Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC was required to propound rules making certain short sale data available no less frequently than monthly. The SEC recently took steps to implement that directive by publishing Proposed Rule 13f-2 on February 25, 2022, in order to increase the scope of short-sale data available to regulators and the investing public. The SEC believes that the proposed rule would help the SEC reconstruct significant market events and aid it in identifying potentially abusive trading practices.
The proposed rule would require that institutional money managers file certain short sale data with the SEC on a monthly basis, with some of the data being aggregated and made available to the public. Specifically, the proposed rule would require those institutional money managers to file a confidential form, Proposed Form SHO, with the SEC within fourteen (14) calendar days after the end of each month for each security and all amounts that meet or exceed either of the following thresholds:
• 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 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 a monthly average gross short positions 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.
If an institutional money manager meets either of the above thresholds, they must file Proposed Form SHO with the SEC which would include the following information: the name of the eligible security; end of month gross short position information; and daily trading activity that affects a managers reported gross short position for each settlement date during the calendar month of the reporting period. Some of this data would then be aggregated and published for the use of the investing public.
The SEC hopes that by requiring increased disclosure, the new rule will discourage the manipulative or abusive use of short selling information. The proposed rule is not yet law and it remains to be seen if any changes will be made before the rule is finalized.
A complete copy of the SEC’s proposal can be found here: https://www.sec.gov/rules/proposed/2022/34-94313.pdf
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About Dylan B. Weeks
Dylan B. Weeks is an Associate in Faruqi & Faruqi, LLP's New York office. His practice is focused on securities litigation.
Dylan B. Weeks
Associate at Faruqi & Faruqi, LLP
New York office
Tel: (212) 983-9330
Fax: (212) 983-9331