Legal Alert: SEC to Undertake a Review of Beneficial Ownership Reporting Rules


In her address at the Transatlantic Corporate Governance Dialogue last week, Securities and Exchange Commission Chairman Mary Schapiro announced that in 2012, the SEC will begin a broad review of its beneficial ownership reporting rules. “We think it’s important to modernize our rules, and we are considering whether they should be changed in light of modern investment strategies and innovative financial products,” Ms. Schapiro stated.

The SEC’s review is expected to focus on the following issues:

(i) whether the 10-day initial filing requirement for Schedule 13D filings should be shortened;
(ii) whether beneficial ownership reporting should be changed with respect to the use of cash-settled equity swaps and other types of derivative instruments; and
(iii) how the presentation of information on Schedules 13D and 13G can be improved.

Under the SEC’s present rules, a shareholder is not required to file a Schedule 13D until 10 days after it crosses the 5 percent beneficial ownership threshold. This window enables a shareholder contemplating a hostile takeover or proxy fight, once it crosses the 5 percent reporting threshold, to spend the next 10 days acquiring substantial additional amounts of stock before making its ownership level and investment intent known. The shortening of the 10-day window would substantially restrict a shareholder’s ability to secretly accumulate securities in this fashion.

Ms. Schapiro indicated that a concept release will likely be forthcoming. A full copy of Ms. Schapiro’s comments can be found here.