U.S. Short Disclosure Thresholds, Gross vs Net, Monthly and Daily Calculations

Monthly threshold calculation on Gross basis

Institutional investment managers are required to determine the gross short position in a security over which they had investment discretion at the end of regular trading hours on the final settlement date of the calendar month for the reporting period. This calculation, akin to the Reporting Thresholds, excludes any offsetting economic positions such as long positions in the reportable equity security or its derivatives. Additionally, short positions reported by another manager are to be omitted according to the Anti-Duplication instructions, and short positions in an equity security within an ETF are not to be included when calculating a short position in the underlying security (though a short position in the ETF itself may be reportable separately).

Gross short positions should be reported in terms of both the number of shares and the US dollar value. The US dollar value of an equity security is calculated based on the closing price at the end of regular trading hours on the last settlement date of the calendar month, or if unavailable, the price at which the shares were last traded by the institutional investment manager.

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.

‘Gross short’ basis of calculation

The term “gross short position” means the number of shares of the security for which information is being reported that are held short, without the inclusion of any offsetting economic positions - including shares of the reportable equity security or derivatives of such security.

Calculating monthly gross average

A Manager shall determine its gross short position at the close of regular trading hours in the equity security (as defined in Rule 13f-2) on each settlement date during the calendar month and multiply that figure by the closing price at the close of regular trading hours on the settlement date (“end of day dollar value”). The Manager shall then add all end of day dollar values during the calendar month and divide that sum by the number of settlement dates in the month to arrive at a “monthly average” for each equity security the Manager traded during that calendar month reporting period.

Daily activity on Net basis

Once the monthly gross short position in an enquiry security is above the specified threshold, we will need to report Net changes in short activity for each settlement date during the calendar month. This will need to take into account:

• Number of shares bought to cover position on a given settlement date
• Number of shares bought through a call option that reduced or closed the position
• Number of shares sold through a put option that created or increased the position
• Number of shares sold through a call option assignment
• Number of shares acquired through a put option
• Number of shares acquired through convertibles
• Number of shares acquired through secondary offerings
• Number of shares acquired through other instruments such as ETF redemption or creation
• Number of shares sold through other instruments such as ETF redemption or creation

Implications for current file format clients send us

There will be minimum impact for the clients as we will be able to accommodate the new monitoring and reporting requirements with minimal changes to the current file format. The most notable change is that clients will need to differentiate settlement vs. trade dates as all the current reporting regimes are based on transaction dates as opposed to settlement dates

Certain ambiguity which we are well used to

Currently, there is limited information available on interpreting these requirements beyond the standard US context. Regular trading hours are determined by Regulation NMS, Rule 600(b)(77), which indicates that regular trading hours end at 4:00 P.M. Eastern Time. The application of this timing requirement to the entire range of securities encompassed by Rule 13f-2 remains uncertain. Likewise, there is no existing guidance on reporting the notional value of equity securities that are not traded or reported in US dollars, nor on calculating share equivalents for equity securities that do not trade in share form.

This is a major issue when monitoring systems are 'hard coded'. However, we are well used to this ambiguity. Our rules-based monitoring system is dynamic in nature. We expect clarifications and changes from SEC, and these will get reflected in the processing engine immediately and as they become available.

We have dealt with precisely the same issues with other jurisdictions, and it helps to be nimble.