On October 13, 2023, the U.S. Securities and Exchange Commission (SEC) approved final rules requiring increased disclosure of short selling activities of institutional investment managers and securities lending activities of certain market participants.
The pair of new rules come close on the heels of final rules modernizing the beneficial ownership reporting requirements (please see our prior client alert), are in advance of the finalization of proposed rules regarding reporting of large synthetic stock positions established through security-based swaps, and represent another incremental step in the SEC’s drive toward increased transparency in secondary equity markets.
Under new Rule 13f-2, if an institutional investment manager has, during any calendar month, an average daily gross short position in excess of either $10 million or 2.5 percent of shares outstanding of any class of equity securities1 of an Exchange Act reporting company, the manager will be required to file a Form SHO within 14 calendar days of month-end. The manager’s Form SHO must disclose the number of shares and dollar value of its gross short position at the close of the final trading day of the calendar month, as well as its net activity (including activity in derivatives) in respect of such security on each individual settlement date during the calendar month.
The SEC estimates that it will publish aggregated and anonymized data received from all reporting institutional investment managers before the end of the month in which the Form SHO reporting deadline occurs (for example, aggregated and anonymized Form SHO data for June 2025 would be published by the SEC prior to the end of July 2025).2
New Rule 10c-1a will require securities lending market participants who act as agent or principal in making a loan of certain equity and debt securities to report specified terms of, and data related to, the loan. Most significantly, the data will include the amount of securities loaned, key economic terms of the loan (including rates, fees, rebates, and type and amount of collateral posted), as well as the loan’s date and tenor.
It is worth emphasizing that the short position data collected by the SEC will only be available to the public in anonymized form, on a class-by-class basis; issuers or observers hoping to gain insight into the identity of specific firms or individuals shorting particular stocks will not find it in published aggregate Form SHO disclosures.
For more information on the final rules, please contact any member of Wilson Sonsini’s shareholder engagement and activism or derivatives practices.
[1] New Rule 13f-2 applies to all reporting company exchange-listed and OTC equity securities, including common stock, ETFs, and derivatives (such as equity options, warrants, and other convertibles), in each case that are “equity securities” under Section 3(a)(11) of and Rule 3a11-1 under the Securities Exchange Act of 1934 (Exchange Act).
[2] Although uncertain at the time of publishing, the effective date for compliance with new Rule 13f-2 is likely to be in late 2024 or early 2025, and the SEC’s first publication of anonymized, aggregate short position data would likely occur in the second or third quarter of 2025.
