On Tuesday, the U.S. Securities and Exchange Commission approved a final rulemaking to shorten the Schedule 13D disclosure period from 10 days to five business days for activist fund managers who acquire more than a 5% stake in a public company.
“Today’s adoption updates rules that first went into effect more than 50 years ago. Frankly, these deadlines from half a century ago feel antiquated,” SEC Chair Gary Gensler said in a press release. “In our fast-paced markets, it shouldn’t take 10 days for the public to learn about an attempt to change or influence control of a public company.”
The rulemaking was a major advocacy priority for the Society and NIRI, which have worked together over the past decade to persuade Congress and the SEC staff and commissioners to modernize the 13D rules. The Society testified in 2018 in favor of 13D modernization legislation introduced by U.S. Senator Tammy Baldwin (D-Wisc.) and submitted comment letters to the SEC in April 2022 and July 2023 in support of reducing the 10-day disclosure window, which dates back to the Williams Act of 1968.
In their latest comment letter, the Society and NIRI argued that the disclosure delay “permits activist investors to ambush public companies, often by disclosing an ownership interest that far exceeds 5% of shares outstanding. These investors typically pressure executives and directors to agree to their short-term demands, which can include board membership, plant closings, workforce reductions, wage and benefit cuts, reduced R&D investment, increased share buybacks, special dividends, and other concessions that may or may not be in the long-term interest of shareholders, employees, and other stakeholders.”
In the final rules, the Commission opted for a five-business-day standard after initially proposing five calendar days. The Society and NIRI had urged the SEC to consider a two-day disclosure period, which would be consistent with the Form 4 reporting rules that apply to stock sales by corporate executives.
The rulemaking, which was approved without a formal Commission public meeting, also includes updates to the Schedule 13G filing rules for investors that acquire more than a 5 percent stake but do not have a control intent. The amendments also provide guidance on the definition of groups under 13D-13G and the treatment of derivative securities. The 13D amendments will take effect 90 days after publication within the Federal Register.
Commissioner Mark Uyeda supported the rulemaking. “The amendments to filing deadlines for Schedules 13D and G are appropriate in light of advances in the communications and technology used by market professionals since those timeframes were first established in 1968, while at the same time recognizing the importance of shareholder activism,” Uyeda said.
Commissioner Hester Peirce opposed the rules, noting concern about the potential impact on the number of “value-enhancing” activist campaigns.
SEC Press Release: https://www.sec.gov/news/press-release/2023-219
SEC Fact Sheet: https://www.sec.gov/files/33-11253-fact-sheet.pdf
Final Rulemaking: https://www.sec.gov/files/rules/final/2023/33-11253.pdf