The Securities and Exchange Commission (the “SEC”) recently proposed new Rule 13f-2 (the “Proposed Rule”)1 under Section 13(f)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”), as well as related Form SHO.2 Under the Proposed Rule, an institutional investment manager3 (each, a “Manager”) that meets or exceeds one of the applicable Reporting Thresholds (as defined below) would be required to report specified short position data and short activity data for equity securities electronically on Form SHO on a monthly basis. The release indicates that the Proposed Rule and related Form SHO are intended to: (i) provide greater transparency through the publication of short sale related data to investors and other market participants; and (ii) bolster the SEC’s oversight of short selling activity and deter manipulative short selling conduct.
Reporting Thresholds and Proposed Initial Filing Deadlines
The Proposed Rule would require a Manager to file a report on Form SHO for each equity security in accounts over which the Manager has investment discretion4 if such position meets or exceeds one of the applicable Reporting Thresholds. Specifically, a Manager would be required to file on Form SHO with regard to:
(1) each equity security of an issuer that is registered under Section 12 of the Exchange Act or for which the issuer is required to file reports pursuant to Section 15(d) of the Exchange Act (a “Reporting Company Issuer”) in which the Manager meets or exceeds either: (i) a gross short position5 in the equity security with a U.S. dollar value of $10 million or more at the close of regular trading hours6 on any settlement date during a calendar month; or (ii) a 2.5% or higher monthly average gross short position as a percentage of shares outstanding in the equity security (“Threshold A”); and
(2) each equity security of an issuer that is not a Reporting Company Issuer in which the Manager meets or exceeds a gross short position in the equity security with a U.S. dollar value of $500,000 or more at the close of regular trading hours on any settlement date during a calendar month (“Threshold B”, and together with Threshold B, the “Reporting Thresholds”).
Each Manager would be required to make Form SHO filings on EDGAR within 14 calendar days after the end of the calendar month in which the Manager meets or exceeds a Reporting Threshold. The release indicates that such filings would not be publicly-accessible; however, the SEC proposes to publish aggregated information derived from the data reported on Form SHO by all reporting Managers in respect of the particular equity security within one month after the end of the reporting calendar month.7 The release seeks comment on an alternative approach in which each Manager’s Form SHO filings are made publicly-available (excluding the Manager’s name and other identifying information) without the information being aggregated with other reporting Managers.
Amendment Obligations
The Proposed Rule requires a Manager who has previously filed on Form SHO to file an amendment within 10 calendar days if the Manager determines or is made aware that it has filed a Form SHO with errors that affect the accuracy of the information contained therein. Any such amendments would restate the prior filed Form SHO in its entirety and the Manager would be required to: (i) provide a description of the revision being made; (ii) explain the reason for the revision; and (iii) indicate whether data from any additional Form SHO reporting period(s) (up to the last 12 calendar months) is affected by the amendment.
If a revision reported in an amended and restated Form SHO changes a data point reported in the Form SHO that is being amended by 25% or more, the Manager would also be required to notify the SEC staff via the Office of Interpretation and Guidance of the Division of Trading and Markets (“TM OIG”) at TradingAndMarkets@sec.gov within 2 business days after filing the Form SHO amendment. Further, regardless of the scope of the revision being reported, if the data being reported in a Form SHO amendment affects the data reported on the Form SHO reports filed for multiple Form SHO reporting periods, the Manager would, within two (2) business days after filing the Form SHO amendment, be required to provide the SEC staff via TM OIG with notice of such occurrence and the reason for the revision.
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The Proposed Rule is currently in a public comment period.8 Seward & Kissel will continue to monitor and keep our clients informed of any developments. If you have any questions regarding the Proposed Rule, please contact one of the attorneys listed below or your Seward & Kissel contact attorney.
