The SEC’s Final Rule on Short Position Reporting: Key Compliance Requirements for Institutional Managers

In October 2023, the Securities and Exchange Commission (SEC) introduced Rule 13f-2 and Form SHO, setting a new standard for transparency in short-selling activities by institutional investment managers. The regulation mandates monthly disclosures of certain short positions to enhance market oversight and prevent manipulation. Here’s a comprehensive look at what managers need to know to stay compliant.

Key Reporting Requirements

Institutional investment managers must submit Form SHO via the EDGAR system by the 14th of each month, provided their short positions meet or exceed specific thresholds. The reporting requirements for Form SHO differ based on two key thresholds:

1. Threshold A: Reporting for U.S.-Listed Public Companies (Reporting Company Issuers)
   For equity securities registered under Section 12 of the Securities Exchange Act (i.e., public companies) or for issuers required to report under Section 15(d). Threshold A will require reporting by Managers that have, for each equity security of a reporting company issuer, either

• 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

• 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

2. Threshold B: Reporting for Non-Reporting Companies
   For equity securities of non-reporting issuers. Threshold B will require reporting by Managers that have, for each equity security of a non-reporting company issuer, 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

Detailed Data Reporting Requirements

Under the SEC’s Rule 13f-2, institutional investment managers must provide the following in their Form SHO reports:

• Gross Short Positions: The number of shares of the reported equity security that represent the Managers’ gross short position at the close of the last settlement date of the calendar month reporting period, as well as the corresponding U.S. dollar value of this reported gross short position.

• “Net” Short Sale Activity: For each reported equity security, for each individual settlement date during the calendar month reporting period, a Manager will report “net” activity in the reported equity security. The net activity reported by a Manager will be expressed by a single identified number of shares of the reported equity security, and will reflect offsetting purchase and sale activity by Managers.

• Security-Specific Information: Managers must also provide specific details about the equity securities involved, including issuer name, CUSIP, and other identifiers​

Public Data Aggregation

The SEC plans to aggregate the reported data and make it available to the public via EDGAR. While individual manager details remain confidential, the publication of aggregate data will allow market participants and regulators to observe short-selling trends and potential market risks​

Compliance Deadlines

The final rule will go into effect 60 days after its publication in the Federal Register, with institutional managers required to comply 12 months after the rule becomes effective. January 2, 2025, is the first compliance date, with the first filings being due by February 14th, 2025.

Need Help? We’ve Got You Covered

If compliance with Rule 13f-2 and Form SHO feels overwhelming, don’t worry – ACN is here to help. We specialize in making EDGAR easy for you. Let us take the stress out of your filing.

Conclusion

The SEC’s Rule 13f-2 and Form SHO significantly increase the transparency of short-selling activities by institutional managers. To comply, managers need to carefully monitor their short positions and report them on a monthly basis. The rule not only aims to prevent market manipulation but also enhances market fairness by making aggregated short position data available to the public. Institutional managers should begin preparing now to ensure that they meet the compliance deadlines and avoid any potential penalties.