On February 25, 2022, the Securities and Exchange Commission (SEC) proposed Rule 13f-2 under the Securities Exchange Act of 1934 (the Exchange Act) and the corresponding Form SHO, which, if adopted, would require institutional investment managers with large short positions to file a confidential monthly report with the SEC detailing the manager's month-end short positions in equity securities and certain related daily transaction activity.1 As set forth in the proposed rule, "[t]he Commission plans to publish only aggregated [and anonymized] data derived from information provided in Form SHO reports."2 Managers would be required to report their positions and activity within 14 days after month end, and the SEC will report the aggregated data approximately 30 days after month end.

The SEC believes the short sale–related information to be collected and published by the SEC under the proposed rule would fill an information gap for regulators and market participants by providing insights into how short positions change over time. The SEC emphasized that, in designing the proposed rule, it sought to balance the benefits of greater transparency with the potential negative impacts on short selling and thus market liquidity and pricing efficiency.

Notably, the proposed rule was approved unanimously by the SEC commissioners, garnering the support of Commissioner Hester Peirce, who has voted against many other recent SEC rulemaking proposals.

Although the SEC plans to publish aggregated, anonymized data collected from managers, the SEC is also seeking comments on potential alternatives, including publication of anonymized manager-level (rather than aggregated) Form SHO data, publication of short sale data collected via CAT, or publication of additional short interest information by FINRA.

Comments on the proposal, including comments on the alternative proposal and approaches, are due on or before April 26, 2022 (or the date that is 30 days after the date of publication of the proposal in the Federal Register, if later).

Proposed Rule 13f-2 and Proposed Form SHO

1. Who is required to file monthly reports under proposed Rule 13f-2?

Proposed Rule 13f-2 would apply to all "institutional investment managers" (as defined by existing Section 13(f)(6)(A) of the Exchange Act) exercising investment discretion over short positions meeting certain specified thresholds (described below). The term "institutional investment manager" is very broad and not limited to registered investment advisers. The term includes (i) any natural person or entity that exercises investment discretion over any other person's account and (ii) any entity that buys and sells securities for its own account. As the Proposing Release recognizes, the term "institutional investment manager" typically can include investment advisers, banks, insurance companies, broker-dealers, pension funds and corporations.3

The universe of investment managers to which the rule applies would include many managers that are Form 13F filers if those managers have any short positions in excess of the thresholds. The proposed rule, however, would extend to many investment managers that are not Form 13F filers given the different reporting thresholds.

The proposed rule seeks to limit duplicative reporting by providing that, where more than one manager with a reporting obligation has discretion over the same reportable position, only one manager would report the details, and the other would cross-reference the reporting manager on the cover page of the Form SHO report, in the same manner as for Form 13F.

2. What short positions would trigger the reporting requirement?

Institutional investment managers that have investment discretion over accounts that individually or collectively meet either of the following thresholds would be required to file Form SHO with the SEC:

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Footnotes

1 Short Position and Short Activity Reporting by Institutional Managers, Exch. Act Rel. No. 94313 (Feb. 25, 2022) ("Proposing Release") available at https://www.sec.gov/rules/proposed/2022/34-94313.pdf.

2 Proposing Release at 210.

3 See Proposing Release at fn. 15.

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