UNITED STATES: SEC Proposes Short Sale Disclosure Rule

Monday February 28 2022

The Securities and Exchange Commission has announced that it has voted to propose changes that would provide greater transparency to investors and regulators by increasing the public availability of short sale related data. New Exchange Act Rule 13f-2 and the corresponding Form SHO would require certain institutional investment managers to report short sale related information to the Commission on a monthly basis. The Commission then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.

Specifically, Rule 13f-2 would require institutional investment managers exercising investment discretion over short positions meeting specified thresholds to report on the Proposed Form SHO information relating to end-of-the-month short positions and certain daily activity affecting such short positions. The Commission would aggregate the resulting data by security, thereby maintaining the confidentiality of the reporting managers, and publicly disseminated the data to all investors. This new data would supplement the short sale data that is currently publicly available from FINRA and stock exchanges.

The proposed rule would require institutional money managers to file confidential Proposed Form SHO with the Commission via EDGAR, within 14 calendar days after the end of each calendar month, with regard to each equity security and all accounts over which the manager meets or exceeds either of the following thresholds:

• For any equity security of an issuer that is registered pursuant to Section 12 of the Exchange Act or for which the issuer is required to file reports pursuant to section 15(d) of the Exchange Act in which the manager meets or exceeds either (1) a gross short position in the equity security with a US dollar value of $10 million or more at the close of any settlement date during the calendar month, or (2) a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5 percent or more; or
• For any equity security of an issuer that is not a reporting company issuer as described above in which the manager meets or exceeds a gross short position in the equity security with a US dollar value of $500,000 or more at the close of any settlement date during the calendar month.

The information a manager would report includes:

• The name of the eligible security;
• End of month gross short position information;
• Daily trading activity that affects a manager’s reported gross short position for each settlement date during the calendar month reporting period.

The Commission would publish, based on information reported in Proposed Form SHO:

• The issuer’s name and other identifying information related to the issuer;
• The aggregated gross short position across all reporting managers in the reported security at the close of the last settlement date of the calendar month of the reporting period, as well as the corresponding dollar value of this reported gross short position;
• The percentage of the reported aggregate gross short position that is reported as being fully hedged, partially hedged, or not hedged; and
• For each reported settlement date during the calendar month reporting period, the “net” activity in the reported security, as aggregated across all reporting managers, within 14 business days of the calendar-month-end reporting deadline.

The Commission also voted to propose a new provision of Regulation SHO, Rule 205, which would establish a new “buy to cover” order marking requirement for broker-dealers. Regulation SHO, which is the Commission’s primary short selling regulation, requires broker-dealers to identify each sale order that it effects as either “long,” “short,” or “short-exempt,” but it does not currently have a corresponding requirement for purchase orders. Proposed Rule 205 would require a broker-dealer to mark a purchase order as “buy to cover” if the purchaser has any short position in the same security at the time the purchase order is entered. This information will be especially useful to the Commission in reconstructing significant market events and identifying potentially abusive trading practices including short squeezes.

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