On October 13, 2023, the Securities and Exchange Commission adopted new Rule 13f-2 (Release No. 34-98738) and related Form SHO and an amendment to the national market system plan governing the consolidated audit trail to provide greater transparency to investors and other market participants by increasing the public availability of short sale-related data.
Rule 13f-2 and Form SHO
Rule 13f-2 will require institutional investment managers (“Managers”) to file a Form SHO report via the Commission’s EDGAR system within 14 calendar days after the end of each calendar month with regard to:
– Each equity security that is of a class of securities that is registered pursuant to Section 12 of the Exchange Act or for which the issuer of that class of securities is required to file reports pursuant to Section 15(d) of the Exchange Act (“Reporting Company Issuer”) over which the Manager and all accounts over which the Manager (or any person under the Manager’s control) has investment discretion with respect to either: (1) a monthly average gross short position at the close of regular trading hours in the equity security with a U.S. dollar value of $10 million or more; or (2) a monthly average gross short position at the close of regular trading hours as a percentage of shares outstanding in the equity security of 2.5 percent or more; and
– Each equity security that is of a class of securities of an issuer that is not a Reporting Company Issuer over which the Manager and all accounts over which the Manager (or any person under the Manager’s control) has investment discretion with respect to a gross short position in the equity security with a U.S. dollar value of $500,000 or more at the close of regular trading hours on any settlement date during the calendar month.
For purposes of Rule 13f-2, the term equity securities has the same definition as provided in Section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder. This scope of securities includes both exchange-listed and OTC equity securities and ETFs. (Fixed income securities are not subject to reporting on Form SHO.) The SEC notes that this definition makes the scope of Rule 13f-2 consistent with that of Rule 200(a) of Regulation SHO and covers equity securities of both private and public companies. This is a significant expansion of the securities currently reported on Schedule 13F, and encompasses even private companies that are not required to make filings with the SEC.
For each reported equity security, a Manager will be required to report on Form SHO certain information, including:
– The Manager’s end-of-month gross short position in the equity security at the close of regular trading hours on the last settlement date of the calendar month; and
– For each individual settlement date during the calendar month, the Manager’s “net” activity in the reported equity security, which includes activity in derivatives, such as options.
The SEC will then publish, through EDGAR, and on a slightly delayed basis, certain aggregated short sale related information regarding each equity security reported by Managers on Form SHO, including, for example:
– As an aggregated number of shares across all reporting Managers, the Managers’ gross short position in the reported equity security at the close of regular trading hours on the last settlement date of the calendar month, as well as the corresponding dollar value of that reported gross short
– For each settlement date during the calendar month, the “net” activity in the reported equity security, as aggregated across all reporting Managers.
Amendment to the Consolidated Audit Trail (“CAT”) National Market System Plan (“NMS Plan”)
The amendment to the CAT NMS Plan will require CAT reporting firms to report to the CAT, for the original receipt or origination of an order to sell an equity security, whether the order is a short sale effected by a market maker in connection with bona fide market making activities in the equity security for which the bona fide market making exception in Rule 203(b)(2)(iii) of Regulation SHO is claimed.
Effective and Compliance Dates
Rule 13f-2, Form SHO, and the amendment to the CAT NMS Plan will become effective on January 2, 2024. The compliance date for Rule 13f-2 and Form SHO is January 2, 2025 – with public aggregated reporting to follow beginning in April 2025. The compliance date for the amendment to the CAT NMS Plan is July 2, 2025.
The full text of SEC Release No. 34-98738 is available at https://www.sec.gov/files/rules/final/2023/34-98738.pdf