Last year, the SEC adopted a new rule under the Securities Exchange Act of 1934 (“Exchange Act”) that requires institutional investment managers that meet or exceed certain reporting thresholds to report on Form SHO short sale position and short activity data in certain public and private securities. The compliance date for this new rule is January 2, 2025.
Institutional Investment Managers Subject to Rule
- “Institutional investment managers” are subject to the new Rule 13f-2. Institutional investment managers are defined as any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person. This new rule covers all persons currently required to file Form 13F.
In-Scope Securiites
- Form SHO applies not only to Schedule 13F securities but also to the equity securities of private companies that are not required to make filings with the SEC.
- Fixed-income securities, security-based swaps, and options do not have to be reported in Form SHO.
- Rights, warrants, and convertible securities that are convertible or exchangeable for an equity security are treated as “equity securities” under Rule 13f-2. Such securities, however, are not separately reportable and instead need only to be reported if they change the net short position reported on Form SHO.
Reporting Thresholds
- Form SHO must be filed with the SEC via EDGAR within 14 calendar days after the end of each calendar month if either of the following two reporting thresholds are met:
- Short positions in reporting company issuers: (1) A monthly average gross short position at the close of regular trading hours in the equity security of at least $10 million; or (2) a monthly average gross short position at the close of regular trading hours as a percentage of shares outstanding in the equity security of at least 2.5%.
- Short positions in non-reporting company issuers: Each gross short position with a value that meets or exceeds $500,000 at the close of regular trading hours on any settlement date during the calendar month.
- The equity security of a reporting company issuer is a class of security that is registered pursuant to Section 12 of the Exchange Act or for which the issuer of that class of securities is required to file reports pursuant to Section 15(d) of the Exchange Act.
Form SHO and Public Disclosure
- Form SHO will consist of a cover page and two information tables. Table 1 requires the number of shares reported that represents the gross short sale position in the security shorted and the corresponding U.S. dollar value. Table 2 includes the daily net activity during the period in the security that is being reported. Thus, for each settlement date during the period, managers must report the net change in the short position.
- Within one month after the end of each calendar month, the SEC will publish aggregate short sale position information regarding each individual equity security reported by managers on Form SHO, including the aggregate gross position as of the calendar month’s last settlement date, the aggregate gross short position’s dollar value, and the “net” activity in the reported equity security for each individual settlement date during the calendar month.
Next Steps
The compliance date for Rule 13f-2 is January 3, 2025. As a result, the first filing will occur 14 calendar days after January 31st.
For more information about this new rule, please contact NCA Compliance.
Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc., a compliance consulting firm providing a wide range of customized compliance solutions for investment advisors. Ms. Nelson previously worked for the Securities and Exchange Commission and a large investment manager in New York.
