Progress bar
Insight

SEC proposes short sale disclosure rule

Insight 7 March 2022

SEC proposes short sale disclosure rule

Continuing with its quick pace of proposed rule amendments for the private funds industry, the Securities and Exchange Commission (“SEC” or “Commission”) announced on February 25, 2022, enhancements to the short sale disclosure rules.

New Exchange Act Rule 13f-2 and Form SHO would require certain private fund managers to report short sale related information to the SEC every month. The SEC would then make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.

In addition to helping Congress fulfill its mandate under Section 13(f)(2) of the Securities Exchange Act, the data would be useful in reconstructing significant market events and identifying potentially abusive trading practices, including short squeezes.

This would provide the public and market participants with more visibility into the behavior of large short sellers. The raw data reporting to the SEC on a new Form SHO would help us better oversee the markets and understand the role short selling may play in market events. It’s important for the public and the Commission to know more about this important market, especially in times of stress or volatility.”

Gary Gensler
SEC Chair

The proposed rule would require institutional money managers to file confidential Proposed Form SHO with the SEC using the EDGAR system 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 the stated thresholds. On Form SHO, managers would be required to include (1) the name of the eligible security; (2) the end of month gross short position information; and (3) the daily trading activity that will affect the reported gross short position for each settlement date during the calendar month reporting period. The SEC would then aggregate the data into a single report and make it publicly available to enable visibility into the large short sellers’ moves each month.

To supplement the short sale data available to regulators, the SEC proposed a new provision of Regulation SHO under the Exchange Act – Proposed Rule 205 – as well as amendments to the consolidated audit trail plan. Broker-dealers would be required to collect and submit additional data on purchases to cover short sales. The data would provide the SEC with greater visibility into market activity related to short selling.

What’s next?

The proposal will not become a new rule until after a 60-day comment period and a vote to adopt the final rule. What is becoming more apparent is that the SEC is following in the footsteps of European Commission regulators who have been more aggressive in requiring the disclosure of most short positions by traders and investors. Firm’s senior leadership and boards of directors should consider taking note of how the proposed rule could potentially affect their firm and their vendors.

For additional information, or to discuss any of the topics highlighted above, please get in touch with Daryoush or Michael directly.

Let's talk...

Our Expertise
Background image
Daryoush Niknejad General Counsel, North America - Dallas
Card link - Go to a specific page
Background image
Michael Barakat Assistant Director - Dallas
Card link - Go to a specific page
Swiper Scrollbar

Other insights from Daryoush Niknejad

Image
Insight 19 August 2022
SEC proposes amendments to Form PF to enhance private fund reporting
Card link - Go to a specific page
Image
Insight 18 August 2022
SEC proposes new ESG disclosures for investment advisers and investment companies
Card link - Go to a specific page
Image
Insight 31 May 2022
SEC highlights investment adviser MNPI compliance issues
Card link - Go to a specific page