The International Swaps and Derivatives Association, Inc. (ISDA) jointly with the Securities Industry and Financial Markets Association (SIFMA), today announced that they have filed an amicus brief in the Southern District of New York supporting The Children’s Investment Fund (TCIF, the Defendant) in a case arising out of cash-settled total return equity swap contracts referencing CSX Corporation (CSX, the Plaintiff) shares. The legal question presented is the standard for determining when a person is a "beneficial owner" of a security within the meaning of Section 13 of the Securities Exchange Act of 1934.
ISDA and SIFMA have come before the District Court as amici curiae (friends of the court) because a ruling imposing "beneficial ownership" on a long party in a swap contract in which its counterparty hedges its swap exposure by acquiring the referenced shares would be counter to the plain meaning of Section 13 and its implementing rules, all applicable precedent interpreting beneficial ownership, Congress’s clear intent and market participants’ long-held understanding and expectations. Such a ruling would create substantial uncertainties in the securities and derivatives markets and could chill legitimate and desirable commercial activity.
The amicus brief, filed on behalf of ISDA and SIFMA by Cleary Gottlieb Steen & Hamilton LLP, should be of assistance to the Court in deciding the issues before it, given both the critical importance of the legal issues presented and the potentially vast negative consequences of an adverse decision. The trial concluded on May 22 and a ruling is expected by June 12.