The U.S. Securities and Exchange Commission (SEC) has adopted new rules requiring certain institutional investment managers to report short sale related information on a monthly basis.
The regulator also adopted a separate rule requiring additional disclosure related to the lending of securities, which will could also impact short selling activity.
Under the new Rule 13f-2, money managers with a monthly average of daily gross short positions in a U.S.-listed public company of $10 million or more, or a median dollar value of a position of 2.5% of shares outstanding, will have to report short position data and short activity data on Form SHO.
For money managers taking short position in smaller non-reporting companies traded on the over the counter (OTC) market, the threshold is a $500,000 average daily gross short position or a median dollar value of a position of 2.5% of market capitalization.
“Today’s adoption will promote greater transparency about short selling both to regulators and the public,” said SEC Chair Gary Gensler in an accompanying press release. “Given past market events, it’s important for the Commission and the public to know more about short sale activity in the equity markets, especially in times of stress or volatility.”
The SEC says it will aggregate the resulting data by individual security, thus maintaining the confidentiality of the reporting managers, and publicly disseminate the aggregated data via EDGAR on a delayed basis.
The SEC also adopted an amendment to require Consolidated Audit Trail (CAT) reporting firms to provide additional information on market making activities related to short sales.
Under newly adopted Rule 10c-1a requires certain entities, such as banks, clearing agencies, brokers, or dealer that acts as an intermediary to a loan of securities, to report information about securities loans to a registered national securities association (RNSA). The RNSAs will then be required to make publicly available certain information that they receive regarding those lending transactions.
“Securities lending played a role in the 2008 financial crisis, and, currently, the securities lending market is opaque,” stated Gensler, adding “today’s adoption will promote greater transparency in the securities lending markets both to regulators and the public.”
The SEC noted that hedge funds rank among the largest securities borrowers of securities, and in many cases such securities are used by investors taking short positions in listed companies.
The new rules will become effective 60 days following the date of publication of the adopting release in the Federal Register, the SEC stated.