SEC Issues New CFIs on Beneficial Ownership Reporting for Total Return Swaps and Schedule 13D Disclosure

On July 9, 2026, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) published five new Corporation Finance Interpretations (CFIs) addressing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 and Regulation 13D-G.¹ The new CFIs provide guidance on two topics: (1) whether and when a cash-settled equity total return swap (TRS) triggers beneficial ownership under Rule 13d-3(b), and (2) the scope of Schedule 13D disclosure for non-natural person filers and entities formed for specific shareholder activism campaigns.

Key Takeaways

• The SEC Staff has confirmed that entering into a standard cash-settled TRS does not, by itself, confer beneficial ownership of the reference securities, including any equity securities held by the counterparty to hedge its risk.
• A TRS purchaser may nonetheless be “deemed” a beneficial owner of the reference securities under Rule 13d-3(b) where the swap is used in connection with an arrangement to direct the counterparty’s voting of hedge shares or to prearrange their acquisition to prevent the vesting of beneficial ownership as part of a plan or scheme to evade reporting obligations. The Staff clarified that recklessness may satisfy the mental state standard for a “plan or scheme to evade.”
• Item 3 of Schedule 13D requires public disclosure of the identities of investors in an entity formed to raise funds for a targeted activist campaign against a specific, identified issuer.
• Instruction C to Schedule 13D requires Items 2-6 information for specified persons and entities in addition to, not as a substitute for, complete disclosure about the reporting person itself.
  
  

Total Return Swaps and Beneficial Ownership

Standard Cash-Settled TRS Does Not Confer Beneficial Ownership. CFI 105.08 addresses whether a purchaser of a standard TRS acquires beneficial ownership of the reference securities solely by entering into the swap. The Staff defines a “standard” TRS (Standard TRS) as one that (i) settles exclusively in cash, (ii) refers to a class of equity securities solely for purposes of identifying a reference security, and (iii) does not confer any voting or investment power with respect to, or any right to acquire, such securities. The Staff confirmed that a person who simply enters into a Standard TRS does not acquire beneficial ownership of the reference securities, including any equity securities the counterparty may hold to hedge its risk. Importantly, the Staff also stated that entry into a Standard TRS, absent any separate arrangement conferring power or rights outside the swap’s terms, is not, by itself, evidence of a “plan or scheme to evade” reporting obligations under Rule 13d-3(b).²

When a TRS May Trigger “Deemed” Beneficial Ownership. CFI 105.09 identifies the circumstances under which a TRS purchaser could be deemed a beneficial owner of the reference securities under Rule 13d-3(b). Because a Standard TRS by definition confers no voting or investment power or acquisition right, the rule is implicated only where the swap is “directly or indirectly used in connection with an ‘arrangement’ to prevent the vesting of beneficial ownership.” The Staff offered two illustrative examples of such an arrangement: (1) using the TRS as a means to direct the counterparty how to vote equity securities used in its hedge, and (2) using the TRS to prearrange the acquisition of such securities. Conversely, the Staff affirmed that entry into a TRS “solely for economic exposure to the reference security, without more,” does not trigger deemed beneficial ownership.

The “Plan or Scheme to Evade” Mental State Standard. CFI 105.10 addresses the mental state required to find that a person has engaged in a plan or scheme to evade under Rule 13d-3(b). Citing the 2008 Breheny letter in the CSX litigation,³ the Staff stated that this language contemplates “the intent to enter into an arrangement that creates a false appearance or an illusion contrary to the actual facts.” As applied to a TRS, the relevant inquiry is whether the person “knew or was reckless in not knowing” that use of the TRS would create a false appearance that the person’s interest was purely economic. Entry into a TRS “for the purpose or effect of indirectly acquiring the power to vote or a future right to acquire” the reference security may constitute a plan or scheme to evade.

Schedule 13D Disclosure Obligations

Disclosure of Investor Identities in Activism-Focused Investment Vehicles. CFI 110.09 addresses a common activist investment vehicle structure: an entity, such as a limited partnership, formed to raise capital to acquire securities of a specific, identified issuer and engage in an activism campaign at that issuer, where prospective investors are informed in advance of both the purpose and the target. The Staff confirmed that under these circumstances, Item 3 of Schedule 13D requires disclosure of the identities of the entity’s investors. Item 3 mandates disclosure of the names of the parties to any transaction by which the purchase funds were “obtained for the purpose of acquiring, holding, trading or voting the securities,” and funds raised for a specifically targeted activist campaign fall squarely within that requirement.⁴ Notably, this is not a full “look through” requirement. The CFI does not go so far as to require that the full scope of Items 2–6 information be disclosed for non-controlling investors not specified in Instruction C; only the identities of such investors must be provided.⁵

Instruction C Does Not Limit Items 2-6 Disclosure. CFI 110.10 clarifies the relationship between Instruction C to Schedule 13D and the information required by Items 2-6 when the reporting person is a non-natural person. The Staff confirmed that Instruction C does not limit the required disclosure solely to information about the persons listed in that instruction. Rather, Instruction C identifies persons and entities for which disclosure must be provided in addition to the reporting person itself, citing CNW Corp. v. Japonica Partners, L.P.⁶ For example, if the reporting person is a limited partnership, Items 2-6 information must be provided for the partnership itself, in addition to each general partner and any partner functioning as a general partner, and each person controlling such partner. This has the effect of clarifying that, for reporting entities of the type described in CFI 110.09, Instruction C requires investor identities to be disclosed for investors in the reporting entity itself, not just in the controlling entities.

What This Means for Market Participants

• CFIs 105.08, 105.09, and 105.10. These three CFIs provide meaningful clarity for swap counterparties and investors that use TRSs for economic exposure to equity securities. The Staff’s confirmation that a cash-settled Standard TRS does not, standing alone, trigger beneficial ownership or constitute evidence of evasion provides a firm analytical baseline. At the same time, the guidance underscores that a side arrangement, whether formal or informal, regarding voting of hedge securities or prearranged future acquisition could cause the TRS purchaser to be deemed a beneficial owner of the relevant reference securities. The Staff’s recklessness standard is particularly significant, as, in order to establish intent, it does not require actual knowledge that use of the TRS would create the false appearance of a purely economic interest. Swap counterparties should review International Swaps and Derivatives Association (ISDA) documentation and internal policies to ensure appropriate representations, covenants, and information barriers are in place, and investors should carefully document the bona fide economic purpose of any TRS position.
• CFI 110.09. This CFI has immediate implications for activist fund sponsors and their investors. Where investors were informed of the target and purpose before investing in a campaign-specific vehicle that must file a Schedule 13D, sponsors should anticipate public Item 3 disclosure of the identities of its immediate investors, including limited partners. This should be addressed clearly at the fundraising stage, including in offering materials, subscription agreements, and side letters.
• CFI 110.10. This CFI reinforces the breadth of Schedule 13D’s disclosure regime for complex organizational structures. All non-natural person filers should review their filings to ensure that the relevant substantive disclosures (including investor identities) are made for the reporting entity itself (not merely the entities specified in Instruction C), and extends through other relevant entities in the chain of control.
  
  

Next Steps

Market participants, including activist investors, hedge funds, swap counterparties, and their advisors, should review their existing swap documentation, compliance policies, and Schedule 13D disclosure practices in light of the new CFIs. In particular:

• Swap counterparties should consider whether their ISDA documentation and internal policies adequately address the Staff’s distinction between pure economic exposure and arrangements that could result in deemed beneficial ownership.
• Activist investors and their sponsors should assess the implications of the Item 3 investor identity disclosure requirement for fundraising and investment vehicle structuring.
• Non-natural person Schedule 13D filers should review their Items 2-6 disclosure and consider whether correction or amendment is appropriate.
  
  

For further information, clarity, or assistance evaluating the implications of the new beneficial ownership guidance, please reach out to the authors of this article or to your regular Lowenstein Sandler contact.

¹ SEC Division of Corporation Finance, Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting, Corporation Finance Interpretations (updated July 9, 2026), available here.
² Standard TRS’s arrangements, though not conferring beneficial ownership, are nevertheless required to be disclosed in Item 6 of Schedule 13D.  In 2023 the SEC declined to adopt proposed Rule 13d-3(e), which would have deemed certain holders of cash-settled derivatives beneficial owners, but amended Item 6 of Schedule 13D to require expressly disclosure of relevant cash-settled derivative contracts, arrangements, understandings, and relationships.
³ 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.
⁴ The Staff took a consistent position in the proxy rules context. New CFI 155.02 (under Proxy Rules and Schedules 14A/C) confirms that investors contributing more than $500 to an entity formed to fund a proxy solicitation to change the composition of a specific registrant’s board, where investors are informed in advance of the target and purpose, fall within the definition of “participants” under Instructions 3(a)(iv) to Items 4 and 5 of Schedule 14A. As a result, such investors’ identities and required biographical and security holdings disclosures must be included in the proxy statement’s participant disclosures. See SEC Division of Corporate Finance, Proxy Rules and Schedules 14A/C, Corporation Finance Interpretations (updated July 9, 2026), available here.
⁵ Note, however, that the disclosures required for such investors under new CFI 155.02 as “participants” in proxy solicitations are potentially much broader.
⁶ See CNW Corp. v. Japonica Partners, L.P., 874 F.2d 193, 200 (3d Cir. 1989) (finding that Instruction C to Schedule 13D “stipulate[s] the entities and persons, in addition to the filer, with respect to whom the information required by each item must be supplied when the filer is not a natural person”).