Tuesday, March 15. 2022
SEC Announces Proposed Short Sale Disclosure Rule, Order Marking Requirement, and CAT Amendments and Reopens Comment Period for Proposed Rule 10c-1
Short Position and Short Activity Reporting by Institutional Investment Managers
The proposed rule and related form are designed to implement the following changes:
- provide greater transparency through the publication of short sale related data to investors and other market participants
- institutional money managers that meet or exceed a specified reporting threshold would be required to report via EDGAR, on a monthly basis using the proposed form, specified short position data and short activity data for equity securities
Further details on the proposed rules and amendments are available on the SEC’s Enhancing Short Sale Disclosure fact sheet on sec.gov.
The public may submit feedback on matters related to the Proposal during the comment period which will remain open for 30 days after publication in the Federal Register. For more information on the comment period and instructions on how to respond, see the Proposed Rule on the SEC’s website. The proposal will be published on the SEC’s website and in the Federal Register.
Additionally, the SEC is proposing a new rule amendment to the national market system plan governing the consolidated audit trail (CAT) to require the reporting of “buy to cover” order marking information and dependence on the bona fide market making exception in the SEC’s short sale rules. The proposed amendments also include a provision that would require each CAT reporting firm to indicate where it is asserting use of the bona fide market making exception under Regulation SHO.
The public may submit feedback on matters related to the Proposal during the comment period, which will remain open for 30 days after publication in the Federal Register. For more information on the comment period and instructions on how to respond, see the Proposed Rule on the SEC’s website. The proposal will be published on the SEC’s website and in the Federal Register.
Proposed Form SHO
Should the proposed rule is approved, institutional money managers would be required to file confidential Proposed Form SHO with the SEC via EDGAR within 14 calendar days after the end of each calendar month. This would pertain to each equity security and all accounts over which the manager meets or exceeds 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 must file reports pursuant to section 15(d) of the Exchange Act in which the manager meets or exceeds either (1) a gross short position in the equity security valued at $10 million USD or more at the close of any settlement date during the calendar month, or (2) a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5% or more
- For any equity security of an issuer that is not a reporting company issuer in which the manager meets or exceeds a gross short position in the equity security valued at $500,000 USD or more at the close of any settlement date during the calendar month
A manager would now be required to report the following information:
- the name of the eligible security
- the end-of-month gross short position information
- daily trading activity that affects a manager’s reported gross short position for each settlement date during the calendar month reporting period
In accordance with information reported in Proposed Form SHO, the SEC would publish the following:
- the issuer’s name and identifying information related to the issuer;
- the aggregated gross short position across all reporting managers in the reported security at the close of the last settlement date of the calendar month of the reporting period, as well as the corresponding dollar value of this reported gross short position;
- the percentage of the reported aggregate gross short position that is reported as being fully hedged, partially hedged, or not hedged; and
- for each reported settlement date during the calendar month reporting period, the “net” activity in the reported security, as aggregated across all reporting managers within 14 business days of the calendar-month-end reporting deadline.
The proposal suggests From SHO would be submitted to EDGAR in a structured data format, such as XML.
Reopening of Comment Period for Reporting of Securities Loans
The SEC announced that it has also reopened the comment period for proposed Rule 10c-1 under the Exchange Act, regarding the reporting of securities loans. The proposal was initially issued on November 18, 2021 with a comment period that ended January 7, 2022. The SEC is reopening the comment period for the proposed rule in consideration of the proposed rule concerning short sale disclosure. The SEC is requesting feedback regarding the potential impact of the proposed short sale disclosure rule that the SEC should consider when determining whether to adopt the proposed rule regarding the reporting of securities loans.
This proposed rule is intended to enhance the transparency and efficiency of the securities lending market by requiring a person that loans a security on behalf of itself or another person to disclose both the material terms of those securities lending transactions and related information concerning the securities the person has on loan and available to loan to a registered national securities association.
Interested parties may respond to the proposal’s reopening on or by April 1, 2022. For specific information on the comment period and instructions on how to submit feedback, see the Proposed Rule on the SEC’s website.