U.S. Short Reporting

SEC Short Disclosure Reporting, formally called 13F-2 or Form SHO, comes into effect in January 2025. The disclosure deadline is 14 calendar days after the end of the month and XML is the mechanism of reporting via the SEC EDGAR system. Disclosures are confidential in nature and the SEC will only publish aggregated figures across different managers. SEC may revise, clarify or update certain information relating to the disclosure requirements so this information is based on our analysis at the moment.

Background

The SEC's establishment of Rule 13f-2 catches managers, including international managers with minimal ties to US jurisdiction and US managers who manage a modest asset base. Unlike Rule 13f-1, which exempts managers from filing a Form 13F unless they exercise discretion over $100 million or more in Section 13(f) securities, Rule 13f-2 offers no such exclusion for managers overseeing equity securities below a certain threshold. Furthermore, institutional investment managers must individually ascertain whether the securities they manage qualify as equity securities according to the definition in Section 3(a)(11) of the Exchange Act and Rule 3a11–1.

To comply with Rule 13f-2, most institutional investment managers involved in short selling must develop procedures to determine if they have surpassed any applicable filing thresholds during the previous month. This involves categorizing global equity securities into Reporting and Non-Reporting Company Issuers and then evaluating if they have exceeded the Rule 13f-2 filing threshold on a per-security basis. For Reporting Company Issuers, the threshold is having control over a monthly average gross short position of $10 million or more, or 2.5 percent or more of the outstanding shares. For Non-Reporting Company Issuers, it is control over a gross short position of $500,000 or more at the end of any settlement day in the prior month. Institutional investment managers have 14 days after a month's end to calculate and file Form SHO with the SEC. The SEC intends to release aggregated short position data from Form SHO filings about 14 days post-filing deadline.

Rule 13f-2 becomes effective on January 2, 2024. However, adherence to Rule 13f-2's reporting requirements is not mandatory until January 2025, with the SEC beginning to publish aggregated short position data under Rule 13f-2 three months thereafter.

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

Who must monitor and report 

Similar to Form 13F, the obligation to file Form SHO extends to institutional investment managers. These are defined under Section 13(f)(6)(A) of the Exchange Act as any entity, other than an individual, that invests or trades securities for itself, or any entity making investment decisions on behalf of another's account. The SEC's Adopting Release clarifies that this encompasses investment advisers managing client assets, including those of investment companies like mutual funds, ETFs, and closed-end funds; banks and trust companies providing investment management services; pension fund managers; and entities such as broker-dealers and insurance companies overseeing corporate or employee investment assets, as well as individuals making investment decisions for others' accounts.

The definition does not mandate that institutional investment managers primarily operate in the US or meet a minimum advisory business size. Almost any domestic entity investing (except individuals investing personally) must calculate thresholds under Rule 13f-2(a)(1) and (2) to ascertain if Form SHO filing is necessary monthly. For foreign institutional investment managers, the SEC's jurisdictional analysis in the Adopting Release indicates that engaging in the US securities markets to the extent of being required to file reports with the Commission is enough to necessitate compliance with Rule 13f-2 for their worldwide operations. In the Final Rule, the Commission states that any domestic conduct is enough to catch a manager, which implies that any manager who uses U.S. mail or instrumentality of interstate commerce in the U.S. is caught.

See here for further discussion on finer points of who is caught, aggregation and duplication 

Securities caught

Rule 13f-2 pertains to equity securities as defined in Section 3(a)(11) of the Exchange Act and Rule 3a11-1. Institutional investment managers are generally required to calculate under Rule 13f-2(a)(1) and (2) for all exchange-listed and over-the-counter stocks, warrants, convertible debts, ADRs, and ETF positions. Contradictory to the wording in Final Rule, SEC has now submitted in a reply during the legal proceedings that only the sales effected in the USA will need to be considered.

While listed options, swaps, and certain derivatives are not typically reportable under Rule 13f-2, the SEC acknowledges that some may qualify as "equity securities" and thus be reportable. Due to potential ambiguities, it is anticipated that the SEC staff will issue further guidance on Rule 13f-2's application to securities that technically fall under the equity security definition in Section 3(a)(11) of the Exchange Act and Rule 3a11-1 but are not usually marked under Regulation SHO before the rule's compliance date.

Regarding ETFs, Form SHO instructions specify that managers must report the ETF's total short position over which they have investment discretion. However, they should not include the ETF's short positions in individual underlying equity securities when calculating the gross short position for each equity security. In other words, a manager's short position in the ETF and their short positions in any underlying equity securities should be accounted for and reported separately, where relevant.

See here for further discussion on securities caught

Thresholds

Threshold	Security	Criteria
A	Shorts in ‘Reporting Issuers’	Average Daily Gross Short Value for the relevant month >= USD $10 million market value  - OR -  >= 2.5% of shares outstanding
B	Shorts in ‘non-Reporting Issuers’	Gross short value on any settlement day during the month >= USD $0.5 million market value

The threshold calculation will be calculated for the equity security and will not take into account derivative securities on that equity security while calculating the initial threshold. However, once the initial threshold is met or exceeded, the derivatives will need to be included in the daily activity to be reported on net basis.

Further discussion of U.S. Short Disclosure Thresholds, Gross vs Net, Monthly and Daily Calculations is available here

Market data difficulties

These reporting requirements bring a whole new set of market data requirements, some of which are not readily available from the data vendors. We will be able to source all this data for our clients as we have an internal Market Data team.

For a detailed look at the market data requirements, click here

Settlements vs Transactions

Another major change is that the current reporting regimes are based on transaction dates as opposed to settlement dates. These reporting requirements on the other hand are based on settlement dates. Consequently, the current clients will need to differentiate settlement vs. trade dates in the files they send us.

The securities which are caught by multiple regimes will have different data reported. E.g. a European security will be monitored and reported based on transaction date in Europe and by settlement dates for U.S.