SEC Proposes Short Sale Disclosure Rules | Practical Law

SEC Proposes Short Sale Disclosure Rules | Practical Law

The SEC proposed new Rule 13f-2 under the Exchange Act and related rule and form amendments to enhance market transparency around short selling.

SEC Proposes Short Sale Disclosure Rules

Practical Law Legal Update w-034-6320 (Approx. 3 pages)

SEC Proposes Short Sale Disclosure Rules

by Practical Law Corporate and Securities
Published on 01 Mar 2022 • USA (National/Federal)
The SEC proposed new Rule 13f-2 under the Exchange Act and related rule and form amendments to enhance market transparency around short selling.
Update: On October 7, 2022, the SEC reopened the comment periods for several rulemaking releases due to a technical error that resulted in the SEC not receiving comments submitted through its online form between June 2021 and August 2022. The SEC's below proposed rule was one of the affected releases. The reopened comment period will remain open for 14 days after the reopening release is published in the Federal Register. For more information, see Legal Update, SEC Reopens Comment Periods for Several Proposed Rules.
On February 25, 2022, the SEC proposed new Rule 13f-2 under the Exchange Act and related rule and form amendments to enhance market transparency regarding short selling.
New Exchange Act Rule 13f-2 would require institutional investment managers to file proposed Form SHO with the SEC through EDGAR in an eXtensible Markup Language (XML) specific to the new form. Managers would have to file the proposed Form SHO within 14 calendar days after the end of each calendar month with regard to each equity security the manager has investment discretion over that meets or exceeds one of two reporting thresholds:
  • Threshold A. Any equity security of a reporting company in which the investment manager meets or exceeds either:
    • a gross short position in the equity security with a value of $10 million USD or more at the close of regular trading hours or any settlement date during the calendar month; or
    • a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5% or more.
  • Threshold B. Any equity security of a non-reporting company in which the manager meets or exceeds a gross short position in the equity security with a value of $500,000 USD or more at the close of regular trading hours or any settlement date during the calendar month.
Proposed Form SHO will include a cover page with basic identifying information and a set of information tables. Information to be disclosed on the proposed form includes:
  • The name of the eligible security.
  • End of month gross short position information (Information Table 1).
  • Daily trading activity that affects a manager's reported gross short position for each settlement date during the calendar month reporting period (Information Table 2).
To supplement the short sale data that would become available to regulators, the SEC is also proposing amendments to Regulation SHO and to the consolidated audit trail (CAT) plan, which would require broker-dealers to collect and submit data on:
  • Purchases to cover short sales.
  • The assertion of Regulation SHO's bona fide market making exceptions.
The comment period on the SEC's proposal will be open for 30 days following publication in the Federal Register or April 26, 2022, whichever is later. In a separate release, the SEC also reopened the comment period on an earlier proposed rule to require reporting of securities lending activities (see Legal Update, SEC Reopens Comment Period on Proposal to Require Reporting of Securities Lending).
For more information on short selling and Regulation SHO, see Practice Note, Short Selling: Regulation and Reporting Requirements.