On January 23, 2026, the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission issued a letter in which it stated it would not object if a large investment bank (the “Bank”) determines that it does not act “as a group” for purposes of Sections 13(d) and 13(g) under the Securities Exchange Act of 1934 with institutional investor counterparties by virtue of entering into certain over-the-counter derivative contracts in the ordinary course of business.
Background
The Bank routinely enters into derivative contracts on equity securities with counterparties for reasons that “include hedging price, market and other economic risks, achieving indirect or synthetic exposure to particular assets or facilitating proprietary or customer-facing trading activities.” The Bank expressly retains sole discretion over its related hedging activity, and a counterparty has no right to control any hedging activity or influence the voting or disposition of any securities the Bank may acquire.
Analysis Regarding Section 13(d) and Section 13(g) Groups
The Exchange Act mandates that any “person” who acquires beneficial ownership of more than 5% of a class of registered equity securities must report such ownership to the SEC. In addition, when two or more persons act together for the purpose of “acquiring, holding, or disposing” of securities of an issuer, such “group” shall be a single “person,” and must jointly report beneficial ownership.
The Staff’s position, and accompanying analysis, is consistent with how it has historically approached the question of whether a “group” exists for these purposes. Specifically, the SEC has focused on whether parties are working together toward a common purpose and facts that may suggest the same. As discussed in greater detail in the letter, the Bank’s independence, including with respect to its hedging activities, remain key factors to avoid classification as a “group” with a counterparty.
Implications for Market Participants
The Staff’s guidance is helpful to market participants. In particular, the guidance is likely to ease concerns with respect to counterparties that may hold (or acquire) beneficial ownership in excess of the 10% threshold during the duration of a contract, including Section 16 reporting and short-swing profit rules.
Read the letter here.
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