Alert June 14, 2011

SEC Readopts Existing Section 13 and 16 Beneficial Ownership Rules to Clarify Their Continuing Application to Security-Based Swaps in Light of New SEC Rulemaking Powers under Dodd-Frank

The SEC readopted without change relevant portions of Rules 13d-3 and 16a-1 under the Securities Exchange Act of 1934 (the “1934 Act”) in order to preserve the status quo regarding their application to persons who buy or sell security-based swaps once Section 13(o) of the 1934 Act added by the Dodd-Frank Act becomes effective on July 16, 2011.  Section 13(o) provides that “[f]or purposes of [Section 13 and Section 16 of the 1934 Act], a person shall be deemed to acquire beneficial ownership of an equity security based on the purchase or sale of a security‑based swap, only to the extent that the Commission, by rule, determines after consultation with the prudential regulators and the Secretary of the Treasury, that the purchase or sale of the security-based swap, or class of security-based swap, provides incidents of ownership comparable to direct ownership of the equity security, and that it is necessary to achieve the purposes of this section that the purchase or sale of the security-based swaps, or class of security‑based swap, be deemed the acquisition of beneficial ownership of the equity security.”  The SEC’s action to readopt the existing rule provisions follows consultation with the Secretary of the Treasury, the prudential regulators (consisting of the FRB, the OCC, the Farm Credit Administration, the Federal Housing Finance Agency, and the FDIC) and the CFTC.  The SEC release announcing the readoption states that the SEC staff is engaged in a separate project to develop proposals to modernize reporting under Sections 13(d) and 13(g) of the 1934 Act.