Securities Caught in U.S. 13f2 Short Reporting

We are offering end-to-end position monitoring and filings with SEC, with full automation and provision of market data. Contact us for further details.

The scope of securities includes both exchange-listed and OTC equity securities, including but not limited to shares, preferred shares, preference shares, ETFs, units, warrants, and some 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 need to aggregate with derivative positions for initial (gross) threshold calculations. The exposure gained through instruments such as swaps would not give rise to reporting obligations.

Although, there is a lawsuit pending against the disclosure rule, SEC has published the file formats, and the reporting is set to come into effect from January 2025. See our comments on the lawsuit here

Foreign issuers

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

Contradictory to the wording in the Final Rule, SEC have confirmed in a reply during the lawsuit proceedings that the rule will only cover the sales effected in the USA.

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. The rest, particularly those trading on the OTC markets will be subject to Threshold B, which is the lower of the two.

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.

Most derivatives themselves will be out of scope for primary monitoring consideration. Please contact us if you wish to understand more.

How we can help

This is the most complicated monitoring and reporting regime that we have seen and poses challenges across the monitor and report workflow. In our opinion, this is a monitoring challenge, and the actual reporting is a minor part of it. A lot of the market data points required are either not readily available or require extensive system and operational investment.

We will be able to source all market data internally, or allow clients to plug in their own data. We will monitor the portfolio, evaluate all positions as per rules, prepare reports, get user approval, lodge the filings with EDGAR and confirm back to you.

However, our implementation focus is our existing clients who use our service for Global Monitoring and Reporting. If you are interested in onboarding, we strongly suggest that you engage today. We will not be able to onboard clients closer to the deadline due to the complexity of the implementation.

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