As we approach the annual deadline for making certain filings with the Securities and Exchange Commission (“SEC”), this memorandum is a reminder to our clients and friends regarding U.S. federal securities law requirements in connection with ownership of, or exercise of investment discretion over, securities registered in the U.S.
Initial filing requirements commonly applicable to passive investors not involved in management or control of an issuer are summarized in the table below, with explanations of each following the table:
| Form | Who must file | Trigger | First filing deadline |
| Schedule 13G or Schedule 13D | Any shareholder | Beneficial ownership of more than 5% of a class of U.S. registered equity security | 10 days after initial acquisition |
| Form 3 | Any shareholder | Beneficial ownership of more than 10% of a class of U.S. registered equity security that is not a foreign private issuer | 10 days after initial acquisition |
| Form 13F | Any “institutional investment manager” (as defined below) | Investment discretion of $100 million or more of equity securities listed on a U.S. stock exchange | Feb. 14 to report holdings as of Dec. 31 of the prior year (if trigger reached at the end of any calendar month of that prior year) |
| Form 13H | Any “large trader” (as defined below) | Trades in U.S. listed equity securities (including options) of either (i) two million shares or shares valued at $20 million during any calendar day, or (ii) 20 million shares or shares valued at $200 million during any calendar month | Promptly |
Schedules 13G and 13D
Schedule 13G is a “short form” required to be filed within 10 days after acquisition of direct or indirect “beneficial ownership” of more than 5% of a class of equity securities registered under the Securities Exchange Act of 1934 (“Exchange Act”), so long as:
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- The securities are acquired and held for investment purposes only, meaning that they were not acquired “with any purpose, or with the effect, of changing or influencing the control of the issuer”; and
- The investor beneficially owns less than 20% of the class of equity securities.
Beneficial ownership by subsidiaries that hold securities generally should be attributed to the controlling parent entities. The holdings of a parent and its subsidiary or subsidiaries are aggregated to determine whether the 5% filing threshold has been exceeded. Where voting and investment powers of a parent and subsidiary are exercised independently, attribution may not be required depending on the circumstances.
Amendments to Schedule 13G must be filed annually by February 14 to report any changes in the information previously reported, or promptly upon acquiring greater than 10% of the class of equity securities, and then promptly thereafter upon increasing or decreasing its beneficial ownership by more than 5% of the class of securities.
In addition, a Schedule 13D (a “long form” requiring more detailed disclosure) must be filed within 10 days if:
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- The investor’s purpose or effect is no longer passive, but rather the investor seeks to change or influence control of the issuer; or
- The investor’s holdings increase to 20% or more of the outstanding shares of the issuer.
Amendments to Schedule 13D must be filed promptly to report material changes.
Forms 3 and 4
Upon becoming (i) a direct or indirect beneficial holders of more than 10% of a class of equity securities registered under the Exchange Act, or (ii) a director or officer of the issuer of such securities, a Form 3 must be filed within 10 days reporting such person’s “pecuniary interest”[1] (or lack thereof) in such securities.
Thereafter, all changes in ownership must be reported on Form 4 within two business days of such change.
Under the “short-swing profit rule” of Section 16, any profits realized by a 10% holder (as well as by any director or officer of the issuer of such securities) as a result of short-swing transactions (defined as any purchase or sale within six months of each other) are recoverable by the issuer of such securities. In addition, 10% holders, directors and officers are prohibited from selling such shares short.
Note that these Section 16 obligations do not apply to foreign private issuers registered in the U.S.
Form 13F
A quarterly report is required on Form 13F by any “institutional investment manager” which exercises investment discretion with respect to equity securities that are listed on a national stock exchange in the U.S. if such securities have an aggregate fair market value of $100 million or more on the last trading day of any month of the preceding calendar year (with the initial filing due within 45 days after the end of such calendar year).
“Institutional investment managers” include entities, whether located in the U.S. or outside the U.S., that buy and sell for their own accounts (such as banks and insurance companies), and persons or entities that have investment discretion over the accounts of others (such as investment advisors and certain trustees).
A parent is deemed to have investment discretion with respect to all accounts over which a subsidiary exercises investment discretion.
Form 13H
Certain “large traders” in equity securities (including options) listed on a national stock exchange in the U.S. must promptly, and annually thereafter, file Form 13H. A “large trader” is defined as any person or entity that directly or indirectly (i) exercises investment discretion over one or more accounts (including such person’s own account(s)), and (ii) conducts trades through one or more U.S. registered broker dealers that in the aggregate meet the following daily or monthly trading activity thresholds:
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- During any calendar day, trades either two million shares or shares with a fair market value of $20 million; or
- During any calendar month, trades either 20 million shares or shares with a fair market value of $200 million.
Form 13H itself requires information related to the large trader’s business, affiliates, and organizational structure, but does not require disclosure of specific trading information. The obligation to file Form 13H is imposed on the ultimate parent after aggregating the trading activity of all entities controlled by such parent, unless each such entity files separately. Form 13H filings are confidential and do not appear on the SEC’s public website.
A large trader must generally file its initial Form 13H promptly after effecting aggregate transactions equal to or greater than the trading activity thresholds described above, and then annually thereafter.
[1] “Pecuniary interest” is defined as “the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.” Those who manage funds for others may be considered to have a pecuniary interest in the funds they manage if they earn certain types of performance fees.
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Please note that the above is a general summary only. SEC rules should be consulted before making a determination as to any specific circumstances that may arise.
For more information please contact your GKH attorney or Adv. Perry Wildes (perry@gkh-law.com).
Gross & Co. (GKH), is one of the leading law firms in Israel, with over 170 attorneys. GKH specializes, both in Israel and abroad, in various fields of law including Mergers and Acquisitions, Capital Markets, Technology, Healthcare and Life Science, Banking, Real Estate, Project Finance, Litigation, Antitrust, Energy and Infrastructure, Environmental Law, Intellectual Property, Labor Law and Tax.
This alert is prepared as an informational service to clients and colleagues of Gross & Co. (GKH) and the information presented is not intended to provide legal opinions or advice. Readers should seek professional legal advice regarding the matters about which they are particularly concerned.
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