SEC Staff Issues Helpful CFIs Clarifying Beneficial Ownership Implications of Cash-Settled Equity Total Return Swaps

On July 9, 2026, the Staff of the SEC’s Division of Corporation Finance issued several new Corporation Finance Interpretations (CFIs) concerning various topics under the Securities Exchange Act of 1934. Notably, three of the CFIs — Questions 105.08, 105.09, and 105.10 — offer clarity on the Section 13(d) beneficial ownership implications of being the long party to a standard cash-settled equity total return swap (TRS) that references shares of a publicly traded class of voting equity.

The CFIs confirm that entering into such a standard cash-settled equity TRS does not, without more, result in the long party having beneficial ownership of reference securities, including reference securities held by the TRS counterparty for hedging purposes. The guidance also emphasizes the narrowness of the circumstances in which a standard TRS risks being seen as a “plan or scheme to evade” beneficial ownership reporting obligations and thus giving rise to deemed beneficial ownership under Rule 13d-3(b).

The three new CFIs define a TRS as a “standard total return equity swap” that (i) settles exclusively in cash, (ii) refers to a class of voting equity securities registered under Section 12 of the Exchange Act only for the purpose of identifying the contract’s reference security, and (iii) does not confer voting or investment power with respect to, or any right to acquire, securities of the referenced class. The message of the CFIs may be summarized as follows:  

• Entry into a TRS does not, by itself, result in the long party having beneficial ownership of reference securities.

The Staff states that the purchaser of a TRS is not deemed — solely as a result of entering into the contract — to acquire beneficial ownership of reference securities. This includes securities the TRS counterparty may acquire or hold for hedging purposes.

• Entry into a TRS does not, without more, evidence a “plan or scheme to evade” giving rise to deemed beneficial ownership under Rule 13d-3(b).

Question 105.08 also indicates that entry into a TRS — absent any extracontractual arrangement that confers voting or investment power or an acquisition right — does not evidence a “plan or scheme to evade” under Rule 13d-3(b) (which says a person may be “deemed” a beneficial owner of equity securities if the person uses an arrangement with the purpose or effect of preventing the vesting of beneficial ownership as part of a plan or scheme to evade the reporting requirements of Section 13(d)). 

Question 105.09 then addresses the circumstances under which a TRS holder might have Rule 13d-3(b) deemed beneficial ownership of reference securities, including hedge securities held by the counterparty. The Staff states that since a standard TRS confers no voting or investment power or right to acquire the reference securities, the TRS would need to be directly or indirectly used in connection with an “arrangement” to prevent the vesting of beneficial ownership by the purchaser of the TRS in order to be part of a plan or scheme to evade reporting obligations.

As an example, the Staff states that if a TRS holder uses the TRS as a means to direct the counterparty how to vote hedge securities, or to pre-arrange the acquisition of securities, the TRS holder may be deemed a beneficial owner under Rule 13d-3(b). 

By contrast, the Staff confirms that entry into a TRS “solely for economic exposure to the reference security, without more,” does not prevent the vesting of beneficial ownership as part of a plan or scheme to evade beneficial ownership reporting requirements for purposes of Rule 13d-3(b).  

• The mental state contemplated by the term “plan or scheme to evade” would involve a TRS holder’s intent to create a false appearance that its interest in the reference securities was solely economic. 

Finally, Question 105.10 advises that “[t]he mental state contemplated by the words ‘plan or scheme to evade’ is generally the intent to enter into an arrangement that creates a false appearance or an illusion contrary to the actual facts.” The Staff states that in the TRS context, the inquiry under Rule 13d-3(b) would focus on whether the TRS holder knew or was reckless in not knowing that use of the TRS would create “a false appearance or illusion that the person’s interest is economic alone.” For example, the Staff states that entry into a TRS “for the purpose or effect of indirectly acquiring the power to vote or a future right to acquire the reference equity security may be viewed as part of” a plan or scheme to evade under Rule 13d-3(b). 

The new CFIs are generally consistent with current market understanding. They are nonetheless valuable because they crystallize a variety of prior SEC statements touching on the beneficial ownership implications of entering into a standard, cash-settled total return swap referencing voting equity securities of a class registered under Section 12 of the Exchange Act. [1] As a result, the CFIs should be welcomed by private fund managers and other investors who use TRSs to gain long exposure to public equity securities.  

[1] See, e.g., Modernization of Beneficial Ownership Reporting, SEC Release No. 34-98704 (Oct. 10, 2023) at II.B;   Beneficial Ownership Reporting Requirements and Security-Based Swaps, SEC Release No. 34-64628 (June 8, 2011); and Letter from Brian V. Breheny, Deputy Dir., Div. of Corp. Fin., SEC, to Hon. Lewis A. Kaplan, U.S. Dist. Judge, S.D.N.Y. (June 4, 2008), in CSX Corp. v. Children’s Inv. Fund Mgmt., L.L.P., et al., No. 08-Civ. 2764.