SEC Proposes Changes to Provide More Transparency on Short Sales
The U.S. Securities Exchange Commission (SEC) recently voted to propose changes that would provide greater transparency to investors and regulators by increasing the public availability of short sale-related data.
New Exchange Act Rule 13f-2 and the corresponding Form SHO would require certain institutional investment managers to report short sale-related information to the SEC on a monthly basis. The SEC then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security. The data collected and published would supplement public short sale data currently available from the Financial Industry Regulatory Authority (FINRA) and the stock exchanges.
The SEC also voted to propose a new provision of Regulation SHO, Rule 205, which would establish a new “buy to cover” order marking requirement for broker-dealers. Regulation SHO, the SEC’s primary short-selling regulation, requires broker-dealers to identify each sale order that it effects as either “long,” “short” or “short-exempt,” but it does not have a corresponding requirement for purchase orders. Proposed Rule 205 would require a broker-dealer to mark a purchase order as “buy to cover” if the purchaser has any short position in the same security at the time the purchase order is entered.
In another related vote, the SEC voted to amend the national market system plan governing the consolidated audit trail (CAT). The amendment would require CAT reporting firms to report “buy to cover” information to CAT. The proposed amendments also include a provision that would require each CAT reporting firm to indicate where it is asserting use of the bona fide market-making exception under Regulation SHO.
Taking into consideration Proposed Rule 13f-2, the SEC reopened the comment period for Proposed Exchange Act Rule 10c-1, which would require any person who loans a security on behalf of themselves or another person to report the material terms of those transactions and related information to a registered national securities association. The public comment period for the recent proposals and Proposed Exchange Act Rule 10c-1 will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.