The Commission proposed to add new paragraph (e) to Rule 13d-3 to deem certain holders of cash-settled derivative securities, other than SBS, to be the beneficial owners of the reference covered class. Proposed Rule 13d-3(e)(1) would have treated a holder of a cash-settled derivative security, excluding SBS, as the beneficial owner of the equity securities in the covered class referenced by the cash-settled derivative security if such person held the cash-settled derivative security with the purpose or effect of changing or influencing the control of the issuer of the class of equity securities, or in connection with or as a participant in any transaction having that purpose or effect.445 The Commission included this control-based standard in proposed Rule 13d-3(e) to ease the administrative burdens associated with the application of this proposed provision by employing a familiar standard under Regulation 13D-G.446 In addition, proposed Rule 13d-3(e) would have set forth the formula for calculating the number of equity securities that a holder of a cash-settled derivative security would be deemed to beneficially own.447
In proposing Rule 13d-3(e), the Commission noted that non-SBS cash-settled derivative securities held with the purpose or effect of changing or influencing control of the issuer may be used to influence the voting, acquisition, or disposition of any shares the holder’s counterparty may have acquired in a hedge, proprietary investment, or otherwise.448 The Commission also stated that a non-SBS cash-settled derivative holder’s probability of success in exerting influence or control over the issuer of the reference security may increase given that any voting power the derivative holder held would be magnified by minimizing the number of shares that potentially could be voted against the holder’s plans or proposals.449 Finally, the Commission recognized that holders of non-SBS cash-settled derivative securities may position themselves to acquire any reference securities that the counterparty may acquire to hedge the economic risk of that transaction.450 The Commission also noted that holders of non-SBS cash-settled derivative securities may present their economic positions to persuade an issuer or its shareholders to engage with them.451 The Commission concluded, therefore, that these persons’ holdings of non-SBS cash-settled derivative securities may implicate the policies underlying section 13(d).452