Securities Caught in U.S. 13f2 Short Reporting

The scope of securities includes both exchange-listed and OTC equity securities, including but not limited to ETFs, certain derivatives, options, warrants, and other convertibles.

The Reporting Thresholds in Rule 13f-2 are based on the Manager’s gross short position in the equity security itself and do not consider derivative positions. Consequently, the exposure gained through instruments such as swaps would not give rise to reporting obligations.

There is a lawsuit pending against the disclosure rule. See our comments here

Foreign issuers

Once a manager is obligated to file with the SEC, all their foreign shorts may be caught by the reporting, subject to thresholds and the scope of instruments. Consequently, the effect is that lower thresholds will apply to many foreign issuers (which are non-reporting issuers to the SEC) rather than the US public companies.

As there is considerable uncertainty on this subject, we have prepared a separate note on the ‘non-U.S. issuers’ that can be provided upon request.

ADRs

The most common foreign issued securities would be the ADRs. These are generally subject to SEC reporting, and likewise will be subject to Threshold A. We are still analysing which threshold will apply if a reporting exemption has been granted to the issuer.

‘Is this Foreign Instrument an Equity?’

As a foreign country may treat a certain instrument as an Equity or non-equity, different from how the SEC defines it, for some instrument types that determination may need to be made.

E.g. The Exchange Act notes a ‘security future’ as an Equity but if you trade a future in a foreign country, they may classify it as a derivative instrument. However, for the purposes of 13f-2 reporting, it should be treated as an Equity instrument.

Taking this example further, if you short an OTC equity future in an Australian company, that will not be reportable in Australia as that jurisdiction only catches cash shorts for disclosures. However, that position may become reportable in the United States, subject to Threshold B.

Dual listed securities

If the same class has been traded across multiple jurisdictions or exchanges, those positions will need to be aggregated. This is particularly true for Dual listed securities. This would also be true for ADRs and their underlying names trading in their home countries. Market values across jurisdictions will need to be converted into USD and aggregated.

Derivatives

Managers do not have to account for economic exposure to an underlying equity security created through the use of equity derivatives when calculating the reporting thresholds for reporting short sales of that underlying equity security. However, once a Manager meets or exceeds a reporting threshold for an underlying equity security, the Manager will then be required to report certain short activity for each settlement date during the reporting calendar month, and that disclosure will take into account activity in options, tendered conversions, secondary offering transactions, and other equity derivatives or activity that might affect the reported short positions on Form SHO.