On October 13, 2023, the SEC adopted Rule 13f-2 under the Securities Exchange Act of 1934. The new rule requires certain institutional investment managers to report short position data for equity securities within 14 calendar days of month end by filling out the new Form SHO. The first filing deadline is February 14, 2025.
What entities are within the scope of Rule 13f-2?
The requirements to file Form SHO under Rule 13f-2 are very expansive and may apply to ANY manager with a connection to the US securities markets engaging in short selling of ANY security with equity-like characteristics, including all “institutional investment managers” as defined in the Securities Exchange Act of 1934, as amended.
An “institutional investment manager” is defined in the Securities Exchange Act of 1934 as: "being any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person". This broad definition will capture many managers trading for accounts of others, regardless of registration status with the SEC. There are no minimum AUM exemptions for managers with respect to their obligations under Rule 13f-2.
We wanted to make clear to all our clients that manage less than $100mm in assets that they are required to file Form SHO if they meet the relevant “short position” thresholds set forth below.
What securities are within the scope of Rule 13f-2?
The term “equity securities” is defined broadly and includes securities issued by both public and private companies, as well as securities that are traded exclusively outside of the U.S. In addition to common and preferred stock, securities that are exercisable, convertible, or exchangeable for equity securities are also included. Therefore, the scope for Rule 13f-2 is substantially larger than the definition of “securities” used in Schedule 13F. However, fixed income securities, options, and security-based swaps are not subject to reporting on Form SHO.
What are the reporting thresholds?
If an Institutional Investment Manager trades any equity securities (as defined above) in excess of any of the thresholds set forth below during any calendar month, it must file a Form SHO on a security-by-security basis. The thresholds vary based on whether the equity security subject to the short is of a reporting or non-reporting issuer:
Note: the “gross short position” for either threshold is determined without any netting against long or derivative positions within the same security.
What information needs to be reported?
When a reporting threshold is met with respect to any equity security, a Manager is required to file Form SHO, which consists of two parts: (i) the cover page and (ii) two information tables. The cover page will include information such as the period end date (the last settlement day of the month), the Manager’s name, mailing address, phone number, legal entity identifier, and contact employee.
On information table 1, Managers will have to report information on their gross short position, which includes the settlement date (the last day of the calendar month of the reporting period on which a trade settles), the name of issuer security, the security’s CUSIP number, the number of shares that represent the Manager’s gross short position in the security at the close of trading on the last settlement date of the calendar month, the dollar value of the shares reported, the issuer’s legal entity identifier, and the title of the class of security.
On information table 2, Managers will have to report the daily activity pertaining to their gross short position in a particular security. This includes much of the same information required in table 1, with the addition of the net change in short position in terms of the number of shares, which reflects how the reported gross short position is being closed out or increased as a result of acquiring or selling shares. To calculate the net change in short position, Managers will also have to account for shares of the security that were sold or acquired as a result of an option contract, a conversion, or a secondary offering. Further, while a Manager must account for a gross short position in an ETF, it need not consider short positions that the ETF holds in individual underlying equity securities that are part of the ETF basket.
What will the SEC publish?
While the information disclosed on Form SHO will be subject to a confidential treatment request under SEC Rule 83, the SEC currently plans to publish aggregated short position data within one month after the end of the reporting period. This will include an aggregated gross short position and net change for each settlement date during the calendar month across all Managers for reported equity securities, represented as both a number of shares and dollar value.
If you have any questions about this alert, or any other regulatory matters, do not hesitate to reach out to: David Fitzgerald (Partner) at 212.573.8428 or via email at dfitzgerald@sadis.com or Mark Strefling (Partner) at 212.573.8159 or via email at mstrefling@sadis.com.