On 25th February 2022, the Securities and Exchange Commission (SEC) announced proposals 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.

Who will the new rule apply to?

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.

For purposes of Proposed Rule 13f-2, the term “investment discretion” has the same meaning as in Rule 13f-1(b) under the Exchange Act. Rule 13f-1(b)’s definition is comprehensive in that it covers all accounts over which the Manager, or any person under the Manager’s control, has investment discretion.

What is the proposed reporting deadline?

The proposed rule would require institutional money managers that meet or exceed the proposed thresholds, to file Proposed Form SHO with the Commission via EDGAR, within 14 calendar days after the end of each calendar month.

What are the proposed reporting thresholds?

The proposed rule would require institutional money managers to file should the following thresholds be met or exceeded:

  • 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 term “gross short position” would mean the number of shares of the equity security that are held short, without inclusion of any offsetting economic positions, including shares of the equity security or derivatives of such equity security.

What information is required to be reported?

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.

How will the proposed Form SHO be filed?

Proposed Form SHO would be filed with the Commission via EDGAR.

The proposals suggest a manager could use a fillable web form the Commission would provide on EDGAR to input Proposed Form SHO disclosures, which EDGAR would convert to Proposed Form SHO-specific XML, or, alternatively, a Manager could use its own software tool to file Proposed Form SHO to EDGAR directly in Proposed Form SHO-specific XML.

How will the data received be processed?

The Commission would aggregate the resulting data by security and publicly disseminate this data to all investors. This new data would supplement the short sale data that is currently publicly available from FINRA and stock exchanges.

Will the reported data be confidential?

Yes. Certain data, including the identities of such managers and individual short positions, would remain confidential.
The Commission would publish:

  • 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.

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