of significant shareholders of issuers may also 
reduce the operational efficiency of affected issuers, due to the role 
large shareholders may play in the promoting of corporate 
accountability either through direct monitoring of management or the 
threat of exiting an investment.\906\
---------------------------------------------------------------------------

    \904\ See, e.g., Marno Verbeek & Yu Wang, Better than the 
Original? The Relative Success of Copycat Funds, 37 J. Bank. Fin. 
3454 (2013) (studying potential free-riding behavior and finding 
that some funds duplicate the disclosed asset holdings of actively 
managed mutual funds, and that free-riding on the portfolios 
disclosed by ``past winning funds'' generates significantly better 
performance net of trading costs and expenses than the vast majority 
of mutual funds).
    \905\ See, e.g., Sophie Shive & Hayong Yun, Are Mutual Funds 
Sitting Ducks? 107 J. Fin. Econ. 220 (2013) (studying potential 
front-running behavior and finding that hedge funds trade on 
expected mutual fund flows, and that this type of anticipatory 
trading is stronger after 2004 when quarterly portfolio disclosure 
was required of mutual funds).
    \906\ See, e.g., Edmans et al. 2013 Study (finding that initial 
Schedule 13G filings are followed by improvements in operating 
performance and associating this relation with the role of 
significant shareholders); see also Alex Edmans & Clifford 
Holderness, Blockholders: A Survey of Theory and Evidence, 1 Handb. 
Econ. Corp. Gov. 541 (2017); Andrei Shleifer & Robert Vishny, Large 
Shareholders and Corporate Control, 94 J. Pol. Econ. 461 (1986).
---------------------------------------------------------------------------

    Some commenters disagreed with the Commission's statement in the 
Proposing Release that the risks of front-running and free-riding 
associated with the proposed Schedule 13G filing deadlines were likely 
to be low,\907\ raising concerns that both the proposed frequency of 
reporting and the proposed filing windows (i.e., five business days, 
five calendar days, or one business day) would lead to significant 
risks of revealing proprietary trading strategies and, because 
disclosure may be required while trades or trading strategies are still 
in progress, of facilitating predatory trading.\908\ We believe that 
the revised deadlines in the final amendments relative to the proposed 
amendments should reduce these risks, particularly for filers that are 
already reporting holdings on a similar timeframe on Form 13F. That 
said, confidential treatment requests for Form 13F filings that may 
allow some filers to defer disclosing some or all of their holdings on 
that form \909\ are not available for Schedule 13G filings, so even 
Form 13F filers and their clients may bear some additional risk of 
free-riding and front-running when filing Schedule 13G.
---------------------------------------------------------------------------

    \907\ See Proposing Release at 13886.
    \908\ For comments regarding the proposed frequency of 
reporting, see letters from Dodge & Cox; IAA; ICI I; SSC; TIAA; TRP. 
For comments regarding the proposed filing windows, see letters from 
Dodge & Cox; IAA; TRP.
    \909\ For example, information about holdings in reportable 
securities that would reveal a filer's ongoing program of 
acquisition or disposition of a reportable security, open risk 
arbitrage positions, and investment strategies that utilize block 
positioning may be eligible for confidential treatment with respect 
to Form 13F for the period of time necessary to effectuate the 
filer's strategy. See Section 13(f) Confidential Treatment Requests, 
letter from staff of Division of Investment Management (June 17, 
1998), available at https://www.sec.gov/investment/divisionsinvestmentguidance13fpt2htm.
---------------------------------------------------------------------------

    There could also be negative effects on competition in the market 
for investment management services from accelerated Schedule 13G filing 
deadlines, as noted by some commenters.\910\ In particular, the free-
riding and front-running risks discussed above could reduce incentives 
for investment managers to construct proprietary investment strategies, 
and any increased compliance burdens may increase barriers to entry. 
However, for the reasons discussed above, we expect such risks and 
burdens, and therefore any resulting effect on competition, to be 
mitigated under the revised filing deadlines as compared to the 
proposed filing deadlines.
---------------------------------------------------------------------------

    \910\ See letters from MFA (stating that the proposed Schedule 
13G filing requirements would ``create more substantial barriers to 
entry, thereby discouraging new potential entrants to the investment 
management market''); TIAA (stating that the proposed Schedule 13G 
filing requirements would put ``investment advisers--particularly 
active advisers--at a real competitive disadvantage'' due to 
``competitors attempting to copy or trade ahead of QIIs' investment 
strategies and engage in other manipulative trading practices'').
---------------------------------------------------------------------------

3. Other Amendments
a. Revised Filing Deadline for Schedule 13D Amendments
    The final amendment to Rule 13d-2(a) revises the filing deadline 
for amendments to Schedule 13D to two business days after the date on 
which a material change occurs, as compared to

[[Page 76974]]

the baseline requirement that amendments be filed ``promptly'' after 
such date.
    We believe that replacing the ``promptly'' requirement with a 
bright-line, two-business day requirement will provide greater clarity 
as to when material changes are to be disclosed, which could reduce any 
current filer confusion. In addition, to the extent that the revised 
deadline results in earlier disclosure of some Schedule 13D amendments 
than under the baseline, this deadline may allow the information to be 
incorporated into market prices earlier, allow market participants to 
make better-informed investment decisions, and enhance the efficiency 
of resource allocation at the economy level. For those filers that 
would not otherwise have filed their amendments within two business 
days after a material change, the revised deadline for Schedule 13D 
amendments may somewhat increase compliance costs.
    In particular, these filers may bear greater costs due to the need 
to complete the necessary tasks (including gathering information from 
multiple sources, determining whether changes are material, drafting 
and validating the content of the filing, obtaining signatures, 
processing the filing into the required format via internal personnel 
or an external EDGAR filing agent, and submitting the filing) more 
quickly. In addition, filing agents (and potentially other external 
advisers) may charge higher fees for expedited processing and/or for 
weekend services, which may be more frequently required under the 
revised deadline. There may also be compliance challenges involved in 
accessing external advisers or coordinating among multiple signatories 
or parties in a short timeframe. Any such costs and challenges are 
likely to be more burdensome for small, non-institutional, and less 
experienced filers with fewer in-house resources. In particular, these 
filers are less likely to have operational systems and processes in 
place that would facilitate compliance with the revised filing deadline 
and are likely to be more reliant on external advisers and service 
providers. The compliance costs and challenges are also likely to be 
greater for institutional filers with more complex business 
organizations, including those with sub-advisory relationships common 
in the investment management industry.
    One commenter asserted that the ``promptly'' standard under Rule 
13d-2(a) has ``generally been understood'' to mean within two business 
days.\911\ Accordingly both the benefits and costs of the revised 
deadline for Schedule 13D amendments will likely be limited in the case 
of Schedule 13D amendments that would have been made within two 
business days even in the absence of the final amendments. Some 
commenters questioned whether a revised deadline for Schedule 13D 
amendments would materially improve the information available to 
investors and other market participants,\912\ with two commenters 
questioning the benefits with respect to specific subsets of filers 
\913\ and one stating that ``there have been very few, if any, abuses 
associated with the current `promptly' regime and . . . it has worked 
well and effectively.'' \914\ We acknowledge that the extent of any 
benefits of the revised deadline are likely to vary across filers, 
types of filings, and issuers, with greater benefits associated with 
those Schedule 13D amendments that have more of a market impact (e.g., 
because they report a more significant change in holdings or plans) and 
that also would otherwise have been filed a greater number of days 
after the material change.
---------------------------------------------------------------------------

    \911\ See letter from EIM I.
    \912\ See letters from AIMA; NVCA; STB. One of these commenters 
specified that, in the context of venture capital funds making 
distributions of shares to their limited partners, a one-business 
day filing deadline would risk ``erroneously signaling a sell-off to 
the market,'' harming liquidity and market efficiency, particularly 
for thinly traded companies that are more likely to be dominated by 
retail investors. See letter from NVCA.
    \913\ See letters from NVCA; STB.
    \914\ See letter from AIMA.
---------------------------------------------------------------------------

    The proposed amendments would have required amendments to Schedule 
13D to be filed one business day after the date on which a material 
change occurs. Many commenters raised concerns about compliance 
challenges and costs associated with the limited time that would be 
available to consider the need for, prepare, and submit a filing under 
this proposed deadline.\915\ While some of the commenters raising such 
concerns indicated that more than two days may be required to complete 
the required tasks,\916\ some identified a two business day deadline as 
a more practicable period for compliance.\917\ We agree with these 
commenters and therefore expect that the revision of this filing 
deadline to two business days, rather than one business day, after the 
date on which a material change occurs will mitigate some concerns 
about difficulties in complying with the amended deadline.
---------------------------------------------------------------------------

    \915\ See letters from ABA; AIMA; IAA; ICI I; EEI; EIM I; Hoak; 
MFA; MSBA; NVCA; Perkins Coie; STB.
    \916\ See letters from AIMA; ICI I; STB.
    \917\ See letters from IAA; EIM I; Hoak; NVCA; Perkins Coie.
---------------------------------------------------------------------------

b. Amendments to Item 6 of Schedule 13D
    The final amendment to Item 6 of Schedule 13D makes explicit that 
cash-settled derivative securities (including cash-settled SBS) that 
use the issuer's securities as a reference security are included among 
the types of contracts, arrangements, understandings, and relationships 
that must be disclosed under that Item. This final amendment will not 
change the treatment of derivative securities for the purpose of 
determining beneficial ownership. To the extent that this final 
amendment elicits additional disclosure that may not otherwise have 
been provided, investors and the market may benefit from a more 
complete understanding of all of a filer's interests in an issuer. In 
particular, this final amendment may provide more information about the 
overall economic exposure of the filer to the issuer, which may be 
associated with the actions the filer may be expected to take and thus 
the shareholder value impact associated with the filing.\918\ However, 
filers could incur additional compliance costs to the extent that they 
have not already been providing such disclosure. In particular, filers 
may need to expend additional internal resources and/or consult 
external advisors to draft the required disclosures and to monitor 
interests in cash-settled derivative securities in order to report any 
material changes. In section V.C below we estimate for purposes of the 
Paperwork Reduction Act of 1995 (``PRA'') that this final amendment 
will impose, on average, an additional 0.1 burden hour per filing.
---------------------------------------------------------------------------

    \918\ See, e.g., Lilienfeld-Toal & Schnitzler 2020 Study 
(suggesting that the percentage of beneficial ownership reported in 
Schedule 13D is an indicator of the types of actions the filer may 
be expected to take and finding that this percentage is a 
statistically significant predictor of the announcement returns 
around the filing date).
---------------------------------------------------------------------------

    One commenter indicated that the inclusion of SBS in Item 6 would 
not provide incremental benefits beyond other disclosures, including 
disclosures that are under consideration in a different proposed 
rulemaking.\919\ We continue to believe that, given current disclosure 
requirements, the final amendment to Item 6 may elicit additional 
disclosure that may not otherwise have been provided. Further, to the 
extent some of this information may be made public in other documents, 
investors may benefit from being able to review all of a filer's 
interests in an issuer in a single location.
---------------------------------------------------------------------------

    \919\ See letter from IAA; see also Schedule 10B Proposal.

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

[[Page 76975]]

c. Structured Data Requirement for Schedules 13D and 13G
    The final rules require all disclosures reported on Schedules 13D 
and 13G other than the exhibits to be submitted using 13D/G-specific 
XML. We continue to believe, as discussed in the Proposing Release, 
that requiring the disclosures in a structured, machine-readable data 
language will improve the public dissemination and accessibility of the 
information in these disclosures by facilitating its extraction and 
analysis. Some commenters agreed that a structured data requirement 
would enhance the benefits of the disclosures by making the information 
easier to access and analyze.\920\
---------------------------------------------------------------------------

    \920\ See, e.g., letters from ICI I; M. Slavens.
---------------------------------------------------------------------------

    We expect that the structured data requirement will impose some 
incremental compliance costs on filers. In section V.C below we 
estimate for purposes of the PRA that these requirements will impose, 
on average, an additional 0.5 burden hour per filing. One commenter 
expressed concern that structured data requirement would be unduly 
burdensome for small beneficial owners.\921\ Filers will have the 
option of using a fillable web form that converts inputted disclosures 
into 13D/G-specific XML, which should limit the incremental burden on 
filers that elect to use this approach. In particular, we expect that 
the availability of a fillable web form should, due to its ease of use, 
mitigate the concern raised by a commenter that the structured data 
requirement would be unduly burdensome for small beneficial owners. 
Filers who instead choose to submit filings directly in 13D/G-specific 
XML may bear implementation costs of establishing related compliance 
processes and expertise and/or, as one commenter indicated, ongoing 
costs of working with third-party vendors.\922\ Making submissions 
directly in 13D/G-specific XML is an approach that may be more likely 
to be taken by filers expecting to submit larger numbers of Schedule 
13D and Schedule 13G filings, such as QIIs. We expect the costs of 
submitting Schedule 13D/G directly in 13D/G-specific XML will vary 
based on prior experience with encoding and transmitting structured 
disclosures. Per Table 4 in section IV.B.3.b above, 84 percent of the 
QIIs filing initial Schedule 13Gs in 2022 were also Schedule 13F 
filers, and thus have such experience.
---------------------------------------------------------------------------

    \921\ See letter from A. Day.
    \922\ See letter from ICI I.
---------------------------------------------------------------------------

    One commenter, while supporting the proposed structured data 
requirement, raised concerns about the additional time necessary to 
comply with the structured data requirement within the shortened filing 
windows that were proposed.\923\ We acknowledge that the structured 
data requirement will increase the amount of time needed to submit 
filings. We believe the extended time permitted to file Schedule 13D 
and Schedule 13G amendments, and, for QIIs and Exempt Investors, to 
file initial Schedule 13G filings under the final rules as compared to 
the proposed deadlines should mitigate some of the concerns raised by 
this commenter about the time required to comply with the structured 
data requirement.
---------------------------------------------------------------------------

    \923\ Id.
---------------------------------------------------------------------------

d. Amendments to Regulation S-T
    The final amendments to Regulation S-T revise the time by which 
Schedule 13D and 13G filings must be submitted in order to be deemed to 
have been filed on a given business day from 5:30 p.m. to 10 p.m. 
Eastern Standard Time or Eastern Daylight Saving Time, whichever is 
currently in effect, on that day. This change may, on the margin, 
mitigate the incremental compliance challenges and costs associated 
with the revised filing deadlines, particularly for filers located in a 
different time zone than the Commission's principal office or those 
operating in multiple time zones. Some commenters agreed that these 
extended filing hours would benefit filers in light of the shortened 
filing deadlines.\924\
---------------------------------------------------------------------------

    \924\ See letters from IAA; ICI I.
---------------------------------------------------------------------------

    The final amendments to Regulation S-T also make temporary hardship 
exemptions under Rule 201 of Regulation S-T unavailable with respect to 
Schedule 13D and 13G filings. We expect this change to have no 
meaningful economic effects as filers will be able to request a filing 
date adjustment under existing Rule 13(b) of Regulation S-T under 
similar circumstances as a temporary hardship exemption.\925\
---------------------------------------------------------------------------

    \925\ Commission staff may grant the request if it appears that 
the adjustment is appropriate and consistent with the public 
interest and the protection of investors. See Rule 13(b) of 
Regulation S-T.
---------------------------------------------------------------------------

D. Reasonable Alternatives to the Final Rules

    We considered many alternatives to the final rules. Some of these 
are discussed earlier in this release. In this section, we present 
certain significant alternatives and a discussion of their benefits and 
costs relative to the final rules.
1. Alternative Filing Deadlines
    We considered both earlier and later (and more and less frequent) 
filing deadlines relative to those that we are adopting. In general, 
earlier (or more frequent) filing deadlines may have increased the 
benefits, but also the costs, of the amendments, while later (or less 
frequent) deadlines would have decreased the costs but also the 
benefits of the amendments. The economic implications of some 
alternative filing deadlines (namely, those that were proposed but not 
adopted) are discussed in more detail above.
    With respect to the initial Schedule 13D filing deadline, which 
will be five business days after the trigger date, we also considered a 
deadline of greater or fewer days after the trigger date. Additionally, 
we considered deadlines stated in calendar days as opposed to business 
days, which, when applied to the same number of days (i.e., five 
calendar days), would have the effect of decreasing the number of days 
a person would have to file an initial Schedule 13D in cases where 
weekends or holidays fall in the middle of the filing window. In 
general, a shorter deadline and the resulting earlier disclosures may 
have increased the benefits discussed above for those non-corporate-
action filings that would not already be considered timely with respect 
to such shorter deadline. A shorter deadline may also have further 
reduced the risk discussed above of shareholders selling to informed 
bystanders prior to a Schedule 13D filing (as demonstrated in Figure 6 
above), which may have further enhanced trust in markets and capital 
formation.
    However, a shorter deadline may also have increased the number of 
activist campaigns forgone compared to the amended filing deadlines, 
due to two effects. First, a shorter deadline would mean that, given 
current share accumulation patterns, there would be a greater number of 
potential campaigns for which filers would have to consider whether or 
not to proceed and if so, how.\926\ Second, the likelihood of adapting 
may decrease if it is more difficult for filers to adapt to an even 
shorter deadline than that which we are adopting. An increase in 
forgone activist campaigns may have further reduced shareholder value 
creation. A reduction in the pursuit of activism may also have related 
negative effects on operational efficiency, market efficiency, 
liquidity,

[[Page 76976]]

and capital formation, as discussed in the context of the adopted 
deadline above.
---------------------------------------------------------------------------

    \926\ See supra Figures 2, 3a, and 3b for the percentage of 
filers that have completed accumulating all, 90%, or 75% 
respectively of their reported stake by each calendar day after the 
trigger date.
---------------------------------------------------------------------------

    In the case of a longer deadline, the implications for the 
incremental benefits and costs would have been the reverse of those for 
a shorter deadline. We note that there is no clear breakpoint in either 
the accumulation pattern of filers or in the abnormal trading volume 
prior to Schedule 13D filings that could help to support a particular 
filing deadline, including five-business day deadline we are adopting.
    A deadline expressed in calendar days would also have incremental 
effects beyond a direct effect on the length of the filing window. In 
particular, such a deadline would decrease the consistency in the total 
number of business hours that persons would have to continue 
accumulating shares and to draft and submit a filing after their 
trigger date.\927\ For example, a five-calendar day deadline may 
represent anywhere from two to five business days depending on the 
occurrence of weekends and holidays after the trigger date. This 
inconsistency may distort the campaigns that are pursued by activists 
or the timing of these campaigns. For example, an activist who crosses 
the five percent threshold on a Monday would generally have five 
trading days from the trigger date to accumulate further shares and 
potentially increase their profits prior to filing and informing the 
market of their activity. In contrast, an activist who reaches the same 
threshold on a Friday prior to a Federal holiday on the following 
Monday would only have two trading days after the trigger date to 
accumulate shares before making a Schedule 13D filing. Because 
investors who reach the threshold near a weekend or holiday would thus 
be at a relative disadvantage, activists may be relatively more 
incentivized to pursue campaigns at issuers where liquidity conditions 
(i.e., availability and ease of share purchase transactions) facilitate 
crossing the five percent threshold early in a week at a lower 
cost.\928\ Any effect of this kind, in turn, would have a detrimental 
effect on operational efficiency at the market level by influencing 
which campaigns are more likely to be pursued.
---------------------------------------------------------------------------

    \927\ See, e.g., letter from Profs. Bishop and Partnoy III 
(recommending a five-business day deadline because it would be 
``consistent with other regulatory and trading practices,'' and 
noting that ``the unit of analysis in examining trading should be 
trading days'').
    \928\ See Gantchev & Jotikasthira 2018 Study regarding the role 
of institutional selling demand on the timing of Schedule 13D 
trigger dates.
---------------------------------------------------------------------------

    A deadline expressed in calendar days could also increase 
compliance costs, given that external service providers and advisers 
may charge higher fees for weekend or holiday services, which may be 
more frequently required under a deadline expressed in calendar days. 
However, a deadline expressed in calendar days would increase the 
consistency in the total number of calendar days that persons would 
have to submit a filing. For example, five business days may represent 
anywhere from seven to 10 calendar days. If a significant amount of 
investment, advisory, drafting, or other activities in preparation of a 
Schedule 13D filing takes place on weekends and holidays, it is 
possible that this inconsistency in calendar days would advantage some 
filers over others (i.e., those who are better positioned to work over 
weekends and holidays versus those who are not).
    With respect to the initial Schedule 13G filing deadline for 
Passive Investors, which will be five business days after the trigger 
date, we also considered longer and shorter deadlines (and the use of 
deadlines expressed in business as opposed to calendar days, which 
would have had the effect of lengthening the deadline for the same 
number of stated days). A longer deadline would have eased commenters' 
concerns about the compliance costs and complications for Passive 
Investors.\929\ However, researchers have found that those Schedule 13G 
filings that are not made 45 days after year-end (i.e., generally 
Schedule 13G filings by Passive Investors) are associated, on average, 
with a statistically significant positive abnormal stock return,\930\ 
albeit smaller than that generally found for Schedule 13D filings.\931\ 
This result may imply that at least some of these disclosures contain 
material information whose earlier disclosure could benefit investors 
(and which may have enhanced the efficiency of resource allocation at 
the economy level). A longer deadline would have reduced any such 
benefits. In the case of a shorter deadline, the implications for the 
incremental benefits and costs would have been the reverse of those for 
a longer deadline.
---------------------------------------------------------------------------

    \929\ See, e.g., letters from IAA; MSBA.
    \930\ See supra note 884.
    \931\ See supra note 827.
---------------------------------------------------------------------------

2. Tiered Approaches
    We considered ``tiered'' approaches to the initial Schedule 13D 
filing deadline, in contrast to the uniform approach to the filing 
deadline being adopted. We considered, for example, maintaining the 
current 10-day deadline for acquisitions of more than five percent but 
no more than 10 percent of a covered class while instituting an 
amended, shorter deadline in cases where beneficial ownership exceeds 
10 percent. We also considered whether the deadline for the initial 
Schedule 13D filing should vary based on a specified characteristic of 
the issuer of the covered class, such as its market capitalization or 
trading volume. Finally, we considered maintaining the 10-day deadline 
for those filers that elect to ``stand still'' by not acquiring 
additional beneficial ownership of the covered class once the five 
percent threshold has been crossed until the corresponding Schedule 13D 
is filed.
    One commenter stated that a tiered approach that would maintain a 
10-day deadline for filing a Schedule 13D pertaining to beneficial 
ownership in micro-, small-, and mid-capitalization issuers ``may serve 
to limit the impact that reforms to Rule 13d-1(a) have on shareholder 
engagement and monitoring,'' particularly at micro-, small-, and mid-
capitalization issuers where, in the commenter's view, ``such effective 
engagement and monitoring is most necessary.'' \932\ Another commenter 
suggested requiring persons who cross certain higher thresholds (e.g., 
a 10 percent beneficial ownership threshold) or who accumulate certain 
amounts after crossing the five percent threshold (e.g., an additional 
three percent) file their initial Schedule 13D on the proposed 
accelerated timeline, but ``allowing investors who trigger Schedule 13D 
filings for more technical reasons and who are not accumulating stock 
in connection with a potential activist engagement (e.g., proxy 
contests or intended take-private activity) to continue filing under 
the current regime.'' \933\ This commenter also supported maintaining 
the 10-day deadline for ``an investor who crosses the 5% threshold but 
acquires no additional stock after the initial crossing transaction,'' 
stating that ``there is no informational disadvantage for existing 
investors in such circumstances'' and that in some cases there is 
``earlier disclosure by the issuer relating to the [crossing] 
transaction'' and therefore ``little purpose [is] served by 
accelerating the timeline for the investor to prepare its disclosure.'' 
\934\
---------------------------------------------------------------------------

    \932\ See letter from ICM.
    \933\ See letter from STB.
    \934\ Id.
---------------------------------------------------------------------------

    We acknowledge that there is significant heterogeneity in the 
benefits and costs of the amended filing deadline across different 
types of filers and

[[Page 76977]]

issuers. For example, as discussed above, these benefits and costs are 
likely to vary across ``corporate action'' as compared to ``non-
corporate-action'' filings,\935\ across issuers of different 
sizes,\936\ and by the identity of the filer.\937\ Ideally, a tiered 
approach would be used to accelerate disclosure specifically in 
circumstances where the benefits of accelerated disclosure are greater 
and the costs of accelerated disclosure are lower. However, there are 
many important dimensions across which the benefits and costs are 
likely to vary, complicating the task of designing a tiered approach. 
Further, the subgroups of filings that are associated with the greatest 
costs under an accelerated filing deadline (and where there thus could 
be significant advantages of maintaining the 10-day deadline) are also 
the same subgroups associated with the greatest benefits under an 
accelerated deadline, while those associated with lower costs are 
associated with lower benefits.\938\ This pattern mitigates our ability 
to improve the costs of the amendments by implementing a tiered 
approach.
---------------------------------------------------------------------------

    \935\ See section IV.B.3.a.ii above for definitions of these 
terms and section IV.C.1 above for discussions in which we conclude 
that both the benefits and costs of the shortened initial Schedule 
13D filing deadline are likely to be limited for corporate action 
filings.
    \936\ Academic research has associated smaller issuer market 
capitalization with a higher positive abnormal stock return around 
the filing of an initial Schedule 13D. See supra note 829. A higher 
positive abnormal stock return may imply higher costs if there is 
less such activism under an accelerated filing timeline but also 
higher benefits to investors from accelerating disclosure due to the 
greater importance of the information to the market.
    \937\ Academic research has associated Schedule 13D filers' 
reputations (based on their financial clout, expertise, or 
aggressive style of engagement) with the size of the positive 
abnormal stock return around the filing. See, e.g., C. N. V. 
Krishnan et al., The Second Wave of Hedge Fund Activism: The 
Importance of Reputation, Clout, and Expertise, 40 J. Corp. Fin. 296 
(2016); and Travis Johnson & Nathan Swem, Reputation and Investor 
Activism: A Structural Approach, 139 J. Fin. Econ. 29 (2021). As 
discussed supra note 936, a higher positive abnormal stock return 
may imply both higher costs and higher benefits of accelerating the 
filing deadline.
    \938\ See supra notes 936-937 for examples of some such 
subgroups.
---------------------------------------------------------------------------

3. Modify Structured Data Requirement
    We considered modifying the proposed structured data requirement 
for Schedules 13D and 13G. We considered, for example, requiring only 
the quantitative disclosures reported on Schedules 13D and 13G to be 
provided in a structured data language. Narrowing the scope of the 
structuring requirement in this way could simplify the resulting 
dataset to include only the information that might be used most widely 
by market participants, analysts, and Commission staff for aggregation, 
comparison, and analysis, which may better suit those users who wish to 
focus their analysis on such information and forgo the additional step 
of filtering out other data. However, the non-quantitative disclosures 
on Schedules 13D and 13G, such as textual narratives and identification 
checkboxes, are also likely to be valuable for many data users, 
including market participants, analysts, and Commission staff, to 
access and analyze in an efficient and automated manner. In addition, 
we expect that the incremental cost savings to filers of requiring only 
the quantitative disclosures to be structured would be low, because 
filers would only be forgoing the costs of inputting their textual and 
checkbox disclosures into fillable web forms (or of tagging those 
disclosures directly or by means of a filing agent) rather than broader 
costs associated with structured data implementation more generally. 
For these reasons, we have determined not to modify the scope of the 
structured data requirement.
    One commenter recommended that the Commission opt for the XBRL data 
language, rather than creating an XML schema designed specifically for 
beneficial ownership reporting.\939\ This commenter stated that using 
the XBRL standard, rather than the proposed 13D/G-specific XML 
requirements, would result in significantly lower costs and greater 
efficiencies for filers, users of filings, and the Commission, while 
also enhancing the benefits of a structured data requirement by 
facilitating improved data quality and the ability to commingle the 
data with other datasets. We acknowledge that different structured data 
languages entail different costs and benefits for filers and data 
users.\940\ We believe that 13D/G-specific XML is more suitable than 
XBRL for Schedules 13D and 13G because it facilitates the use of a 
fillable form that should result in a lower cost of complying with the 
structured data requirement compared to XBRL, particularly for smaller 
and infrequent filers. Under an XBRL requirement, filers (including 
smaller and infrequent filers) would incur costs and burdens associated 
with tagging the disclosures (e.g., software licensing costs, time 
spent applying tags) or with paying a third party to do so. Thus, 
although some Schedule 13D and Schedule 13G filers, such as those 
currently subject to Inline XBRL reporting requirements (e.g., filers 
that are Commission registrants) or that otherwise have experience with 
XBRL may realize some efficiencies under an XBRL alternative, we 
believe the cost savings expected to arise from having a fillable form 
option under the 13D/G-specific XML requirements would have a more 
substantial positive impact with respect to filers as a whole.
---------------------------------------------------------------------------

    \939\ See letter from XBRL US.
    \940\ See supra section IV.C.3.c for a discussion of costs 
associated with the 13D/G-specific XML requirements.
---------------------------------------------------------------------------

    In addition, while some Schedule 13D and Schedule 13G filers and 
data users may have familiarity with XBRL data and software, such 
filers and data users likely also have familiarity with data structured 
in form-specific XML languages on EDGAR. For instance, the Commission 
has found the use of form-specific XML on section 16 ownership 
reporting forms to have had positive impacts on filers (with respect to 
compliance costs) and users (in terms of data usability) of those 
disclosures without imposing significantly higher implementation costs 
on the Commission than other structured data requirements impose.\941\ 
For these reasons, we are requiring 13D/G-specific XML rather than 
Inline XBRL for Schedules 13D and 13G.
---------------------------------------------------------------------------

    \941\ See Securities and Exchange Commission, Office of 
Structured Disclosure, Insider Transactions Data Sets, available at 
https://www.sec.gov/dera/data/form-345.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules and forms that will be 
affected by the final amendments contain ``collection of information'' 
requirements within the meaning of the PRA.\942\ The Commission 
published a notice requesting comment on changes to these collection of 
information requirements in the Proposing Release and submitted these 
requirements to the Office of Management and Budget (``OMB'') for 
review in accordance with the PRA.\943\ The hours and costs associated 
with maintaining, disclosing, or providing the information required by 
the final amendments constitute paperwork burdens imposed by such 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
requirement unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \942\ 44 U.S.C. 3501 et seq.
    \943\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The title for the affected collections of information is 
``Regulation 13D and Regulation 13G; Schedule 13D and Schedule 13G'' 
(OMB Control No. 3235-0145). These schedules contain item

[[Page 76978]]

and other requirements that outline the information a reporting person 
must disclose.\944\ The schedules were adopted under the Exchange Act. 
A description of the final amendments can be found in section II above, 
and a discussion of the economic effects of the final amendments can be 
found in section IV above. Compliance with the information collections 
is mandatory. Responses to the information collections are not kept 
confidential and there is no mandatory retention period for the 
information disclosed.
---------------------------------------------------------------------------

    \944\ See 17 CFR 240.13d-101 and 240.13d-102.
---------------------------------------------------------------------------

B. Summary of Comment Letters on PRA Estimates

    In the Proposing Release, the Commission requested comment on the 
PRA burden hour and cost estimates and the analysis used to derive the 
estimates. We did not receive any comment letters in response to the 
request for comment on the PRA estimates and analysis included in the 
Proposing Release.

C. Burden and Cost Estimates for the Final Amendments

    Below we estimate the incremental and aggregate effect on the 
paperwork burden as a result of the final amendments. As discussed in 
section II above, we have made a number of changes from the Proposed 
Amendments, and we have adjusted our estimates accordingly. For 
example, in the Proposing Release, the Commission estimated paperwork 
burden increases for Forms 3, 4, and 5 as well as Schedules 13D and 13G 
associated with proposed Rules 13d-3(e) and 13d-5(b)(1)(i) and (ii) and 
(b)(2)(i). Because we are not adopting those proposed rules, we have 
adjusted the paperwork burden estimates from the Proposing Release 
accordingly. In addition, rather than basing our PRA estimates on the 
actual number of Schedule 13D and 13G filings in calendar year 2020, as 
the Commission did in the Proposing Release, we base our PRA estimates 
with respect to the final amendment to Rule 13d-2(b), in part, on the 
actual number of Schedule 13G filings in calendar year 2022.\945\
---------------------------------------------------------------------------

    \945\ Compare Proposing Release at 13892, n.273, with infra note 
952.
---------------------------------------------------------------------------

    At the outset, we note that the current OMB inventory for 
Regulation 13D-G reflects 8,587 annual responses. This number is based 
on the number of initial Schedule 13D and 13G filings made. We think 
that the better approach is for the PRA to reflect the burdens arising 
from both the initial Schedule 13D and 13G filings and amended Schedule 
13D and 13G filings. Accordingly, we first update the existing PRA 
burden estimates to reflect this new approach. Specifically, we are 
updating the current OMB inventory from 8,587 annual responses to 
29,793 annual responses to reflect the average number of initial and 
amended Schedule 13D and 13G filings per year that were made in 
calendar years 2020, 2021, and 2022.\946\ We then estimate the PRA 
impact of the final amendments using the updated inventory numbers as 
the baseline. Table 1 below illustrates the resulting incremental 
change to the total annual compliance burden in hours and in costs. 
Additionally, we note that the current OMB inventory for the above-
referenced collections of information reflect an average of hourly rate 
of $400 per burden hour borne by outside professionals. Similarly, in 
the Proposing Release, the Commission used an estimated cost of $400 
per hour, recognizing that the costs of retaining outside professionals 
may vary depending on the nature of the professional services.\947\ The 
Commission recently determined to increase the estimated costs of such 
hourly rate to $600 per hour \948\ to adjust the estimate for inflation 
from Aug. 2006.\949\ Accordingly, we first update the existing PRA 
burden estimates to reflect this new cost estimate, as set out in the 
following Table 1.
---------------------------------------------------------------------------

    \946\ In calendar year 2020, there were 5,288 Schedule 13D 
filings (comprised of 1,148 initial filings and 4,140 amendments) 
and 22,080 Schedule 13G filings (comprised of 6,436 initial filings 
and 15,644 amendments) for a total of 27,368 filings. See DERA 
Memorandum at nn.3 & 24. In addition, during calendar year 2021, 
there were 5,434 Schedule 13D filings (comprised of 1,555 initial 
filings and 3,879 amendments) and 24,874 Schedule 13G filings 
(comprised of 8,676 initial filings and 16,198 amendments) for a 
total of 30,308 filings. See id. at 1, 8. Finally, in calendar year 
2022, there were 5,179 Schedule 13D filings (comprised of 1,161 
initial filings and 4,018 amendments) and 26,523 Schedule 13G 
filings (comprised of 8,433 initial filings and 18,090 amendments) 
for a total of 31,702 filings. See supra section IV.B.3. Taking the 
three-year average of these amounts results in an average of 29,792 
Schedule 13D and 13G filings per year, comprised of 1,288 initial 
Schedule 13D filings, 4,012 Schedule 13D amendments, 7,849 initial 
Schedule 13D filings, and 16,644 Schedule 13G amendments, when 
rounded to the nearest whole number.
    \947\ See Proposing Release at 13894, n.280.
    \948\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $600 per hour.
    \949\ See Listing Standards for Recovery of Erroneously Awarded 
Compensation, Release No. 33-11126 (Oct. 26, 2022) [87 FR 73076 
(Nov. 28, 2022)].

                                                               PRA Table 1--Change in PRA Burden Due To Updating Inventory Numbers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Current OMB inventory                                                    Updated inventory                            Increased burden due to update
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Increase in
                Current annual responses                  Current  burden    Current cost   Updated  annual  Updated  burden    Updated cost      number of       Increase in      Increase in
                                                                hours           burden          responses          hours           burden         responses       burden hours     cost burden
(A)                                                                  (B)                (C)     (D)      minus>     minus>
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
8,587...................................................          27,412      $32,894,000           29,792           40,329      $72,591,600           21,205           12,917      $39,697,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 See supra note 946.
 The current OMB inventory reflects an average of 14.5 burden hours for each Schedule 13D filing and an average of 12.4 burden hours for each Schedule 13G filing. As
  noted above, however, the current OMB inventory only included initial Schedule 13D and 13G filings, and so these average burden hours were estimates with respect only to initial filings.
  Because Schedule 13D and 13G amendments generally contain a fraction of the information contained in an initial filing and because of the likely efficiencies associated with preparing an
  amendment based on the information disclosed in an initial filing, we estimate average burden hours per filing of 3 hours per Schedule 13D amendment and 2 hours per Schedule 13G amendment.
  When applied to the updated average annual number of initial Schedule 13D filings (1,288), Schedule 13D amendments (4,012), initial Schedule 13G filings (7,849), and Schedule 13G amendments
  (16,644), see supra note 946, this reflects a total of 161,315 burden hours (when rounded to the nearest whole number). In addition, the current OMB inventory assumes that 25% of the burden
  associated with a Schedule 13D or 13G filing is borne by the reporting persons and 75% is borne by outside professionals. Thus, assuming that 25% of the total burden hours associated with
  Schedule 13D and 13G filings (161,315) is borne by the reporting persons yields a total of 40,329 internal burden hours (when rounded to the nearest whole number).
 The current OMB inventory reflects a total cost burden of $32,894,000 for Regulation 13D-G, reflecting an average of hourly rate of $400 per burden hour
  borne by outside professionals. As noted above, we are increasing this cost estimate to $600 per hour. Further, as noted above, assuming that 75% of the total burden hours associated with
  Schedule 13D and 13G filings (161,315) is borne by the reporting persons yields a total of 120,986 burden hours borne by outside professionals (when rounded to the nearest whole number). As
  such, we calculate the updated cost burden by multiplying (x) $600 by (y) 120,986.


[[Page 76979]]

    We believe that the final amendments potentially could increase the 
number of responses to this updated collection of information for 
Schedules 13D and 13G. Specifically, although we do not anticipate an 
increase in this collection due to our final amendment to Rule 13d-1, 
our final amendment to Rule 13d-2(b) with respect to the standard that 
requires an amendment to Schedule 13G could potentially increase the 
number of Schedule 13G amendments filed annually.\950\ For purposes of 
this PRA, therefore, we estimate that there could be an additional 
41,679 annual responses to the collection of information under 
Regulation 13D-G \951\ as a result of the final amendment to Rule 13d-
2.\952\
---------------------------------------------------------------------------

    \950\ For example, Rule 13d-2(b) currently requires that a 
Schedule 13G be amended 45 days after the calendar year-end in which 
any change occurred to the information previously reported. Under 
our amendment to Rule 13d-2(b), a Schedule 13G will have to be 
amended within 45 days after the end of the calendar quarter in 
which a material change occurred to the information previously 
reported. Although an amendment under Rule 13d-2(b) currently is 
required for ``any'' change in the information previously reported, 
that rule only requires that one amendment be filed annually, if at 
all. Under the revisions we are adopting to that rule, although the 
standard for determining an amendment obligation would only arise 
upon a ``material'' change to the information previously reported, 
the rule changes could theoretically result in numerous amendments 
being filed on an annual basis, with as many as four Schedule 13G 
amendments being filed annually pursuant to revised Rule 13d-2(b).
    \951\ To the extent that a person or entity incurs a burden 
imposed by Regulation 13D-G, it is encompassed within the collection 
of information estimates for Regulation 13D-G. This burden includes 
the preparation, filing, processing and circulation of initial and 
amended Schedules 13D and 13G.
    \952\ As discussed in section IV.B.3 supra, a total of 18,090 
Schedule 13G amendments were filed in calendar year 2022. Upon 
further review of that data set, we note that 15,100, or 83.47% of 
those Schedule 13G amendments were made within the first 45 days of 
calendar year 2022. In addition, we note for calendar years 2020, 
2021, and 2022, there were an average of 16,644 Schedule 13G 
amendments filed each year. See supra note 946. Because Rule 13d-
2(b) currently has a Schedule 13G amendment deadline of within 45 
days after calendar year-end, we assume that 83.47% of the 16,644 
Schedule 13G amendments filed each year, or 13,893 filings (when 
rounded to the nearest whole number), were made pursuant to Rule 
13d-2(b). As noted above, our amendment to Rule 13d-2(b) could 
result in a beneficial owner filing four Schedule 13G amendments 
annually pursuant to Rule 13d-2(b), as compared to the one annual 
amendment that currently may be required by Rule 13d-2(b). See supra 
note 950. As such, for purposes of this PRA, we estimate that there 
will be 55,572 Schedule 13G amendments filed annually pursuant to 
Rule 13d-2(b) as a result of our amendment (calculated by 
multiplying (x) the 13,893 annual responses currently attributable 
to Rule 13d-2(b) by (y) four), resulting in 41,679 additional 
responses to the collection of information under Regulation 13D-G 
(calculated as the difference between (x) the 55,572 annual 
responses estimated to be attributable to Rule 13d-2(b) as a result 
of the amendments and (y) the 13,893 annual responses currently 
attributable to Rule 13d-2(b)). We note, however, that this estimate 
likely reflects the upper limit of the potential increases in the 
number of annual Regulation 13D-G responses as a result of our 
amendment to Rule 13d-2(b) because (1) the amendment revises Rule 
13d-2(b) to require a Schedule 13G be amended only for a 
``material'' change to the information previously reported, as 
compared to the current requirement that an amendment be filed for 
``any'' change to the information previously reported, (2) the 
information previously reported by many Schedule 13G filers may not 
change materially on a quarterly basis, and (3) some of the Schedule 
13G amendments filed in the first 45 days of a given calendar year 
may not have been made pursuant to Rule 13d-2(b).
---------------------------------------------------------------------------

    In addition to a potential increase in the number of annual 
responses, we expect that the final amendments will change the 
estimated burden per response for Regulation 13D-G. For both Schedule 
13D and Schedule 13G filers, we expect that the structured data 
requirement will increase the estimated burden per response by 
requiring that the disclosures in those schedules be made using the 
13D/G-specific XML. In addition, for Schedule 13D filers, we expect 
that the final amendment to Item 6 of Schedule 13D potentially could 
increase the estimated burden per response by specifying that 
disclosure is required under Item 6 for the use of cash-settled 
derivative securities with respect to an issuer's securities.\953\
---------------------------------------------------------------------------

    \953\ We further expect, however, that this potential increase 
may be offset in part by the amendment to Item 6 that deletes the 
``including but not limited to'' proviso.
---------------------------------------------------------------------------

    The burden estimates were calculated by estimating the number of 
parties we anticipate would expend time, effort, and/or financial 
resources to generate, maintain, retain, disclose or provide 
information in connection with the final amendments and then 
multiplying by the estimated amount of time, on average, such parties 
would devote in response to the final amendments. The following table 
summarizes the calculations and assumptions used to derive our 
estimates of the aggregate increase in burden corresponding to the 
final amendments.

            PRA Table 2--Calculation of Increase in Burden Hours Resulting From the Final Amendments
----------------------------------------------------------------------------------------------------------------
                                            Schedule 13D                        Schedule 13G
                                           initial filings    Schedule 13D     initial filings    Schedule 13G
                                                 (A)         amendments (B)          (C)         amendments (D)
----------------------------------------------------------------------------------------------------------------
Number of Responses \a\.................             1,288             4,012             7,848            58,323
Burden Hours Per Response \b\...........              15.1               3.5              12.9               2.5
Column Total \c\........................            19,449            14,042           101,239           145,808
                                         -----------------------------------------------------------------------
Aggregate Increase in Burden Hours \d\..                                  119,223
----------------------------------------------------------------------------------------------------------------
\a\ As noted in PRA Table 1 and supra note 946, the updated OMB inventory will reflect 29,793 total Schedule 13D
  and 13G filings, comprised of 5,300 Schedule 13D filings and 24,493 Schedule 13G filings (in each case
  comprised of both initial filings and amendments). When taking into account the potential effects of the
  amendment to Rule 13d-2(b) we estimate that the number of Schedule 13G filings could increase by 41,679, for a
  total of 66,172 annual Schedule 13G filings. See supra note 952.
\b\ As noted in PRA Table 1, the current OMB inventory reflects an average of 14.5 burden hours for each
  Schedule 13D filing and an average of 12.4 burden hours for each Schedule 13G filing. We use these per filing
  burden hours as a baseline for estimating the burden impact of the final amendments. We estimate that the new
  structured data requirement will increase the burden per response for Schedule 13D and 13G filings (both
  initial and amended filings) by 0.5 burden hours. Our assumption is that the burden will be greatest in the
  first year after adoption, as filers adjust to the new requirements and update their Schedule 13D and 13G
  preparation and filing processes accordingly. We estimate that the burden of the structured data requirement
  will be 1 hour in the first year and 0.25 hours in each of the following two years for a three-year average of
  0.5 burden hours. Further, for the amendments to Item 6 of Schedule 13D, we estimate they will increase the
  burden by 0.1 hours for each initial Schedule 13D filing. Although these amendments could, in some cases,
  substantially increase the amount of disclosure made pursuant to Item 6, we believe that this estimate
  accurately reflects that only a relatively small percentage of all Schedule 13D filers hold cash-settled
  derivative securities and, therefore, will be required to make additional disclosures. In addition, we also
  expect that any increased burden may be offset in part by the amendment to Item 6 that deletes the ``but not
  limited to'' proviso. Finally, because not every Schedule 13D amendment will respond to Item 6, we apply this
  increase only to initial filings. Taken together, we estimate that the amendments could increase the annual
  burden hours per initial Schedule 13D filing by 0.6 hours and increase the annual burden hours for each
  Schedule 13D amendment, and each initial Schedule 13G filing and Schedule 13G amendment by 0.5 hours. When
  added to the current averages, we estimate that, as a result of the final amendments, the new average per
  filing burden hours will be 15.1 hours for initial Schedule 13D filings, 3.5 hours for Schedule 13D
  amendments, 12.9 hours for initial Schedule 13G filings, and 2.5 hours for Schedule 13G amendments.

[[Page 76980]]

 
\c\ Derived by multiplying the number of responses in each column by the burden hours per response, and rounded
  to the nearest whole number.
\d\ Derived by adding together the hours from ``Column Totals'' (280,538 hours) and subtracting from that total
  burden hours associated with Schedule 13D and 13G filings for Regulation 13D-G, as noted under PRA Table 1
  (161,315).

    The table below illustrates the incremental change to the total 
annual compliance burden in hours and in costs as a result of the final 
amendments. The table sets forth the percentage estimates we typically 
use for the burden allocation for each response.

       PRA Table 3--Calculation of Aggregate Increase in Burden Hours Resulting From the Final Amendments
----------------------------------------------------------------------------------------------------------------
   Total number of       Total increase in     Increase in internal   Increase in outside    Increase in outside
 estimated responses        burden hours              hours            professional hours    professional costs
(A)  [dagger]          (B)  [dagger][dagger]                   (C)                  (D)       (E) = (D) x $600
                                              [dagger][dagger][dagg  [dagger][dagger][dagg
                                                 er] = (B) x 25%        er] = (B) x 75%
----------------------------------------------------------------------------------------------------------------
            71,471                119,223                 29,806                 89,417            $53,650,200
----------------------------------------------------------------------------------------------------------------
[dagger] This number reflects an estimated increase of 41,679 annual responses to the updated Regulation 13D-G
  collection of information set forth in PRA Table 1. See supra note 952 and accompanying text. PRA Table 1
  reflects an updated baseline total of 29,792 responses filed annually for Regulation 13D-G.
[dagger][dagger] Calculated as the sum of annual burden hour increases estimated for Schedule 13D and 13G
  filings. See supra PRA Table 2, ``Aggregate Increase in Burden Hours.''
[dagger][dagger][dagger] The estimated increases in Columns (C) and (D) are rounded to the nearest whole number.

    Below we summarize the requested paperwork burden for Regulation 
13D-G that will be submitted to OMB for review in accordance with the 
PRA, including the estimated total reporting burdens and costs, under 
the final amendments. This table includes both the adjustments to the 
PRA inventory reflected in PRA Table 1 and the aggregate burden 
increase resulting from the final rules reflected in PRA Table 3.

                                 PRA Table 4--Requested Paperwork Burden for Regulation 13D-G Under the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Current burden                                      Program change                                     Revised burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Increase in
 Current annual    Current burden    Current cost      number of       Increase in      Increase in         Annual        Burden hours     Cost burden
    responses          hours            burden         responses       burden hours     cost burden       responses
(A)                          (B)                (C)     (D)      minus>     minus>
--------------------------------------------------------------------------------------------------------------------------------------------------------
          8,587           27,412      $32,894,000           62,884           42,723      $93,347,200           71,471           70,135     $126,241,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Calculated as the sum of (x) the 21,205 increase in the number of annual responses as a result of the update of the current OMB inventory
  (from Column (G) in PRA Table 1) and (y) the 41,679 increase in the number of annual responses as a result of the final amendments (see supra note 952
  and accompanying text).
 Calculated as the sum of (x) the 12,917 increase in the number of burden hours as a result of the update of the current OMB
  inventory (from Column (H) in PRA Table 1) and (y) the 29,806 increase in the number of burden hours as a result of the final amendments (from Column
  (C) in PRA Table 3).
 Calculated as the sum of (x) the $39,697,000 increase in the cost burden as a result of the update of the current
  OMB inventory (from Column (G) in PRA Table 1) and (y) the $53,650,200 increase in the cost burden as a result of the final amendments (from Column
  (E) in PRA Table 3).

VI. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \954\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) of the RFA generally requires the 
Commission to undertake an initial regulatory flexibility analysis of 
all proposed rules, or rule amendments, to determine the impact of the 
proposed rulemaking on ``small entities,'' \955\ while section 604(a) 
requires that the Commission generally provide a final regulatory 
flexibility analysis of rules it is adopting.\956\ Section 605(b) of 
the RFA states that these requirements shall not apply to any proposed 
or final rule or rule amendment if the head of the agency certifies 
that the rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities.\957\ The Commission 
certified in the Proposing Release that the Proposed Amendments would 
not have a significant economic impact on a substantial number of small 
entities for purposes of the RFA.\958\
---------------------------------------------------------------------------

    \954\ 5 U.S.C. 601 et seq.
    \955\ Section 601(b) of the RFA permits agencies to formulate 
their own definitions of ``small entities.'' See 5 U.S.C. 601(b). 
The Commission has adopted definitions for the term ``small entity'' 
for the purposes of Commission rulemaking in accordance with the 
RFA. Those definitions, as relevant to this rulemaking, are set 
forth in 17 CFR 240.0-10 and, with respect to investment companies, 
17 CFR 270.0-10.
    \956\ See 5 U.S.C. 603(a), 604(a).
    \957\ See 5 U.S.C. 605(b).
    \958\ Proposing Release at 13895-96.
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes: (1) when used with reference to an ``issuer'' or 
a ``person,'' other than an investment company, an ``issuer'' or 
``person'' that, on the last day of its most recent fiscal year, had 
total assets of $5 million or less; \959\ or (2) a broker-dealer with 
total capital (net worth plus subordinated liabilities) of less than 
$500,000 on the date in the prior fiscal year as of which its audited 
financial statements were prepared pursuant to 17 CFR 240.17a-5(d), or, 
if not required to file such statements, a broker-dealer with total 
capital (net worth plus subordinated liabilities) of less than $500,000 
on the last business day of the preceding fiscal year (or in the time 
that it has been in business, if shorter); and is not affiliated with 
any person (other than a natural person) that is not a small business 
or small organization.\960\ An investment company, including a business 
development company,\961\ is considered to be a ``small business'' if 
it, together

[[Page 76981]]

with other investment companies in the same group of related investment 
companies, has net assets of $50 million or less as of the end of its 
most recent fiscal year.\962\
---------------------------------------------------------------------------

    \959\ See 17 CFR 240.0-10(a).
    \960\ See 17 CFR 240.0-10(c).
    \961\ Business development companies are a category of closed-
end investment company that are not registered under the Investment 
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53-64].
    \962\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

    A description of the final amendments can be found in section II 
above, and a discussion of the economic effects of the final amendments 
can be found in section IV above. Although the final amendments will 
apply to beneficial owners regardless of their size, we believe that 
the vast majority of the beneficial owners that will be subject to the 
amendments will not be ``small entities'' for purposes of the RFA. For 
example, the amendments to the filing deadlines in Rules 13d-1 and 13d-
2, as well as the amendments to Rules 13 and 201 of Regulation S-T and 
the structured data requirement, only apply to persons who beneficially 
own more than five percent of a covered class of securities, thus 
providing a basis to conclude that such a person is unlikely to fall 
within the definition of ``small entity.'' In addition, to the extent 
that the final amendments to the filing deadlines apply to members of a 
group, in addition to individual entities, we believe that members of a 
group generally would be larger investors and similarly are unlikely to 
fall within the definition of ``small entity.''
    We did not receive any comment letters in response to the request 
for comment on the RFA certification in the Proposing Release.\963\ 
Although some commenters asserted that certain of the Proposed 
Amendments would be unduly burdensome for smaller and non-institutional 
beneficial owners,\964\ those commenters did not indicate (or provide 
data that would suggest) that those beneficial owners would be small 
entities for purposes of the RFA. Thus, those comments do not alter our 
belief that the vast majority of the beneficial owners that will be 
subject to the amendments will not be small entities for purposes of 
the RFA. In addition, the final amendments include some modifications 
to the Proposed Amendments. As discussed in more detail in section II 
above, we are not adopting proposed Rule 13d-3(e), nor are we adopting 
many of the proposed amendments to Rules 13d-5 and 13d-6. We also have 
adopted longer deadlines than proposed for initial and amended Schedule 
13G filings. We believe these modifications generally would reduce any 
burdens of the final amendments in the event any small entity becomes 
subject to them. Moreover, we do not believe that these modifications 
alter the basis upon which the Commission made the certification in the 
Proposing Release.
---------------------------------------------------------------------------

    \963\ Proposing Release at 13896.
    \964\ See, e.g., letters from A. Day; E. Fraser; MFA; see also 
letters from B. Mason; S. Thornburg.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission certifies, pursuant to 5 
U.S.C. 605(b), that the final amendments will not have a significant 
economic impact on a substantial number of small entities for purposes 
of the RFA.

Statutory Authority

    We are adopting the rule amendments contained in this release under 
the authority set forth in sections 3(b), 13, and 23(a) of the Exchange 
Act.

List of Subjects

17 CFR Part 232

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Amendments

    For the reasons set out in the preamble, the Commission is amending 
title 17, chapter II, of the Code of Federal Regulations as follows:

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
1. The general authority citation for part 232 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-6a, 80b-10, 80b-11, 7201 
et seq.; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *


0
2. Amend Sec.  232.13 by:
0
a. Revising paragraph (a)(4); and
0
b. Designating the note following paragraph (a)(4) as note 1 to 
paragraph (a).
    The revision reads as follows:


Sec.  232.13   Date of filing; adjustment of filing date.

    (a) * * *
    (4) Notwithstanding paragraph (a)(2) of this section, a Form 3, 4, 
or 5 (referenced in Sec. Sec.  249.103, 249.104, and 249.105 of this 
chapter, respectively), a Schedule 14N (referenced in Sec.  240.14n-101 
of this chapter), a Form 144 (referenced in Sec.  239.144 of this 
chapter), or a Schedule 13D or Schedule 13G, inclusive of any 
amendments thereto (Sec. Sec.  240.13d-101 and 240.13d-102 of this 
chapter), submitted by direct transmission commencing on or before 10 
p.m. Eastern Standard Time or Eastern Daylight Time, whichever is 
currently in effect, shall be deemed filed on the same business day.
* * * * *


Sec.  232.201   [Amended]

0
3. Amend Sec.  232.201(a) introductory text by:
0
a. Removing the word ``or'' that immediately precedes ``an Asset Data 
File''; and
0
b. Adding after the phrase ``Asset Data File (as defined in Sec.  
232.11),'' the phrase ``or a Schedule 13D or Schedule 13G (Sec. Sec.  
240.13d-101 and 240.13d-102 of this chapter),''.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
4. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 
78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 
1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 
112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise 
noted.
* * * * *
    Section 240.13d-3 is also issued under Public Law 111-203 Sec.  
766, 124 Stat. 1799 (2010).
* * * * *

0
5. Amend Sec.  240.13d-1 by revising paragraphs (a), (b)(1)(i) and 
(iii), (b)(2), (c) introductory text, (d), (e)(1) introductory text, 
(e)(1)(ii), (f)(1), (g), (i), and (j) to read as follows:


Sec.  240.13d-1   Filing of Schedules 13D and 13G.

    (a) Any person who, after acquiring directly or indirectly the 
beneficial ownership of any equity security of a class which is 
specified in paragraph (i)(1) of this section, is directly or 
indirectly the beneficial owner of more than five percent of the class 
shall, within five business days after the date of the acquisition, 
file with the Commission, a statement containing the information 
required by Schedule 13D (Sec.  240.13d-101).
    (b) * * *
    (1) * * *
    (i) Such person has acquired such securities in the ordinary course 
of the person's business and not with the purpose nor with the effect 
of changing or influencing the control of the issuer, nor in connection 
with or as a

[[Page 76982]]

participant in any transaction having such purpose or effect, including 
any transaction subject to Sec.  240.13d-3(b), other than activities 
solely in connection with a nomination under Sec.  240.14a-11; and
* * * * *
    (iii) Such person has promptly notified any other person (or group 
within the meaning of section 13(d)(3) of the Act) on whose behalf it 
holds, on a discretionary basis, securities exceeding five percent of 
the class, of any acquisition or transaction on behalf of such other 
person which might be reportable by that person under section 13(d) of 
the Act. This paragraph (b)(1)(iii) only requires notice to the account 
owner of information which the filing person reasonably should be 
expected to know and which would advise the account owner of an 
obligation such account owner may have to file a statement, or an 
amendment thereto, pursuant to section 13(d) of the Act.
* * * * *
    (2) The Schedule 13G filed pursuant to paragraph (b)(1) of this 
section shall be filed within 45 days after the end of the calendar 
quarter in which the person became obligated under paragraph (b)(1) of 
this section to report the person's beneficial ownership as of the last 
day of the calendar quarter, provided, that it shall not be necessary 
to file a Schedule 13G unless the percentage of the class of equity 
security specified in paragraph (i)(1) of this section beneficially 
owned as of the end of the calendar quarter is more than five percent; 
however, if the person's direct or indirect beneficial ownership 
exceeds 10 percent of the class of equity securities prior to the end 
of the calendar quarter, the initial Schedule 13G shall be filed within 
five business days after the end of the first month in which the 
person's direct or indirect beneficial ownership exceeds 10 percent of 
the class of equity securities, computed as of the last day of the 
month.
    (c) A person who would otherwise be obligated under paragraph (a) 
of this section to file a statement on Schedule 13D (Sec.  240.13d-101) 
may, in lieu thereof, file with the Commission, within five business 
days after the date of an acquisition described in paragraph (a) of 
this section, a short-form statement on Schedule 13G (Sec.  240.13d-
102). Provided, that the person:
* * * * *
    (d) Any person who, as of the end of any calendar quarter, is or 
becomes directly or indirectly the beneficial owner of more than five 
percent of any equity security of a class specified in paragraph (i)(1) 
of this section and who is not required to file a statement under 
paragraph (a) of this section by virtue of the exemption provided by 
section 13(d)(6)(A) or (B) of the Act (15 U.S.C. 78m(d)(6)(A) or 
78m(d)(6)(B)), or because the beneficial ownership was acquired prior 
to December 22, 1970, or because the person otherwise (except for the 
exemption provided by section 13(d)(6)(C) of the Act (15 U.S.C. 
78m(d)(6)(C))) is not required to file a statement, shall file with the 
Commission, within 45 days after the end of the calendar quarter in 
which the person became obligated to report under this paragraph (d), a 
statement containing the information required by Schedule 13G (Sec.  
240.13d-102).
    (e)(1) Notwithstanding paragraphs (b) and (c) of this section and 
Sec.  240.13d-2(b), a person that has reported that it is the 
beneficial owner of more than five percent of a class of equity 
securities in a statement on Schedule 13G (Sec.  240.13d-102) pursuant 
to paragraph (b) or (c) of this section, or is required to report the 
acquisition but has not yet filed the schedule, shall immediately 
become subject to paragraph (a) of this section and Sec.  240.13d-2(a) 
and shall file a statement on Schedule 13D (Sec.  240.13d-101) within 
five business days if, and shall remain subject to those requirements 
for so long as, the person:
* * * * *
    (ii) Is at that time the beneficial owner of more than five percent 
of a class of equity securities described in paragraph (i)(1) of this 
section.
* * * * *
    (f)(1) Notwithstanding paragraph (c) of this section and Sec.  
240.13d-2(b), persons reporting on Schedule 13G (Sec.  240.13d-102) 
pursuant to paragraph (c) of this section shall immediately become 
subject to paragraph (a) of this section and Sec.  240.13d-2(a) and 
shall remain subject to those requirements for so long as, and shall 
file a statement on Schedule 13D (Sec.  240.13d-101) within five 
business days after the date on which the person's beneficial ownership 
equals or exceeds 20 percent of the class of equity securities.
* * * * *
    (g) Any person who has reported an acquisition of securities in a 
statement on Schedule 13G (Sec.  240.13d-102) pursuant to paragraph (b) 
of this section, or has become obligated to report on Schedule 13G 
(Sec.  240.13d-102) but has not yet filed the Schedule, and thereafter 
ceases to be a person specified in paragraph (b)(1)(ii) of this section 
or determines that it no longer has acquired or holds the securities in 
the ordinary course of business shall immediately become subject to 
paragraph (a) or (c) of this section (if the person satisfies the 
requirements specified in paragraph (c)) and Sec.  240.13d-2(a), (b), 
or (d), and shall file, within five business days thereafter, a 
statement on Schedule 13D (Sec.  240.13d-101) or amendment to Schedule 
13G, as applicable, if the person is a beneficial owner at that time of 
more than five percent of the class of equity securities.
* * * * *
    (i)(1) For the purpose of this section, the term equity security 
means any equity security of a class which is registered pursuant to 
section 12 of the Act, or any equity security of any insurance company 
which would have been required to be so registered except for the 
exemption contained in section 12(g)(2)(G) of the Act, or any equity 
security issued by a closed-end investment company registered under the 
Investment Company Act of 1940; provided, such term shall not include 
securities of a class of non-voting securities.
    (2) For the purpose of this section, the term business day means 
any day, other than Saturday, Sunday, or a Federal holiday, from 12 
a.m. to 11:59 p.m., Eastern Time.
    (j) For the purpose of sections 13(d) and 13(g) of the Act, any 
person, in determining the amount of outstanding securities of a class 
of equity securities, may rely upon information set forth in the 
issuer's most recent quarterly or annual report, and any current report 
subsequent thereto, filed with the Commission pursuant to the Act, 
unless such person knows or has reason to believe that the information 
contained therein is inaccurate.
* * * * *

0
6. Amend Sec.  240.13d-2 by:
0
a. Revising paragraphs (a) through (d); and
0
b. Removing the sectional authority citation from the end of the 
section.
    The revisions read as follows:


Sec.  240.13d-2   Filing of amendments to Schedules 13D or 13G.

    (a) If any material change occurs in the facts set forth in the 
Schedule 13D (Sec.  240.13d-101) required by Sec.  240.13d-1(a), 
including, but not limited to, any material increase or decrease in the 
percentage of the class beneficially owned, the person or persons who 
were required to file the statement shall file or cause to be filed 
with the Commission an amendment disclosing that change within two 
business days after the date of such change. An

[[Page 76983]]

acquisition or disposition of beneficial ownership of securities in an 
amount equal to one percent or more of the class of securities shall be 
deemed ``material'' for purposes of this section; acquisitions or 
dispositions of less than those amounts may be material, depending upon 
the facts and circumstances.
    (b) Notwithstanding paragraph (a) of this section, and provided 
that the person filing a Schedule 13G (Sec.  240.13d-102) pursuant to 
Sec.  240.13d-1(b) or (c) continues to meet the requirements set forth 
therein, any person who has filed a Schedule 13G (Sec.  240.13d-102) 
pursuant to Sec.  240.13d-1(b), (c), or (d) shall amend the statement 
within 45 days after the end of each calendar quarter if, as of the end 
of the calendar quarter, there are any material changes in the 
information reported in the previous filing on that Schedule; provided, 
however, that an amendment need not be filed with respect to a change 
in the percent of the class outstanding previously reported if the 
change results solely from a change in the aggregate number of 
securities outstanding. Once an amendment has been filed reflecting 
beneficial ownership of five percent or less of the class of 
securities, no additional filings are required unless the person 
thereafter becomes the beneficial owner of more than five percent of 
the class and is required to file pursuant to Sec.  240.13d-1.
    (c) Any person relying on Sec.  240.13d-1(b) that has filed its 
initial Schedule 13G (Sec.  240.13d-102) pursuant to Sec.  240.13d-1(b) 
shall, in addition to filing any amendments pursuant to paragraph (b) 
of this section, file an amendment on Schedule 13G (Sec.  240.13d-102) 
within five business days after the end of the first month in which the 
person's direct or indirect beneficial ownership, computed as of the 
last day of the month, exceeds 10 percent of the class of equity 
securities. Thereafter, that person shall, in addition to filing any 
amendments pursuant to paragraph (b) of this section, file an amendment 
on Schedule 13G (Sec.  240.13d-102) within five business days after the 
end of the first month in which the person's direct or indirect 
beneficial ownership, computed as of the last day of the month, 
increases or decreases by more than five percent of the class of equity 
securities. Once an amendment has been filed reflecting beneficial 
ownership of five percent or less of the class of securities, no 
additional filings are required by this paragraph (c).
    (d) Any person relying on Sec.  240.13d-1(c) that has filed its 
initial Schedule 13G (Sec.  240.13d-102) pursuant to Sec.  240.13d-1(c) 
shall, in addition to filing any amendments pursuant to paragraph (b) 
of this section, file an amendment on Schedule 13G (Sec.  240.13d-102) 
within two business days after acquiring, directly or indirectly, 
greater than 10 percent of a class of equity securities specified in 
Sec.  240.13d-1(d), and thereafter within two business days after 
increasing or decreasing its beneficial ownership by more than five 
percent of the class of equity securities. Once an amendment has been 
filed reflecting beneficial ownership of five percent or less of the 
class of securities, no additional filings are required by this 
paragraph (d).
* * * * *

0
7. Amend Sec.  240.13d-3 by:
0
a. Revising paragraphs (d)(3) introductory text and (d)(4); and
0
b. Removing the sectional authority citation from the end of the 
section.
    The revisions read as follows:


Sec.  240.13d-3   Determination of beneficial owner.

* * * * *
    (d) * * *
    (3) A person who in the ordinary course of such person's business 
is a pledgee of securities under a written pledge agreement shall not 
be deemed to be the beneficial owner of such pledged securities until 
the pledgee has taken all formal steps necessary which are required to 
declare a default and determines that the power to vote or to direct 
the vote or to dispose or to direct the disposition of such pledged 
securities will be exercised, provided, that:
* * * * *
    (4) A person engaged in business as an underwriter of securities 
who acquires securities through such person's participation in good 
faith in a firm commitment underwriting registered under the Securities 
Act of 1933 shall not be deemed to be the beneficial owner of such 
securities until the expiration of 40 days after the date of such 
acquisition.

0
8. Revise Sec.  240.13d-5 to read as follows:


Sec.  240.13d-5   Acquisition of beneficial ownership.

    (a) A person who becomes a beneficial owner of securities shall be 
deemed to have acquired such beneficial ownership for purposes of 
section 13(d)(1) of the Act, whether such acquisition was through 
purchase or otherwise. However, executors or administrators of a 
decedent's estate generally will be presumed not to have acquired the 
beneficial ownership held by the decedent's estate until such time as 
such executors or administrators are qualified under local law to 
perform their duties.
    (b)(1)(i) When two or more persons agree to act together for the 
purpose of acquiring, holding, voting or disposing of equity securities 
of an issuer, the group formed thereby shall be deemed to have acquired 
beneficial ownership, for purposes of sections 13(d) and (g) of the 
Act, as of the date of such agreement, of all equity securities of that 
issuer beneficially owned by any such persons.
    (ii) A group regulated as a person pursuant to section 13(d)(3) of 
the Act shall be deemed to have acquired beneficial ownership, as 
determined under paragraph (a) of this section and for purposes of 
sections 13(d)(1) and (2) of the Act, if any member of the group 
becomes the beneficial owner of additional equity securities in the 
same class beneficially owned by the group after the group's formation. 
The beneficial ownership so acquired shall be reported as being held by 
the group through the earlier of {x{time}  the date of the group's 
dissolution or {y{time}  the date of that member's withdrawal from the 
group.
    (iii) Notwithstanding paragraph (b)(1)(ii) of this section, a group 
regulated under section 13(d)(3) of the Act shall not be deemed to have 
acquired beneficial ownership, as determined under paragraph (a) of 
this section, if, after the group's formation, a member of the group 
becomes the beneficial owner of additional equity securities in the 
same class beneficially owned by the group through a sale by or 
transfer from another member of the group.
    (2)(i) A group regulated as a person pursuant to section 13(g)(3) 
of the Act shall be deemed to have become the beneficial owner, for 
purposes of sections 13(g)(1) and (2) of the Act, if any member of the 
group becomes a beneficial owner of additional equity securities in the 
same class held by the group after the group's formation and through 
the earlier of {x{time}  the date of the group's dissolution or 
{y{time}  the date of that member's withdrawal from the group.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, a group 
regulated under section 13(g)(3) of the Act shall not be deemed to have 
become the beneficial owner of additional equity securities in the same 
class beneficially owned by the group if, after the group's formation, 
a member of the group becomes the beneficial owner of additional equity 
securities in the same class beneficially owned by the group

[[Page 76984]]

through a sale by or transfer from another member of the group.

0
9. Revise Sec.  240.13d-6 to read as follows:


Sec.  240.13d-6   Exemption of certain acquisitions.

    (a) The acquisition of securities of an issuer by a person who, 
prior to such acquisition, was a beneficial owner of more than five 
percent of the outstanding securities of the same class as those 
acquired shall be exempt from section 13(d) of the Act; provided, that:
    (1) The acquisition is made pursuant to preemptive subscription 
rights in an offering made to all holders of securities of the class to 
which the preemptive subscription rights pertain;
    (2) Such person does not acquire additional securities except 
through the exercise of such person's pro rata share of the preemptive 
subscription rights; and
    (3) The acquisition is duly reported, if required, pursuant to 
section 16(a) of the Act and the rules and regulations thereunder in 
this part.
    (b) A group shall be deemed not to have acquired any equity 
securities beneficially owned by the other members of the group solely 
by virtue of their concerted actions relating to the purchase of equity 
securities directly from an issuer in a transaction not involving a 
public offering; provided, that:
    (1) All the members of the group are persons specified in Sec.  
240.13d-1(b)(1)(ii);
    (2) The purchase is in the ordinary course of each member's 
business and not with the purpose nor with the effect of changing or 
influencing control of the issuer, nor in connection with or as a 
participant in any transaction having such purpose or effect, including 
any transaction subject to Sec.  240.13d-3(b);
    (3) There is no agreement among or between any members of the group 
to act together with respect to the issuer or its securities except for 
the purpose of facilitating the specific purchase involved; and
    (4) The only actions among or between any members of the group with 
respect to the issuer or its securities subsequent to the closing date 
of the non-public offering are those which are necessary to conclude 
ministerial matters directly related to the completion of the offer or 
sale of the securities.


Sec.  240.13d-7   [Removed and Reserved]

0
10. Remove and reserve Sec.  240.13d-7.

0
11. Amend Sec.  240.13d-101 by:
0
a. Removing the note that reads ``Note: Schedules filed in paper format 
shall include a signed original and five copies of the schedule, 
including all exhibits. See Rule 13d-7 for other parties to whom copies 
are to be sent.''; and
0
b. Revising Item 6 and the paragraph following the ``Name/Title'' 
block.
    The revisions read as follows:


Sec.  240.13d-101   Schedule 13D--Information to be included in 
statements filed pursuant to Sec.  240.13d-1(a) and amendments thereto 
filed pursuant to Sec.  240.13d-2(a).

* * * * *
    Item 6. Contracts, Arrangements, Understandings or Relationships 
With Respect to Securities of the Issuer. Describe any contracts, 
arrangements, understandings, or relationships (legal or otherwise) 
among the persons named in Item 2 and between such persons and any 
person with respect to any securities of the issuer, including any 
class of such issuer's securities used as a reference security, in 
connection with any of the following: call options, put options, 
security-based swaps or any other derivative securities, transfer or 
voting of any of the securities, finder's fees, joint ventures, loan or 
option arrangements, guarantees of profits, division of profits or 
loss, or the giving or withholding of proxies, naming the persons with 
whom such contracts, arrangements, understandings, or relationships 
have been entered into. Include such information for any of the 
securities that are pledged or otherwise subject to a contingency the 
occurrence of which would give another person voting power or 
investment power over such securities except that disclosure of 
standard default and similar provisions contained in loan agreements 
need not be included.
* * * * *
    The original statement shall be signed by each person on whose 
behalf the statement is filed or such person's authorized 
representative. If the statement is signed on behalf of a person by 
such person's authorized representative (other than an executive 
officer or general partner of the filing person), evidence of the 
representative's authority to sign on behalf of such person shall be 
filed with the statement; provided, however, that a power of attorney 
for this purpose which is already on file with the Commission may be 
incorporated by reference. The name and any title of each person who 
signs the statement shall be typed or printed beneath such person's 
signature.
* * * * *

0
12. Amend Sec.  240.13d-102 by:
0
a. Revising Item 8 and the paragraph following the ``Name/Title'' 
block; and
0
b. Removing the note at the end of the section.
    The revisions read as follows:


Sec.  240.13d-102   Schedule 13G--Information to be included in 
statements filed pursuant to Sec.  240.13d-1(b), (c), and (d) and 
amendments thereto filed pursuant to Sec.  240.13d-2.

* * * * *
    Item 8. Identification and Classification of Members of the Group
    If a group has filed this schedule pursuant to Sec.  240.13d-
1(b)(1)(ii)(K), so indicate under Item 3(k) and attach an exhibit 
stating the identity and Item 3 classification of each member of the 
group. If a group has filed this schedule pursuant to Rule 13d-1(c) or 
Rule 13d-1(d), attach an exhibit stating the identity of each member of 
the group. * * * * *
    The original statement shall be signed by each person on whose 
behalf the statement is filed or such person's authorized 
representative. If the statement is signed on behalf of a person by 
such person's authorized representative other than an executive officer 
or general partner of the filing person, evidence of the 
representative's authority to sign on behalf of such person shall be 
filed with the statement; provided, however, that a power of attorney 
for this purpose which is already on file with the Commission may be 
incorporated by reference. The name and any title of each person who 
signs the statement shall be typed or printed beneath such person's 
signature.
* * * * *

    By the Commission.

    Dated: October 10, 2023.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023-22678 Filed 11-6-23; 8:45 am]
BILLING CODE 8011-01-P


