Securities and Exchange Commission Updates Compliance and Disclosure Interpretations for Sections 13(d) and 13(g) of the Exchange Act and Regulation 13D/13G Beneficial Ownership Reporting

November 12, 2009


The U.S. Securities and Exchange Commission (the “Commission”) recently released updated and consolidated compliance and disclosure interpretations relating to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Regulations 13D/13G beneficial ownership reporting.


While some of the interpretations are restatements of positions previously taken by the Commission, certain other of the interpretations provide new or clarified guidance that may impact disclosure obligations for beneficial holders of reportable securities that are or may become subject to Section 13(d) or 13(g) reporting obligations.  These updated compliance and disclosure interpretations are usefully consolidated on the Commission’s website at: http://www.sec.gov/divisions/corpfin/guidance/reg13d-interp.htm.

Many of the positions taken in the updated interpretations had been previously advocated by the Commission through various channels (such as no-action letters and amici curiae briefs) prior to this latest round of consolidation and clarification.  Now that many of the Commission’s positions on such issues have been set forth in these updated interpretations, practitioners and reporting persons should review and consider such interpretations in conjunction with the codified rules under Section 13(d) and 13(g) of the Exchange Act and Regulation 13D/13G thereunder.


Below are a few examples of certain of the positions taken by the Commission in the updated compliance and disclosure interpretations, which are provided for illustrative purposes only.  All relevant rules, regulations and interpretations should be reviewed in connection with any given reporting issue.


  • Limitations on General Reservation of Rights Language under Item 4 of Schedule 13D (Question 110.06).  It is common practice for reporting persons to include generic “reservation of rights” disclosure in Item 4 of Schedule 13D (which requires a description of certain plans or proposals which relate to or would result in various actions that, among other things, affect control of the issuer).  The Commission has clarified that, notwithstanding any such reservation of rights disclosure, a Schedule 13D must be amended when a reporting person formulates a “specific intention with respect to a disclosable matter” that is enumerated in Items 4(a) through (j) of Schedule 13D.  The Commission elaborated that a specific intention is deemed to exist not only upon execution of a formal agreement to take action that could result in a disclosable matter under Item 4, but could commence earlier, for example, at the time a reporting person hires an investment bank to formulate terms for a potential going-private transaction.


  • Certain Same Day Multiple Open Market Purchases/Sales May Be Aggregated on Schedule 13D (Question 110.08).  Item 5(c) of Schedule 13D requires reporting persons to disclose all transactions effected during the past sixty days or since the most recent Schedule 13D filing.  The Commission has clarified that such disclosure obligation may be fulfilled by aggregating all same-day, same-way purchases or sales effected through trade orders executed by broker-dealers that occur within a one dollar price range on the basis of the weighted average purchase or sale price for such transactions.  This guidance conforms to a position taken by the Commission in a June 2008 no-action letter in the context of a similar disclosure obligation on Form 4 pursuant to Section 16(a) of the Exchange Act, and supersedes a potentially contrary position taken by the Commission in a 2007 disclosure interpretation.  This interpretation usefully harmonizes the Schedule 13D disclosure interpretation with the Form 4 disclosure position described in the Commission’s no-action letter.


  • Officers and Directors Likely Ineligible to File on Schedule 13G pursuant to Rule 13d-1(c) (Question 103.04). The Commission has clarified that, notwithstanding the lack of any specific control intent, an officer or director that beneficially owns more than five percent of a voting class of an issuer’s securities registered under Section 12 of the Exchange Act will most likely not be eligible to rely on Rule 13d-1(c) (which requires that shares not be held with the purpose or effect of changing or influencing control of the issuer) to file a short-form Schedule 13G rather than a more detailed Schedule 13D.  The fact that officers and directors have the ability to influence the management and policies of an issuer will generally render persons in such positions unable to make the certifications regarding lack of control intent required in order to file a Schedule 13G.


  • Determination of Acquisition of Beneficial Ownership for Purposes of Rule 13d-3 (Questions 105.01 through 105.05).  The Commission clarified its position on a number of issues relating to when a reporting person is deemed to have acquired reportable securities pursuant to Rule 13d-3 of the Exchange Act.  The relevant interpretations include clarifications regarding variable conversion terms and related conversion caps for convertible securities, as well as other contingencies that could be deemed to be outside of a reporting person’s control, thereby delaying or eliminating the requirement to file a beneficial ownership report on Schedule 13D or Schedule 13G.


As Commission Chairman Mary Shapiro has recently noted, the Commission continues to pursue a “meaningful, investor-focused rulemaking agenda.”  As such, reporting persons and practitioners alike should continue to follow the Commission’s rulemaking initiatives and general reform efforts to ensure ongoing compliance with their reporting obligations.  If you have any questions regarding reporting obligations under Sections 13(d) and 13(g) of the Exchange Act, including the Commission’s compliance and disclosure interpretations, please contact the O’Melveny & Myers attorney with whom you work regularly or the lawyers identified in this Client Alert.