SEC Rule 13d-3
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| SEC Rule 13d-3 | |
|---|---|
| Name | SEC Rule 13d-3 |
| Jurisdiction | United States |
| Issued by | Securities and Exchange Commission |
| Statute authority | Securities Exchange Act of 1934 |
| Effective date | 1968 |
| Topic | Beneficial ownership; reporting of securities |
SEC Rule 13d-3
SEC Rule 13d-3 governs attribution of beneficial ownership for purposes of Schedule 13D filings under the Securities Exchange Act of 1934, aligning disclosure obligations with control and investment intent involving issuers listed on New York Stock Exchange, NASDAQ, and other registered markets; it interfaces with interpretations by the Securities and Exchange Commission, judicial decisions in federal courts such as the United States Court of Appeals for the Second Circuit, and enforcement actions involving firms like Goldman Sachs, Morgan Stanley, and BlackRock. The rule allocates reporting responsibilities among institutional actors including Vanguard Group, Berkshire Hathaway, and activist investors exemplified by Elliott Management, and is shaped by legislative and regulatory developments connected to the United States Congress, Financial Industry Regulatory Authority, and administrative guidance from the Office of the Comptroller of the Currency.
Overview and Purpose
Rule 13d-3 is designed to determine when an individual or entity is deemed the beneficial owner of a class of registered equity securities for the purpose of triggering Schedule 13D disclosure obligations under the Securities Exchange Act of 1934, affecting filings by syndicates such as Pershing Square Capital Management, Icahn Enterprises, Carl Icahn, and institutional holders like State Street Corporation, Fidelity Investments. It clarifies attribution among parties including corporations like Apple Inc., Microsoft, and Amazon (company), alliances such as The Carlyle Group and KKR & Co., and arrangements involving convertible securities issued by entities like Tesla, Inc. and Alphabet Inc..
Definitions and Scope
The rule defines "beneficial ownership" through attribution principles that draw on relationships among persons including direct holders, investment advisers such as BlackRock, J.P. Morgan Chase, and affiliates like Berkshire Hathaway, specifying when derivative instruments, warrants, options, and convertible notes issued by issuers including General Electric and Ford Motor Company are treated as shares for reporting. It addresses concepts of "group" and "acting in concert" with precedent from cases involving T. Rowe Price, AGF Management, and transactions in securities of issuers such as ExxonMobil and Chevron Corporation, while intersecting with statutes and rules including the Hart–Scott–Rodino Antitrust Improvements Act and SEC rules on tender offers like Regulation 14D.
Reporting and Filing Requirements
When attribution under Rule 13d-3 results in beneficial ownership exceeding reporting thresholds, the affected persons must file Schedule 13D with the Securities and Exchange Commission within prescribed timeframes, a requirement that has been central to proxy contests involving Starboard Value, Third Point, and takeover bids concerning firms such as Yahoo!, Motorola Solutions, and Dell Technologies. The procedural obligations implicate transaction reporting systems used by Nasdaq Stock Market, New York Stock Exchange, and clearing organizations such as Depository Trust & Clearing Corporation, and coordinate with disclosure regimes administered by agencies like the Commodity Futures Trading Commission when derivatives of issuers including Goldman Sachs are at issue.
Exceptions and Exemptions
Rule 13d-3 interacts with exemptions and safe harbors that exclude certain passive institutional investors—examples include exemptions relevant to index funds managed by Vanguard Group, State Street Corporation, and BlackRock—and carve-outs for acquisitions under tender offer rules invoked in matters involving Carl Icahn, Elliott Management, and strategic investors like SoftBank Group. It also differentiates treatment for brokers and dealers such as Goldman Sachs and Morgan Stanley when holdings result from ordinary course activities, and coordinates with exemptions under statutes and rules administered by the Securities and Exchange Commission and interpreted in cases before the United States Supreme Court and federal appeals courts.
Enforcement and Penalties
Enforcement of attribution determinations under Rule 13d-3 is undertaken by the Securities and Exchange Commission through administrative proceedings and civil actions, and may result in injunctions, disgorgement, and civil monetary penalties against entities such as Goldman Sachs, Morgan Stanley, or activist investors like Elliott Management when failures to file Schedule 13D are found; criminal referrals may involve the United States Department of Justice. Court decisions in enforcement matters have been rendered by tribunals including the United States District Court for the Southern District of New York and appeals courts such as the United States Court of Appeals for the Second Circuit, shaping remedies and deterrence for violations tied to issuers such as Enron and WorldCom.
Notable Interpretations and Case Law
Judicial interpretations of Rule 13d-3 have been developed in landmark cases and enforcement actions involving parties like T. Rowe Price, Merrill Lynch, and activist funds such as Elliott Management and Icahn Partners; notable opinions by the United States Supreme Court and circuits including the D.C. Circuit and Second Circuit have clarified "beneficial ownership" in disputes about options, warrants, and contingent arrangements affecting issuers such as Tesla, Inc., Oracle Corporation, and Google LLC. Administrative releases and staff guidance from the Securities and Exchange Commission and litigated rulings addressing "group" formation have influenced proxy contests involving Starboard Value, Pershing Square Capital Management, and corporate governance reforms promoted by institutions like Council of Institutional Investors.
Regulatory History and Amendments
Rule 13d-3 was adopted pursuant to the Securities Exchange Act of 1934 and has been amended and interpreted through SEC rulemaking, staff releases, and congressional oversight involving committees such as the United States Senate Committee on Banking, Housing, and Urban Affairs and the United States House Committee on Financial Services. Revisions and clarifications emerged in regulatory responses to market events and enforcement actions involving entities like Enron, WorldCom, BlackRock, and Goldman Sachs, and were informed by consultations with market participants including Investment Company Institute, Financial Industry Regulatory Authority, and major exchanges such as NASDAQ Stock Market and New York Stock Exchange.