A new rule adopted by the Securities and Exchange Commission is aimed at providing greater transparency about short selling to investors and other market participants.
The SEC announced that it has approved Rule 13f-2 as part of an effort to make short sale related data more available to the public. A short sale is the sale of a security that the seller does not own or that the seller owns but does not deliver. In order to deliver the security to the purchaser, the short seller will borrow the security, typically from a broker-dealer or an institutional investor.
After the 2008 financial crisis, Congress directed the SEC in Section 929X of the Dodd-Frank Act of 2010 to pass rules that would make certain short sale data publicly available.
“This rule addresses Congress’s mandate and improves upon existing sources of short sale-related data in the equity markets,” said SEC Chair Gary Gensler. “Given past market events, it’s important for the Commission and the public to know more about short sale activity in the equity markets, especially in times of stress or volatility.”
Under Rule 13f-2, investment managers that carry large short positions in equity securities will be required, within two weeks after each month, to report those positions and related short sale activity to the SEC. The threshold for reporting will be met when an investment manager’s short position in a particular equity security of a reporting issuer is at least $10 million or the equivalent of 2.5 percent or more of the total shares outstanding on average during a month. The threshold for reporting short positions of equity securities of nonreporting issuers would be $500,000 on any given settlement day of the month.
Within four weeks after the end of each month, the SEC will make public aggregated, anonymized data about the gross, end-of-month large short positions. It will also publish the net aggregated daily activity data for each settlement day.
Along with the new rule, the commission also adopted an amendment to the National Market System Plan governing the consolidated audit trail (CAT). The amendment will require each CAT reporting firm that is reporting short sales to indicate when it is asserting use of the bona fide market making exception in Rule 203(b)(2)(iii) of Regulation SHO.
The adopting release for Rule 13f-2 and the amendment to the CAT NMS Plan will be published in the Federal Register. The final rule, Form SHO, and the amendment to the CAT NMS Plan will take effect 60 days after publication.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. When it comes to regulatory compliance and enforcement matters, our attorneys have dealt with a wide range of investigations and enforcement actions. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
