We are not adopting proposed paragraph (e) to Rule 13d-3 to deem certain holders of cash-settled derivative securities as beneficial owners of the reference covered class. Consistent with the views expressed by several commenters, we have determined that Commission guidance on the applicability of existing Rule 13d-3 to cash-settled derivative securities, similar to the guidance provided in the Security-Based Swaps Release,474 would provide sufficient clarity.475
The Commission explained in the Security-Based Swaps Release the circumstances under which a holder of a SBS may become a beneficial owner as determined under Rule 13d-3. It noted that “our existing regulatory regime may require the reporting of beneficial ownership” in cases in which a SBS (1) “confers voting and/or investment power (or a person otherwise acquires such power based on the purchase or sale of a [SBS]),” (2) “is used with the purpose or effect of divesting or preventing the vesting of beneficial ownership as part of a plan or scheme to evade the reporting requirements,” or (3) “grants a right to acquire an equity security.”476 Although the determination under Rule 13d-3 as to whether the holder of any cash-settled derivative security is the beneficial owner of the reference covered class ultimately will depend on the relevant facts and circumstances, the above-described reasoning in the Security-Based Swaps Release (the three elements of which correspond to Rule 13d-3(a), (b), and (d)(1), respectively) provides an instructive analytical framework with respect to cash-settled derivative securities.
As is the case with persons holding cash-settled SBS, Rule 13d-3 similarly may be applied to holders of non-SBS cash-settled derivatives477 to treat those persons as beneficial owners in applicable instances. Although non-SBS derivative securities settled exclusively in cash generally are designed to represent only an economic interest, discrete facts and circumstances could arise where the holder of these securities may have voting or investment power as described in Rule 13d-3(a) or otherwise could be deemed to be a beneficial owner as determined under Rule 13d-3(b) or (d), as described below. First, under Rule 13d-3(a), to the extent a non-SBS cash-settled derivative security provides its holder, directly or indirectly, with exclusive or shared voting or investment power, within the meaning of that rule, over the reference covered class through a contractual term of the derivative security or otherwise, the holder of that derivative security may become a beneficial owner of the reference covered class. Second, to the extent a non-SBS cash-settled derivative security is acquired with the purpose or effect of divesting its holder of beneficial ownership of the reference covered class or preventing the vesting of that beneficial ownership as part of a plan or scheme to evade the reporting requirements of section 13(d) or 13(g), the derivative security may be viewed as a contract, arrangement, or device within the meaning of those terms as used in Rule 13d-3(b). The holder of such cash-settled derivative security, therefore, may be deemed a beneficial owner under Rule 13d-3(b) in this context. Finally, under Rule 13d-3(d)(1), a person is deemed a beneficial owner of an equity security if the person (1) has a right to acquire beneficial ownership of the equity security within 60 days or (2) acquires the right to acquire beneficial ownership of the equity security with the purpose or effect of changing or influencing the control of the issuer of the security for which the right is exercisable, or in connection with or as a participant in any transaction having such purpose or effect, regardless of when the right is exercisable.478 As the Commission stated in the Security-Based Swaps Release, Rule 13d-3(d)(1) applies regardless of the origin of the right to acquire the equity security.479 If such a right originates in a derivative security that is nominally “cash-settled” or from an understanding in connection with that derivative security, Rule 13d-3(d)(1) would apply.