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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-98738; File No. S7-08-22]

RIN 3235-AM34

Short Position and Short Activity Reporting by Institutional Investment Managers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting a new rule

and new Form SHO pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) and the

Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”). The new rule and

related form are designed to provide greater transparency through the publication of short salerelated data to investors and other market participants. Under the new rule, institutional

investment managers that meet or exceed certain specified reporting thresholds are required to

report, on a monthly basis using the related form, specified short position data and short activity

data for equity securities. In addition, the Commission is adopting an amendment to the national

market system (“NMS”) plan governing the consolidated audit trail (“CAT”) created pursuant to

the Exchange Act to require the reporting of reliance on the bona fide market making exception

in the Commission’s short sale rules. The Commission is publishing the text of the amendments

to the NMS plan governing the CAT (“CAT NMS Plan”) in a separate notice.

DATES: Effective date: January 2, 2024.

Compliance date: The applicable compliance date is discussed in Part VI of this release.

FOR FURTHER INFORMATION CONTACT: Timothy M. Riley, Branch Chief; Patrice M.

Pitts, Special Counsel; James R. Curley, Special Counsel; Jessica Kloss, Attorney Advisor;

Brendan McLeod, Attorney Advisor; Roland Lindmayer, Attorney Advisor; Josephine J. Tao,

Assistant Director, Office of Trading Practices; and Carol McGee, Associate Director, Office of

Derivatives Policy and Trading Practices, Division of Trading and Markets, Securities and

Exchange Commission, 100 F Street NE, Washington, D.C. 20549-8010, at (202) 551-5777.

SUPPLEMENTARY INFORMATION: The Commission is adopting new 17 CFR 240.13f-2

(“Rule 13f-2”) and related form 17 CFR 249.332 (“Form SHO”) under the Exchange Act to

require certain institutional investment managers to report, on a monthly basis on new Form

SHO, certain short position data and short activity data for certain equity securities as prescribed

in Rule 13f-2.

The Commission is also adopting, in a separate notice published elsewhere in this issue

of the Federal Register, an amendment to the CAT NMS Plan (“CAT Amendment”), pursuant

to 17 CFR 242.608(a)(2) (“Rule 608(a)(2)”) and (b)(2) (“Rule 608(b)(2)”), that enables the

Commission to adopt a rule to amend any effective NMS plan. For the text of the amendment to

the CAT NMS Plan, please see the Notice of the Text of the Amendment to the National Market

System Plan Governing the Consolidated Audit Trail for Purposes of Short Sale-Related Data

Collection. 1

Notice of the Text of the Amendment to the National Market System Plan Governing the Consolidated Audit

Trail for Purposes of Short Sale-Related Data Collection, Exchange Act Release No. 34-98739 (Oct. 13,

2023).

Table of Contents

Overview

Background

The Proposals

Overview of Proposed Rule 13f-2, Proposed Form SHO, Proposed Rule 205 and

Proposed CAT Amendments

Overview of Comments Received

Final Rule 13f-2, Form SHO and CAT Amendment

II.

Discussion of Final Rule 13f-2 and Form SHO

Final Rule 13f-2

Scope of persons Covered by Final Rule 13f-2

Scope of Reported Securities

Reporting Thresholds

Form SHO

Data Aggregation and Publication of Information by the Commission

Proposal

Comments

Final Rule

III.

Proposed Amendment to Regulation SHO to Aid Short Sale Data Collection

Proposed Rule 205

Comments

IV.

Amendments to CAT

Proposal to Require “Buy to Cover” Order Marking

Proposal to Require Reporting of Reliance on Bona Fide Market Maker Exception

Other Comments

VI.

Compliance Date

VII. Paperwork Reduction Act Analysis

Background

Burdens for Managers under Rule 13f-2 and Form SHO

Applicable Respondents

Burdens and Cost

Burdens and Costs Associated with the Amendment to CAT

Summary of Collections of Information

Use of Information

Respondents

Total Initial and Annual Reporting and Record Keeping Burdens

Collection of Information is Mandatory

Retention Period of Recordkeeping Requirement

Confidentiality

VIII. Economic Analysis

Introduction

Baseline

Institutional Investment Managers

Short Selling

Current Short Selling Regulations

Existing Short Selling Data

Competition

Economic effects

Investor Protection and Market Manipulation

Effects on Stock Price Efficiency

Effect on Market Liquidity

Effect on Corporate Decision Making

Effect on the Securities Lending Market

Compliance Cost

Effect of Certain Electronic Filing and Dissemination Requirements

Potential Increased Use of Derivatives

Efficiency, Competition and Capital Formation

Efficiency

Competition

Capital Formation

Reasonable Alternatives

Alternative Approaches

Data Modifications

Threshold Modifications

Other Alternatives

IX.

Regulatory Flexibility Act Certification

Other Matters

Statutory Authority

Overview

A. Background

Short selling involves a sale of a security that the seller does not own, or a sale that is

consummated by the delivery of a security borrowed by, or for the account of, the seller. 2 In

order to deliver the security to the purchaser, the short seller will generally borrow the security,

usually from a broker-dealer or an institutional investor, and later close out the position by

purchasing equivalent securities on the open market and returning the security to the lender.

Short selling is generally used to profit from an expected downward price movement, to

provide liquidity in response to unanticipated demand, 3 or to hedge the risk of a long position in

the same security or a related security. 4 Short selling provides the market with important

benefits, such as providing market liquidity and pricing efficiency. 5 While short selling can serve

useful market purposes, such as facilitating price discovery, there are concerns that it could be

See 17 CFR 242.200(a).

Market liquidity is generally provided through short selling by market professionals, such as market

makers, who offset temporary imbalances in the buying and selling interest for securities. Short sales

effected in the market add to the selling interest of stock available to purchasers and reduce the risk that the

price paid by investors is artificially high because of a temporary contraction of selling interest. Short

sellers covering their sales also may add to the buying interest of stock available to sellers. See

Amendments to Regulation SHO, Exchange Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232, 11235

(Mar. 10, 2010) (“Rule 201 Adopting Release”).

See, Short Sales, Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (Aug. 6, 2004)

(“Regulation SHO Adopting Release”).

See, e.g., Phil Mackintosh, How Short Selling Makes Markets More Efficient, NASDAQ (Oct. 1, 2020),

available at https://www.nasdaq.com/articles/how-short-selling-makes-markets-more-efficient-2020-10-01.

Efficient markets require that prices fully reflect all buy and sell interest. Market participants who believe a

stock is overvalued may engage in short sales in an attempt to profit from a perceived divergence of prices

from true economic values. Such short sellers add to stock pricing efficiency in part because their

transactions inform the market of their evaluation of future stock price performance. This evaluation is

reflected in the resulting market price of the security. See Rule 201 Adopting Release, 75 FR 11235 nn. 29

& 30. Historically, short sellers have, at times, through doing research, uncovered fraudulent behavior. See

also generally discussion in infra Parts VIII.C.2 and VIII.C.4.

used to drive down the price of a security, to accelerate a declining market in a security, or to

manipulate stock prices. 6

The Commission has plenary authority under section 10(a) of the Exchange Act to

regulate short sales of securities as necessary or appropriate in the public interest or for the

protection of investors. 7 Regulation SHO, which became effective on January 3, 2005, 8 imposes

four general requirements with respect to short sales of equity securities. Under 17 CFR 242.200

(“Rule 200 of Regulation SHO”), broker-dealers must properly mark sale orders as “long,”

“short,” or “short exempt.” 9 Under 17 CFR 242.203 (“Rule 203 of Regulation SHO”), a brokerdealer must locate a source of shares that the broker-dealer reasonably believes can be delivered

in time for settlement (commonly referred to as the “locate requirement”) before effecting a short

See, e.g., DIV. ECON. RISK ANALYSIS, SHORT SALE POSITION AND TRANSACTION REPORTING (June 5,

2014), at 6-7 (“DERA 417(a)(2) Study”), available at https://www.sec.gov/files/short-sale-position-andtransaction-reporting0.pdf (This is a study of the Staff of the U.S. Securities and Exchange Commission,

which represents the views of Commission staff, and is not a rule, regulation, or statement of the

Commission. The Commission has neither approved nor disapproved the content of this study and, like all

staff statements, it has no legal force or effect, does not alter or amend applicable law, and creates no new

or additional obligations for any person.); Rule 201 Adopting Release, 75 FR 11235 (describing a “bear

raid” where an equity security is sold short in an effort to drive down the price of the security by creating

an imbalance of sell-side interest, as an example of unrestricted short selling that could “exacerbate a

declining market in a security by increasing pressure from the sell-side, eliminating bids, and causing a

further reduction in the price of a security by creating an appearance that the security’s price is falling for

fundamental reasons, when the decline, or the speed of the decline, is being driven by other factors”). See

generally discussion infra Part VIII.C.1.

15 U.S.C. 78j(a).

See Regulation SHO Adopting Release.

See 17 CFR 242.200(g). A broker or dealer must mark all sell orders of an equity security as “long,”

“short,” or “short exempt.” A sell order may only be marked “long” if the seller is “deemed to own” the

security being sold and either (i) the security to be delivered is in the physical possession or control of the

broker or dealer; or (ii) it is reasonably expected that the security will be in the physical possession or

control of the broker or dealer no later than the settlement of the transaction. See 17 CFR 242.200(g). A

person is deemed to own a security only to the extent that he has a net long position in such security. See 17

CFR 242.200(c). Once marked as long, short, or short-exempt, the order mark should not be changed

regardless of any subsequent changes in the person’s net position. See In re OZ Mgmt., Exchange Act

Release No. 75445 (July 14, 2015) (settled) (discussing where OZ Management submitted short sale orders

to its executing broker, but identified such sales as long sales to its prime broker, causing books and records

of the prime broker to be inaccurate), available at https://www.sec.gov/litigation/admin/2015/3475445.pdf.

sale. 10 Under 17 CFR 242.204 (“Rule 204”), if the broker or dealer that is a member of a

registered clearing agency fails to deliver the security to the registered clearing agency in time

for settlement, the broker or dealer must take action to close out the failure to deliver if that

failure results from a long or short sale. 11 Separately, under 17 CFR 242.201 (“Rule 201”),

trading centers 12 must have policies and procedures in place to restrict short selling when a

covered security has triggered a short sale price test circuit breaker. 13 In addition, the

Commission adopted an antifraud provision, 17 CFR 240.10b-21 (“Rule 10b-21”), to address

failures to deliver in securities that have been associated with “naked” short selling. 14

Section 929X of the DFA added section 13(f)(2) of the Exchange Act, entitled “Reports

by institutional investment managers,” requiring the Commission to prescribe rules to make

certain short sale data publicly available no less frequently than monthly. 15 Specifically, section

13(f)(2) provides: “[t]he Commission shall prescribe rules providing for the public disclosure of

See 17 CFR 242.203(b)(1) and (2). The Regulation SHO locate requirement provides that broker-dealers

may not accept a short sale order in an equity security from another person, or effect a short sale in an

equity security for its own account, unless the broker-dealer has (i) borrowed the security, or entered into a

bona-fide arrangement to borrow the security; or (ii) reasonable grounds to believe that the security can be

borrowed so that it can be delivered on the date delivery is due; and (iii) documented compliance with this

requirement (“locate requirement”).

See 17 CFR 242.204. “Failures to deliver,” or “fails,” occur when a broker-dealer fails to deliver securities

to the party on the other side of the transaction on the settlement date.

Trading center in Regulation SHO means a national securities exchange or national securities association

that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC

market maker, or any other broker or dealer that executes orders internally by trading as principal or

crossing orders as agent. 17 CFR 242.200.

See 17 CFR 242.201.

See “Naked” Short Selling Antifraud Rule, Exchange Act Release No. 58774 (Oct. 14, 2008), 73 FR 61666,

61674 (Oct. 17, 2008) (In a “naked” short sale, a seller does not borrow or arrange to borrow the necessary

securities in time to deliver them to the buyer within the standard settlement period. Although abusive

“naked” short selling is not defined in the federal securities laws, it refers generally to selling short without

having stock available for delivery and intentionally failing to deliver stock within the standard settlement

period. In addition, a seller misrepresenting its short sale locate source or ownership of shares may intend

to fail to deliver securities in time for settlement and, therefore, engage in abusive ‘‘naked’’ short selling.).

Public Law 111-203, sec. 929X, 124 Stat. 1376, 1870 (July 21, 2010).

the name of the issuer and the title, class, CUSIP [Committee on Uniform Securities

Identification Procedures] number, aggregate amount of the number of short sales of each

security, and any additional information determined by the Commission following the end of the

reporting period. At a minimum, such public disclosure shall occur every month.” 16 In addition,

the Commission has received multiple petitions to adopt reporting requirements for short sellers

similar to those required for holders of long positions. 17

B. The Proposals

In February 2022, in an effort to increase transparency regarding short position and short

activity data to both market participants and regulators, and to address the requirements of

section 13(f)(2), the Commission proposed new rule 13f-2 (“Proposed Rule 13f-2”) and related

15 U.S.C. 78m(f)(2).

See, e.g., Letter from Elizabeth King, Corporate Secretary, NYSE Group, et al. (Oct. 7, 2015, Petition 4689) (stating that rulemaking under 929X “provides an opportunity to implement meaningful public

disclosure standards for short-sale activity, consistent with that currently required for institutional

investment managers under section 13(f) of the Exchange Act for long position reporting”), available at

https://www.sec.gov/rules/petitions/2015/petn4-689.pdf; Letter from Edward S. Knight, Executive Vice

President, General Counsel and Chief Regulatory Officer, NASDAQ (Dec. 7, 2015, Petition 4-691)

(requesting that the Commission “take swift action to promulgate rules to require public disclosure by

investors of short positions in parity with the disclosure regime applicable to long positions”), available at

https://www.sec.gov/rules/petitions/2015/petn4-691.pdf (“NASDAQ Petition”); see also Letter from E.

Carter Esham, Executive Vice President, Emerging Companies, Biotechnology Innovation Organization

(BIO) (Mar. 11, 2016) (“BIO Letter”) (applauding reforms to the short disclosure framework proposed in

the NASDAQ Petition and in the NYSE Petition and advocating for the promulgation of rules to ensure

parity between public disclosures required of investors taking long and short positions), available at

https://www.sec.gov/comments/4-691/4691-5.pdf; Letter from Andrew D. Demott, Jr., Chief Operating

Officer, Superior Uniform Group (supporting NASDAQ Petition and advocating adoption of disclosure

requirements for short sellers), available at https://www.sec.gov/ comments/4-691/4691-10.pdf.

Developments in the market with regard to “meme” stocks in early 2021, some of which were widely

reported as involving large short sellers, also highlighted a need for more consistent and consolidated short

sale information. See, e.g., Robert Smith et al., “Short Squeeze” Spreads as Day Traders Hunt Next

GameStop, FIN. TIMES (Jan. 27, 2021), available at https://www.ft.com/content/acc1dbfe-80a4-4b63-90dd05f27f21ceb2; Are “Meme Stocks” Harmless Fun, or A Threat to the Financial Old Guard?, ECONOMIST

(July 6, 2021) (retrieved from Factiva database). See also Sharon Nunn & Adam Kulam, Short-Selling

Restrictions During Covid-19, YALE SCH. OF MGMT., PROGRAM ON FIN. STABILITY (Jan. 12, 2021),

available at https://som.yale.edu/story/2021/short-selling-restrictions-during-covid-19 (discussing global

short selling regulatory responses to the Covid-19 pandemic).

form (“Proposed Form SHO”) under the Exchange Act. 18 Proposed Rule 13f-2 would require

certain institutional investment managers (“Managers”) with gross short positions that meet

certain quantitative reporting thresholds to report, on a monthly basis on new Proposed Form

SHO, certain short position data and short activity data for certain equity securities. Proposed

Form SHO included two parts: Information Table 1–reports of information including, but not

limited to, data elements explicitly referenced in section 13(f)(2), gross end-of-month short

positions in equity securities that meet the reporting thresholds, and whether such positions are

fully hedged, partially hedged, or not hedged; and Information Table 2–reports of information

including, but not limited to, certain daily activity data (including options assignments and

exercises) that affect a Manager’s gross short positions during the calendar month reporting

period. Managers would file Proposed Form SHO with the Commission via the Commission’s

Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) within 14 calendar days

after the end of the calendar month. The Commission would then expect to publish on EDGAR

aggregated information derived from the data reported on Proposed Form SHO within one month

after the end of the reporting calendar month.

In the Proposing Release, the Commission stated that the required short sale disclosures

that would be collected under Proposed Form SHO and the aggregated data published pursuant

to Proposed Rule 13f-2 would increase transparency and provide several important benefits to

market participants and regulators. Such aggregated information would help inform market

participants regarding the overall short sale activity by reporting Managers. More information

about the short sale activity and gross short positions of reporting Managers may promote greater

Short Position and Short Activity Reporting by Institutional Investment Managers, Exchange Act Release

No. 34-94313 (Feb. 25, 2022), 87 FR 14950 (Mar. 16, 2022) (“Proposing Release”).

risk management among market participants and may facilitate capital formation to the extent

that greater transparency bolsters confidence in the markets. As discussed in the Proposing

Release, the Commission’s regular access to Proposed Form SHO data would bolster the

Commission’s oversight of short selling, as Proposed Rule 13f-2 and Proposed Form SHO would

improve the utility of information available to the Commission and other regulators. 19

Additionally, to supplement the short sale data made available to the Commission in

Proposed Form SHO filings, the Commission proposed a new rule at 17 CFR 242.205

prescribing a “buy to cover” order marking requirement under Regulation SHO (“Proposed Rule

205”) for certain purchase orders effected by a broker-dealer for its own account or for the

account of another person at the broker-dealer, if, at the time of order entry, the purchaser had a

gross short position in such security in the account for which the purchase is being made. The

Commission also proposed amendments to the NMS plan governing the CAT (“Proposed CAT

Amendments”) to require the reporting of “buy to cover” order marking information and of

reliance on the bona fide market making exception in Rule 203(b)(2)(iii) of Regulation SHO

(“BFMM locate exception”). Proposed Rule 205 and the Proposed CAT Amendments were

designed to fill an information gap for the Commission and other regulators by providing

insights into the lifecycle of a short sale that are not available under existing data sources. 20

Proposing Release, at 14951.

Because data obtained through CAT are not made public, the “buy to cover” and “bona fide market

making” data reported pursuant to the Proposed CAT Amendments would not be made publicly available

as a result of such reporting.

C. Overview of Proposed Rule 13f-2, Proposed Form SHO, Proposed Rule 205

and Proposed CAT Amendments

1. Overview of Comments Received

The Commission received robust comment on Proposed Rule 13f-2, Proposed Form

SHO, Proposed Rule 205, and the Proposed CAT Amendments (collectively, the “Proposals”).

Comments were submitted by individual investors as well as other market participants, such as

trade associations, institutional investment managers, investment advisers, broker-dealers,

non-profit organizations, and academicians. These comments, which are discussed in context

below, included a variety of different viewpoints on various aspects of the Proposals. 21 Many

commenters were supportive of the Proposals as a step toward increasing transparency into short

sale activity. 22 Many commenters stated that short selling is a particularly opaque area of the

The comment letters on the Proposing Release (File No. S7-08-22) are available at

https://www.sec.gov/comments/s7-08-22/s70822.htm. Over 98% of the over 3,000 comments received

were from individual investors, most of whom (over 1,900) submitted a variation of a template letter from

“We The Investors,” an advocacy group for retail investors. The remaining comments were from trade

associations, financial services firms—including institutional investment managers and investment

management firms, broker-dealers—and their advisors, non-profit organizations, academicians, and entities

other than individual investors. See Comment Letter from We the Investors, available at

https://www.sec.gov/comments/s7-08-22/s70822-typea.pdf (“WTI Letter”).

See, e.g., Comment from Samuel Hudock (Mar. 2, 2022), available at https://www.sec.gov/comments/s708-22/s70822-20118373-271244.htm; Comment from Michelle R. Bracke (Mar. 4, 2022) available at

https://www.sec.gov/comments/s7-08-22/s70822-20118531-271417.htm; Comment from Joshua Barbee

(Mar. 4, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-20118530-271416.htm;

Comment from Robert Ross (Mar. 14, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-20119365-272251.htm; Comment from David Arkules (Feb. 28, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20118071-270876.htm; Comment from Gina Preziosi

(Mar. 7, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-20118726-271589.htm;

Comment from Jessica Cooke (Mar. 9, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-20118963-271791.htm; Comment from Mauricio Gonzalez (Oct. 12, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-310835.htm; Comment from Liam Sutton (Oct. 19,

2022), available at https://www.sec.gov/comments/s7-08-22/s70822-311965.htm; Comment from Nicholas

Graham (Oct. 19, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-312051.htm;

Comment from Steffen Maier (Oct. 19, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-312049.htm; Comment from Zachary D’Elia (Oct. 19, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-312047.htm; Comment from Stephen Leachman (Oct. 19,

2022), available at https://www.sec.gov/comments/s7-08-22/s70822-312046.htm; Comment from Sergio

Herrera (Oct. 19, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-312042.htm;

market and that increasing transparency regarding short selling would be beneficial to market

participants. 23 Some of these commenters stated that the increased information regarding short

sales would allow investors to be better informed and make better investment decisions. 24 A

number of these commenters urged the Commission to strengthen the proposed reporting

requirements further by, for example, lowering or eliminating the thresholds triggering reporting

obligations under Proposed Rule 13f-2. 25

Comment from David P. Miller Jr. (Oct. 19, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-312038.htm.

See, e.g., Comment from William Bloxham (Oct. 21, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-313372.htm; Comment from Ricardo Gomez (Oct. 29,

2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316604.htm; Comment from Victor

Arriaza (Oct. 29, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316625.htm;

Comment from Kyle Byrd (Oct. 29, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822316701.htm; Comment from Tarek Elseweifi (Oct. 29, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-316706.htm; Comment from Clay Wyant (Oct. 29, 2022),

available at https://www.sec.gov/comments/s7-08-22/s70822-316708.htm; Comment from Yin Hung Lam

(Oct. 29, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316601.htm; Comment from

Evan Anderson (Oct. 29, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316580.htm;

Comment from Connor Judson (Oct. 29, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-316599.htm; Comment from Nicky (Oct. 29, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-316638.htm.

See, e.g., Comment from Eric Mills (April 27, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-20126810-287520.htm (“[T]he proposals will serve the mission of the SEC by increasing

transparency regarding short selling activity. On-going efforts by the SEC to increase market transparency

and relieve information asymmetries promote efficiency, order, fairness, capital formation, and public trust.

The result is an enhancement of investor ability to assess the market and make more informed decisions.”);

Comment from Stanley Little (Mar. 8, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-20118870-271692.htm (“The proposed rule is a[n] important missing link for investors. The

ordinary person wishing to make money in the stock market should have all available information at their

disposal to make informed decisions . . . The transparency rule is such a tool needed to make well informed

decisions.”); Comment from Brendon Withers (Feb, 27, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20118078-270936.htm (supported “immediate

implementation [of the proposals] to improve the US Stock Market and provide a more fair and free system

in which market participants can have accurate information and make informed decisions based on

CURRENT AND ACCURATE data.”).

See, e.g., Letter from Stephen W. Hall, Legal Director and Securities Specialist, Better Markets, et al. (Apr.

26, 2022), at 12, available at https://www.sec.gov/comments/s7-08-22/s70822-20126822-287528.pdf

(“[T]the SEC should eliminate the proposed thresholds so as to reduce or eliminate the risk that unknown,

hidden short positions could pose to investors and the markets.”) (“Better Markets Letter”); Comment from

Matthew Sinex (Oct. 31, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-317106.htm;

Comment from Noah Tewahade (Oct. 30, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-317046.htm; Comment from Luke Dansie (Oct. 31, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-317081.htm; Comment from Mike Flowers (Oct. 30,

As discussed in further detail below, some commenters recommended changes to the

Proposals in response to their concerns about: the scope of Proposed Rule 13f-2; the underlying

approach and levels of the proposed thresholds that would trigger a reporting obligation under

Proposed Rule 13f-2; the feasibility of operationalizing Proposed Rule 205 in a manner that

would result in the gathering of meaningful short sale-related data; and the necessity for the

Proposed CAT Amendments.

Some commenters stated that the Commission did not sufficiently articulate the benefits

of, or regulatory justification for, the Proposals and did not accurately estimate or adequately

justify the costs and impacts of the new reporting requirements. 26 Some of these commenters

expressed concern that the Proposing Release’s Economic Analysis did not adequately estimate

the costs and burdens of the Proposals. 27

2022), available at https://www.sec.gov/comments/s7-08-22/s70822-317245.htm; Comment Letter from

Katherine Lander (Oct. 30, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822317266.htm; Comment from Marco Alvarenga (Oct. 31, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-316992.htm; Comment Letter from Erikka Jehle (Oct. 31,

2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316930.htm.

E.g., Comment Letter from Robert Toomey, Managing Director and Associate General Counsel, Securities

Industry and Financial Markets Association, et al. (Apr. 26, 2022), at 3, available at

https://www.sec.gov/comments/s7-08-22/s70822-20126803-287514.pdf (“SIFMA Letter”) (“SIFMA is

concerned that such an expansive reporting regime would impose burdens and costs on reporting parties

that would materially outweigh the benefit of the information they might yield, and that the SEC has not

provided justification for why such information is necessary and/or cannot already be obtained through

other means available to the SEC”); see also, Comment Letter from Thomas M. Merritt, Deputy General

Counsel, Virtu Financial (Apr. 26, 2022), available at https://www.sec.gov/comments/s7-08-22/s7082220126856-287588.pdf (“Virtu Letter”); Comment Letter from Thomas Deinet, Executive Director,

Standards Board for Alternative Investments (Apr. 26, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20126850-287575.pdf (“SBAI Letter”); Comment Letter

from Matthew B. Siano, Managing Director and General Counsel, Two Sigma (Apr. 26, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20126808-287518.pdf (“Two Sigma Letter”); Comment

Letter from Richard F. Kerr, Partner, K&L Gates LLP (Apr. 26, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20126848-287571.pdf (“K&L Gates Letter”).

See, e.g., SIFMA Letter, at 6 n. 15 (“SIFMA is concerned that the SEC’s economic analysis of the

Proposed Rules does not adequately consider that the sum total of the proposed requirements may result in

a burden that far exceeds the SEC’s estimates with respect to each individual component . . .”); Comment

Letter from Jennifer Han, Executive Vice President, Chief Counsel and Head of Regulatory Affairs,

Managed Funds Association (Apr. 26, 2022), at 7, 19, available at https://www.sec.gov/comments/s7-0822/s70822-20126815-287523.pdf (“MFA Letter”) (“[T]he SEC’s economic analysis and, specifically, the

2. Final Rule 13f-2, Form SHO and CAT Amendment

For the reasons discussed more fully in Parts II-IV below, and to balance implementation

and compliance costs and burdens with the Commission’s goal of enhancing transparency

regarding short selling, the Commission is adopting Rule 13f-2 and related Form SHO with

certain modifications in response to comments. 28 The new reporting regime of Rule 13f-2

provides disclosures that supplement the short sale-related information that currently is publicly

available or accessible for a fee from existing short sale reporting regimes provided by some

registered national securities exchanges (“exchanges”) and registered national securities

associations (“RNSAs”). 29

Final Rule 13f-2 will require Managers (defined in section 13(f)(6)(A) of the Exchange

Act) to report to the Commission, on a monthly basis on related Form SHO, certain short

position data and short activity data for certain equity securities. In particular:

•

On the Cover Page of Form SHO, Managers will be required to report certain basic

information including its name, mailing address, business telephone number and business

email, as well as the name, title, business telephone number and business email of the

Manager’s contact employee for the Form SHO report; and the date the report is filed.

The Manager will also provide its non-lapsed Legal Entity Identifier (“LEI”) if it has one.

Proposal’s estimated costs are materially understated.”); Comment Letter from Mark A. Steffensen, Senior

Executive Vice President and General Counsel, HSBC North American Holdings Inc. and HSBC Bank

USA, N.A. (Jan. 24, 2023), at 15 n. 53, available at https://www.sec.gov/comments/s7-08-22/s7082220155771-324031.pdf (“HSBC Letter”) (“We [] do not believe that the Commission’s economic analysis

adequately considers the costs of Proposed Rule 13f-2 to market makers.”).

Rule 13f-2 and Form SHO, as adopted, are responsive to the policy recommendations to increase

transparency around short selling activities and improve short sale data of participants in the GovernmentBusiness Forums on Small Business Capital Formation held by the Commission in recent years. See, e.g.,

Report on the Report on the 41st Annual Small Business Forum, at 22, available at 2022 OASB Annual

Forum Report (sec.gov); Report on the Report on the 40th Annual Small Business Forum, at 25, available

at https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf

See infra Part II.A.4. See also Proposing Release, at 14964-65.

If other Managers are required to be listed in the “Other Manager(s) Reporting for this

Manager” section of the Cover Page, the Manager will also be required to include the

name and non-lapsed LEI of each such “Other Manager” listed, if the LEI of such “Other

Manager(s)” is available to the Manager filing the Form SHO report.

•

With regard to each individual equity security reported on by Managers in the

Information Tables of Form SHO, Managers will report: the issuer’s name and LEI if it

has one, and the equity security’s title of class, CUSIP, and Financial Instrument Global

Identifier (“FIGI”) (if any has been assigned). 30

•

With regard to Information Table 1 of Form SHO, the Manager will also report the

number of shares of the reported equity security that represent the Managers’ gross short

position at the close of the last settlement date of the calendar month reporting period, as

well as the corresponding U.S. dollar value of this reported gross short position.

•

With regard to Information Table 2 of Form SHO, for each reported equity security, for

each individual settlement date during the calendar month reporting period, a Manager

will report “net” activity in the reported equity security. The net activity reported by a

Manager will be expressed by a single identified number of shares of the reported equity

security, and will reflect offsetting purchase and sale activity by Managers. A positive

number of shares identified will indicate net purchase activity in the equity security on

the specified settlement date, while a negative number of shares identified will indicate

net sale activity in the equity security on the specified settlement date.

Managers will report such information regarding each equity security if the following

thresholds are met:

See infra nn. 36 & 218.

•

With respect to any equity security that is of a class of securities that is registered

pursuant to Exchange Act section 12 31 or for which the issuer of that class of securities is

required to file reports pursuant to Exchange Act section 15(d) 32 (a “reporting company

issuer”) in which the Manager meets or exceeds either: (1) a monthly average of daily

gross short positions at the close of regular trading hours in the equity security with a

U.S. dollar value of $10 million or more, or (2) a monthly average of daily gross short

positions at the close of regular trading hours as a percentage of shares outstanding in the

equity security of 2.5 percent or more (“Threshold A”).

•

With respect to any equity security that is of a class of securities of an issuer that is not a

reporting company issuer as described above (a “non-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 the calendar month. (“Threshold B”).

The Commission will then publish aggregate information as follows:

•

With regard to Information Table 1 of Form SHO, the Commission will publish, for each

class of equity securities, as an aggregated number of shares across all reporting

Managers, the number of shares of the reported equity security that represent the

Managers’ gross short position at the close of the last settlement date of the calendar

month, as well as the corresponding aggregated U.S. dollar value of this reported gross

short position.

15 U.S.C. 78l.

15 U.S.C. 78o(d).

•

With regard to Information Table 2 of Form SHO, for each reported equity security, for

each individual settlement date during the calendar month, the Commission will publish

the net activity in the reported equity security, as aggregated across all reporting

Managers.

The Commission is also adopting, substantially as proposed, the amendment to the CAT

NMS Plan to require broker-dealers with a reporting obligation to CAT, to report whether an

original receipt or origination of an order to sell an equity security is a short sale for which a

market maker is claiming the BFMM locate exception. However, for the reasons discussed

below, the Commission is not adopting Proposed Rule 205 or the CAT “buy to cover” reporting

requirements.

Changes Made to the Proposals: In response to comments, and as discussed in more

detail below, the Commission is modifying the proposal generally by:

•

Streamlining Form SHO reports by not adopting as proposed the requirement to report

hedging classifications on Information Table 1, and by requiring a lower level of

granularity of reporting on Information Table 2 ; 33

•

Adjusting the calculation of the dollar value prong of the reporting threshold for equity

securities of reporting company issuers (i.e., Threshold A) to be based on a monthly

average of daily gross short positions rather than the proposed daily calculation;

•

Requiring in Rule 13f-2 and in the instructions to Form SHO that, for purposes of

determining whether a Manager meets or exceeds a reporting threshold, a Manager shall

determine its gross short position “at the close of regular trading hours” in the equity

Because the proposed rule and form called for publication of only “net” activity based on the information

reported in Information Table 2, this change in information reported on Form SHO as adopted does not

affect the information published by the Commission from information derived from the Form SHO reports.

security, rather than at the “end of day” as was provided for in the instructions to

Proposed Form SHO;

•

Not adopting Proposed Rule 205 and, consequently, not adopting the Proposed CAT

Amendment requiring a “buy to cover” order mark in order receipts and order origination

reports submitted to the CAT; and

•

Making modifications to the text of Rule 13f-2 and the instructions to Form SHO to

provide context and enhance comprehensibility, such as—adding a reference in the

definition of “gross short position” to “short sales” as defined in Rule 200(a) of

Regulation SHO and making minor adjustments to phrasing in the definition; 34 adding

language to the rule text to more precisely describe the equity securities for which

information is reported in final Form SHO; 35 deleting the superfluous word “collectively”

from the rule text to enhance overall readability; replacing the term “active LEI” on

Proposed Form SHO with “non-lapsed LEI” 36 on final Form SHO; updating the contact

Specifically, we made a non-substantive revision to change the word “including” to “such as” and removed

the amphibological comma.

To affirm that the Rule 13f-2 requirements apply to each class of an equity security about which

information is being reported on Form SHO, and to more accurately indicate that classes of securities, not

issuers, are registered pursuant to section 12 of the Exchange Act, Rules 13(a)(1) and Rule 13(a)(2) have

been revised to refer to “each equity security that is of a class of securities” rather than “each equity

security of an issuer . . . .” This distinction by class of security is also consistent with CUSIP procedures,

under which, we understand, different classes of stock have distinct identifying codes. Rule 13f-2 requires

that Managers provide CUSIP numbers for equity securities for which information is reported on Form

SHO.

For greater precision in the terminology used in Form SHO as adopted, an LEI that is currently in effect is

referred to as a “non-lapsed LEI,” rather than an “active LEI” (the terminology used in Proposed Form

SHO), of a Manager. A non-lapsed LEI is an LEI for which the Manager is current on its periodic renewal

fees needed to maintain the LEI. Further, to avoid any suggestion that a Manager filing a Form SHO report

has an obligation to monitor the status of an issuer’s LEI, Instructions 8.c and 9.c of Form SHO—“Column

3. Issuer LEI. If the issuer has an LEI, enter the issuer’s active LEI”—have been revised to remove the term

“active.”

information to be provided on the final Form SHO cover page, 37 and making

corresponding modifications to conform the text of Rule 13f-2 and the instructions to

Form SHO.

•

Making non-substantive, technical changes to correct inadvertent grammatical errors in

the text of the adopted amendment to the CAT NMS Plan that requires a broker-dealer

with a reporting obligation to CAT to indicate whether an order is a short sale effected by

a market maker in connection with bona fide market making activities for which the

BFMM locate exception is claimed. 38

II.

Discussion of Final Rule 13f-2 and Form SHO

A. Final Rule 13f-2

1. Scope of Persons Covered by Final Rule 13f-2

a. Proposal

Exchange Act section 13(f) pertains to “Reports by Institutional Investment Managers.” 39

Proposed Rule 13f-2 would have required Managers to collect and file with the Commission via

EDGAR certain short sale-related data on proposed Form SHO, within fourteen (14) calendar

days after the end of each calendar month, with regard to each equity security over which the

Manager and all accounts over which the Manager (or any other person under the Manager’s

The required Form SHO Cover Page contact information for the reporting Manager and its “Contact

Employee” has been updated to reflect the greater reliance on the communication technology of email

rather than facsimile.

Specifically, the preposition “for” was added before “a short sale” to clarify that reporting is required for a

short sale in which the bona fide market maker exception is claimed, the article “the” was added before

“exception,” and the preposition “in” was added before “Rule 203(b)(2)(iii)” to clarify that the BFMM

locate exception is found in Rule 203(b)(2)(iii).

15 U.S.C.78m(f).

control) has investment discretion 40 that meet or exceed a quantitative reporting threshold

(“Reporting Threshold”).

As defined in section 13(f)(6)(A) of the Exchange Act and for purposes of Proposed Rule

13f-2, ‘‘institutional investment manager’’ includes 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. 41 As such, the term

‘‘institutional investment manager’’ typically can include brokers and dealers, investment

advisers, banks, insurance companies, pension funds and corporations. 42

Proposed Rule 13f-2(b)(3) states that “investment discretion” has the same meaning as in

17 CFR 240.13f-1(b) (“Rule 13f-1(b) under the Exchange Act”), 43 and Rule 13f-1(b) states that

“investment discretion” has the same meaning as in section 3(a)(35) of the Exchange Act. Rule

13f-1(b)’s definition is comprehensive in that it covers all accounts over which the Manager, or

any person under the Manager’s control, has investment discretion. This same definition of

investment discretion was used by the Commission in adopting 17 CFR 240.10a-3T (“interim

final temporary Rule 10a-3T”) in 2008, which required certain Managers to file weekly

nonpublic reports with the Commission on Form SH regarding short sales and positions.44 In

addition, the Rule 13f-1(b) definition of investment discretion is used for Form 13F “long”

position reporting by certain Managers. 45

See Proposed Rule 13f-2(b)(3).

See Proposed Rule 13f-2(b)(1).

See also Instructions to Form 13F.

See 17 CFR 240.13f-1(b).

See infra discussion in Part II.A.3.a.

See Form 13F (sec.gov), available at https://www.sec.gov/pdf/form13f.pdf.

b. Comments and Final Rule

One commenter encouraged the Commission to expand the scope of market participants

subject to reporting under Proposed Rule 13f-2 “beyond just Managers.” 46 This commenter

believed the Commission’s determination “to omit a large group of market participants from

Proposed Rule 13f-2’s scope will negatively affect the completeness and analytical sufficiency of

the aggregated and disclosed short sale data, impeding the Commission’s ability to accurately

reconstruct significant or unusual market events.” 47 This commenter believed that omitting a

large group of market participants would “not provide the Commission with full visibility into

the short sale market that it could otherwise achieve pursuant to Proposed Rule 13f-2” and

believed that an “artificially narrow scope will not further the Commission’s stated goals of

providing greater transparency and filling the information gaps for market participants and

regulators.” 48 This commenter, however, did not identify what market participants were being

omitted under the proposal and that should otherwise be included.

As a potential alternative to Proposed Rule 13f-2, however, this commenter suggested, in

part, that the current FINRA short interest reporting regime could be enhanced, and subsequently

codified, to address potential limitations in the currently available short sale-related data.

However, because FINRA’s short interest reporting is applicable only to broker-dealers that are

FINRA member firms, Managers represent a more diverse group of market participants than is

See Comment Letter from the Alternative Investment Management Association Ltd (Apr. 26, 2022), at 1011, available at https://www.sec.gov/comments/s7-08-22/s70822-20126829-287533.pdf (“AIMA Letter”);

see also SBAI Letter, at 3 (stating that the proposed reporting only includes Managers, which would not

provide a complete perspective of shorting activity). In raising concerns about reporting and monitoring

burdens imposed by the reporting regime of Proposed Rule 13f-2, other commenters, however, did not

question the application of the proposed rule to institutional investment managers.

AIMA Letter, at 11.

Id.

required under FINRA reporting (as was suggested as a potential alternative by the commenter).

As stated above, Managers typically can include various market participants, including brokers

and dealers, as well as investment advisers, banks, insurance companies, pension funds and

corporations. Accordingly, the Commission is adopting as proposed Rule 13f-2(b)(1) to define

institutional investment managers as having the same meaning as in Exchange Act section

13(f)(6)(A). Short sale-related data reported by Managers on Form SHO will provide additional

context to, and otherwise supplement, currently available data by, for example, distinguishing

directional short selling of Managers from short sale activity effected by market makers and

liquidity providers. This approach should reduce the reporting of non-directional, “transient”

short sales activity and provide market participants with more focused information on substantial

short positions held by Managers.

Another commenter suggested that the Commission consider an exemption for certain

types of Managers that do not regularly utilize short positions or that only utilize short positions

for passive investing purposes. 49 By capturing short sale-related data from Managers who hold

substantial gross short positions—regardless of the purpose for which they utilize short positions,

the reporting regime of Rule 13f-2 will enhance transparency and provide useful information to

market participants regarding overall short sale activity. Furthermore, having the reporting

obligation under Rule 13f-2 triggered by a reporting threshold that is calculated based on a

monthly average of daily gross short positions in certain equity securities, rather than the

See Comment Letter from Valerie Dahiya, Partner, Perkins Coie LLP (Apr. 26, 2022), at 3, available at

https://www.sec.gov/comments/s7-08-22/s70822-20126839-287549.pdf (“Perkins Coie Letter”) (stating

that “for institutional investment managers that only selectively utilize short positions, or who only do so

passively, these additional compliance costs in relation to the institutional investment manager’s usage of

short positions could in turn impose untended risks to the manager’s underlying investors if the institutional

investment manager must divert additional time and resources for compliance and oversight”).

proposed daily calculation, 50 is designed in part to alleviate concerns for Managers who only

occasionally meet or exceed the prescribed reporting thresholds.

In addition, the Commission did not receive any comments regarding the definition of

“investment discretion” as proposed. The Commission is adopting Rule 13f-2(b)(3) as proposed

to define the term “investment discretion” as having the same meaning as in Rule 13f-1(b)

(which, among other things, incorporates the definition in section 3(a)(35) of the Exchange Act).

In addition, Managers that will file reports on adopted Form SHO likely have experience

reporting on Form 13F, for which this same definition is used. 51

2. Scope of Reported Securities

a. Proposal

Under the proposed rule, a Manager would have had to file a Form SHO report with

regard to:

•

Any equity security of an issuer that is registered pursuant to section 12 of the

Exchange Act 52 or for which the issuer is required to file reports pursuant to section

15(d) of the Exchange Act 53 in which the Manager meets or exceeds either (1) a gross

short position in the equity security with a U.S. dollar value of $10 million or more at

the close of regular trading hours on any settlement date during the calendar month;

or (2) a monthly average gross short position as a percentage of shares outstanding in

the equity security of 2.5 percent or more (Threshold A); and

See infra Part II.A.3 for more discussion of the reporting thresholds in Proposed Rule 13f-2 and Rule 13f-2

as adopted.

See infra Part VIII.B.1. Registered investment advisers, particularly those managing hedge funds, are the

primary Managers likely to be affected by Rule 13f-2.

15 U.S.C. 78l.

15 U.S.C. 78o(d).

•

Any equity security of an issuer that is not a reporting company issuer as described

above 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 the calendar month (Threshold B).

As proposed, the reporting thresholds in Rule 13f-2(a)(1) and (2) (each a “Proposed

Reporting Threshold”) applied to equity securities, as the term “equity security” is defined in

section 3(a)(11) of the Exchange Act 54 and 17 CFR 240.3a11-1 (“Rule 3a11-1”). 55 This scope,

which included both exchange-listed and over-the-counter securities, is consistent with the

securities to which Rules 200, 203, and 204 of Regulation SHO apply. 56 The proposed scope

would have included exchange-traded fund (“ETF”) securities, but would not have required

Managers, in calculating a Proposed Reporting Threshold or Form SHO data, to consider short

positions the ETF held in individual underlying equity securities. 57 And because the Proposed

Reporting Thresholds were based on a Manager’s gross short position in the underlying equity

security itself, the proposed rule would not have required the Manager to account for derivative

exposure as part of the threshold calculation for the underlying equity security, but would have

required Managers to report certain changes in their gross equity short positions derived from

Section 3(a)(11) of the Exchange Act defines “equity security” as any stock or similar security or any

security future on any such security; or any security convertible, with or without consideration, into such a

security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or

right; or any other security which the Commission shall deem to be of similar nature and consider

necessary or appropriate, by such rules and regulations as it may prescribe in the public interest or for the

protection of investors, to treat as an equity security. 15 U.S.C. 78c(a)(11).

See Proposing Release, at 14956 n.59.

See Regulation SHO Adopting Release, at 48012.

Proposing Release, at 14958.

acquiring or selling the equity in connection with derivative activity, such as exercising an

option. 58

b. Comments and Final Rule

The Commission received several comments on Proposed Rule 13f-2’s and Proposed

Form SHO’s proposed scope of securities, with commenters expressing a variety of views. Most

commenters took an expansive view, exemplified by one such commenter’s statement that “all

different securities and ETFs should be required to report all short sale data. The more

information that is available to every investor and the Commission the better.” 59 As discussed

below, other commenters, by contrast, recommended narrowing the universe of “in scope”

securities by, for example, aligning with similar Commission reporting and public dissemination

regimes, limiting the scope to securities of U.S. reporting companies, or excluding ETFs, options

and warrants and other convertibles, and derivatives. Some commenters focused on the impact

on implementation and compliance costs related to Proposed Rule 13f-2 reporting requirements

and recommended that derivatives, options, warrants and other convertibles, and ETFs be

excluded from the scope of equity securities subject to Proposed Rule 13f-2 reporting

requirements. 60

As stated in the Proposing Release, the Commission believed this proposed approach balances Managers’

reporting costs with the utility such data provides to regulators. See Proposing Release, at 14962.

Comment from Samuel Meadows (Mar. 26, 2022), at 1, available at https://www.sec.gov/comments/s7-0822/s70822-273456.htm (“Samuel Meadows Comment”).

See, e.g., MFA Letter, at 11-12 (recommending that, to simplify compliance, provide clarity, and reduce

costs, Commission should limit the reporting requirements to stocks of U.S. reporting company issuers, and

exclude derivatives and ETFs); SIFMA Letter, at 20 (recommending reduction of compliance costs by

creating a list of equity securities that would be subject to Proposed Rule 13f-2 reporting requirements that

would exclude “extraneous securities, such as options, warrants, convertibles, and ETFs”); Comment Letter

from Frank Vivirito, Compliance Officer, XR Securities LLC (Apr. 25, 2022), at 2 (“XR Securities Letter”)

(stating “I feel strongly that highly liquid, higher priced, active and efficient ETFs (and perhaps even some

single name equities) with limited or no settlement issues” should be excluded from Proposed Rule 13f-2

reporting requirements).

Comments on the Scope of Covered Securities

Most commenters supported the applicability of Proposed Rule 13f-2 to short positions in

ETFs, some expressing specific concerns about “improper” use of ETFs to leverage short

positions.61 However, one commenter advocating for the exclusion of ETFs from the universe of

“in-scope” securities stated that, in most circumstances, Managers short ETFs largely for

hedging purposes and not for the same reasons that Managers short stocks of reporting company

issuers; this commenter stated that such information “will provide the public, and the SEC, very

little in terms of useful information.” 62

The Commission disagrees with the commenter that reporting about gross short positions

in ETFs will not provide useful information to the public and the Commission. Establishing short

positions in an ETF can provide short exposure to a diverse set of equity securities or create a

directional short strategy such as leveraged shorting. Because of their multipurpose nature, ETFs

are a substantial piece of the short-side market. 63 ETFs are subject to the requirements of

See, e.g., Comment Letter from Nick Dougherty (Mar. 27, 2022), at 2, available at

https://www.sec.gov/comments/s7-08-22/s70822-20121466-273451.pdf (“Nick Dougherty Letter”);

Anonymously Submitted Comment (Mar. 21, 2022), at 1, available at https://www.sec.gov/comments/s708-22/s70822-20120739-272894.pdf. See generally, Anonymously Submitted Comment (Mar. 21, 2022), at

2, available at https://www.sec.gov/comments/s7-08-22/s70822-20122297-278355.htm (recommending

that “[a]ll securities, including ETFs, OTC stocks, swaps etc. should have their positions data recorded and

submitted to the SEC daily”); Samuel Meadows Comment, at 1 (“I strongly believe that all different

securities and ETFs should be required to report all short sale data.”).

MFA Letter, at 12.

ETFs are a popular trading tool that can be used in various ways, including, for example, to hedge a long

position, or to establish a directional short position. See Exchange-Traded Funds, Investment Company Act

Release No. 33646 (Sept. 25, 2019), 84 FR 57162 (Oct. 24, 2019) (“[ETFs] have become a popular trading

tool, making up a significant portion of secondary market equities trading.”). See also Giovanny Moriano

& Brian Baker, Best inverse and short ETFs – here’s what to know before buying them, Bankrate (Feb. 16,

2023), available at https://www.bankrate.com/investing/best-inverse-etfs/ (describing traders’ use of short

ETFs to hedge against falling prices in other positions, to make directional bets on securities or indexes, or

to magnify returns through leveraged short ETFs); The Renaissance of ETFs, Oliver Wyman (2023),

available at https://www.oliverwyman.com/our-expertise/insights/2023/may/exchange-traded-funds-arefueling-market-opportunities.html (stating “As of the end of December 2022, total ETF assets under

management (AUM) have reached $6.7 trillion across the US and Europe, growing at approximately 15%

compound annual growth rate (CAGR) since 2010…. We expect a significant part of this growth to come

Regulation SHO, and there is a benefit to applying the Rule 13f-2 reporting requirements to the

same universe of securities subject to the Commission’s short sale rules. Further, short

sale-related data regarding ETFs will provide important transparency to a significant segment of

market activity to both the marketplace and regulators alike. 64

Some commenters recommended that fixed-income securities be added to the proposed

scope of securities. 65 These commenters believed that all investment vehicles, including fixed

income securities, should be included within the scope of securities subject to potential reporting.

These commenters generally believed that short positions in fixed income securities would

provide additional transparency to the marketplace. One of these commenters believed that fixed

income securities should be included under the rule because “bonds play a large role in market

activities, along with the repo market” and that “corporate bond borrowing data provides an

unparalleled insight into short positioning at a security and issuer level.” 66

Fixed income securities are not subject to the Commission’s short sale rules. Market

participants, including Managers, are currently accustomed to complying with the short sale rules

with regard to equity securities that meet the definition of short sales in Rule 200(a) of

from active ETFs.”). Active ETFs can include inverse and short ETFs that seek to use short strategies or

leverage.

See Experiences of US Exchange-Traded Funds During the COVID-19 Crisis, INV. CO. INST. (Oct. 2020),

available at https://www.sec.gov/comments/credit-market-interconnectedness/cll10-2.pdf (“Early in 2020, .

. . ETF trading volume accounted for between 20 and 30 percent of total stock market trading on a daily

basis . . . .”); see also Richard B. Evans et al., ETF Short Interest and Failures-to-Deliver: Naked ShortSelling or Operational Shorting?, U. PA. WHARTON SCH. (Jan. 2018), available at

https://jacobslevycenter.wharton.upenn.edu/wp-content/uploads/2018/08/ETF-Short-Interest-and-Failuresto-Deliver.pdf (stating that ETFs constitute roughly 10% of U.S. equity market capitalization but over 20%

of short interest, and that short interest for the ETF market has increased steadily over several years).

See, e.g., Nick Dougherty Letter (Mar. 27, 2022), at 3 (stating that “fixed income securities should be

included under Proposed rule 13f-2”); Anonymously submitted Comment (Mar. 21, 2022), at 1, available

at https://www.sec.gov/comments/s7-08-22/s70822-20120739-272894.pdf.

Anonymously submitted Comment (Mar. 21, 2022), at 1, available at https://www.sec.gov/comments/s708-22/s70822-20120739-272894.pdf.

Regulation SHO. 67 Further, the self-regulatory organizations (“SROs”) currently collect and

provide data on short sales of equity securities as defined by Rule 200(a) of Regulation SHO.

Consistent with the discussion in the Proposing Release, the aggregated short sale-related data

that will be published by the Commission under Rule 13f-2 will provide additional context to

market participants regarding equity securities that are subject to the requirements of Regulation

SHO. 68 For these reasons, the Commission is not including fixed income securities.

Some commenters also recommended excluding options, warrants, and other convertibles

from the rule. 69 Other commenters recommended that derivatives be included within the scope of

Proposed Rule 13f-2 70–including those not within the definition of equity security in section

3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder. 71

Certain derivatives, options, warrants, and convertibles are themselves equity securities

for purposes of section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder, and therefore

for purposes of final Rule 13f-1. 72 Derivatives and other securities that are not equity securities

within the definitions of section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder, are

not within the scope of the rule. Managers are currently accustomed to complying with

requirements for equity securities under Rule 200(a) of Regulation SHO. The Commission is not

including derivatives and other securities that are not equity securities under the definitions of

See Proposing Release, at 14956 n.59.

See id. at 14956.

SIFMA Letter, at 20.

See, e.g., Better Markets Letter, at 9 (stating that “[i]n order for the final rule to actually serve its purpose, it

must require that institutional investment managers include their short interest that arises from derivatives

positions”); WTI Letter, at 4 (stating that not including derivatives contracts such as options and securitybased swaps is a “huge hole that must be remedied” and “will inevitably result in firms exploiting the

loophole…”); Samuel Meadows Comment, at 1 (stating that “[a]ny and all Short positions resulting from

derivatives should be included in whether they meet a Reporting Threshold”).

See supra nn. 54 & 55 and accompanying text; see generally Part II.A.2.a.

Id.

section 3(a)(11) of the Exchange Act and Rule 3a11-1 thereunder. Many commenters who

requested that derivatives be included expressed concern that derivatives could be used to create

substantial economic short positions, while avoiding Proposed Rule 13f-2’s reporting

requirements. 73 The Commission recognizes, as it did in the Proposing Release, that there is a

risk that Rule 13f-2 could be a catalyst for growth in markets of economic equivalents of

underlying equity securities as short sellers look for new avenues to take the economic

equivalent of short positions while avoiding these proposed reporting requirements. 74 Managers

do not have to account for economic exposure to an underlying equity security created through

the use of equity derivatives when calculating the reporting thresholds for reporting short sales of

that underlying equity security. However, once a Manager meets or exceeds a reporting threshold

for an underlying equity security, the Manager will then be required to report certain short

activity for each settlement date during the reporting calendar month, and that disclosure will

take into account activity in options, tendered conversions, secondary offering transactions, 75 and

other equity derivatives or activity that might affect the reported short positions on Form SHO,

as discussed further below. 76 Managers must also report gross short positions of each equity

security resulting from short sales as defined in Rule 200(a) of Regulation SHO to the extent the

See, e.g., Comment Letter from Oliver Davies, Apr. 20, 2022, available at

https://www.sec.gov/comments/s7-08-22/s70822-20124155-280554.htm (expressing concern that “funds

are using complex derivative positions like options and swaps to hide their true short positions”);

Anonymously submitted Comment, Mar. 14, 2022, available at https://www.sec.gov/comments/s7-0822/s70822-20119368-272254.htm (positing that excluding derivative positions can create opportunities to

avoid triggering the reporting thresholds through other economically equivalent instruments).

See infra Part VIII.C.8; see also Proposing Release, at 15001.

See infra n. 285.

See infra Part II.A.4.

Manager’s positions meet the relevant thresholds. 77 Finally, large positions in options are

currently reportable under a separate requirement. 78 In addition, there is a separate reporting

regime for security-based swaps, 79 which may also lessen the likelihood of Managers attempting

to avoid the requirements of Rule 13f-2 by using these instruments.

Comments on Creating a List

Some commenters recommended narrowing the universe of “in-scope” securities to

lessen the burden on Managers and to help to ensure compliance with Proposed Rule 13f-2.

Certain commenters recommended that the Commission create and publish a list of securities

subject to Form SHO reporting, much like the Commission’s Official List of Section 13(f)

Securities (“13F List”) required by statute to be made available to the public pursuant to section

13(f)(4) of the Exchange Act 80 for use in the preparation of quarterly reports filed with the

Commission for purposes of long position reporting under Rule 13f-1. One such commenter

suggested that providing such a list would “promote greater efficiency in validating reported

short positions and consistency in reporting of those positions among managers.” 81 Another

Option exercises or assignments can result in a short sale. See, e.g., Rule 201 Adopting Release, at 11263 n.

433 (explaining that short sales that result from option exercises or assignments are short sales but are not

covered by the Rule 201 of Reg. SHO’s price test because there is no national best bid).

FINRA Rule 2360 requires FINRA member firms to report large options positions to the Large Options

Positions Report (“LOPR”), which FINRA uses to surveil for potentially manipulative behavior, including

attempts to corner the market in the underlying equity, leverage an option position to affect the price, or

move the underlying equity to change the value of a large option position.

See Regulation SBSR, 17 CFR 242.900 through 242.909.

15 U.S.C. 78m(f)(4).

Comment Letter from Sarah A. Bessin, Associate General Counsel & Nhan Nguyen, Assistant General

Counsel, Investment Company Institute (Apr. 26, 2022), available at https://www.sec.gov/comments/s708-22/s70822-20126820-287527.pdf (“ICI Letter”) at 9 n.28; see also MFA Letter, at 13 (positing that

having an “official list” of securities subject to Form SHO reporting would reduce the burden on Managers

to make judgments about whether a particular security is in-scope for Form SHO reporting and would

reduce inconsistencies among reporting Managers in making such judgments in the absence of such a list);

see also SIFMA Letter, at 20 (suggesting that the “Form SHO List” include securities that are included on

the 13F List while excluding securities that should not be covered by Form SHO, as well as the total shares

outstanding for each security).

commenter recommended aligning Proposed Rule 13f-2 with the scope of other similar reporting

and public dissemination regimes (e.g., Rule 13f-1, and prior Rule 10a-3T 82) that are focused on

a narrower set of securities, namely certain section 13(f) securities that are included on the 13F

List. 83

Narrowing the scope of securities to the 13F List would effectively exclude certain equity

securities that are subject to the requirements of Regulation SHO, which the Commission

continues to believe would be inconsistent with the Commission’s objective to publish short

sale-related data under Rule 13f-2 that will provide additional context to market participants

regarding securities that are subject to the Commission’s current short sale rules. 84 As stated

above, market participants, including Managers, are currently accustomed to complying with the

short sale rules with regard to equity securities generally, so narrowing the scope to the 13F List

that periodically changes, or to a list created for purposes of Rule 13f-2 that is similar in concept

to the 13F List, could result in reduced Rule 13f-2 reporting and, consequently, less transparency

of short sale-related data. Narrowing the scope to securities that are included on the 13F List

could also result in additional administrative costs and burdens to Managers to the extent that

Managers have to perform additional monitoring to ensure that their Form SHO reports cover,

and the calculations required to determine whether a reporting obligation under Rule 13f-2 has

been triggered because a Reporting Threshold has been met, apply to, only the narrower scope of

securities (a subset of the equity securities currently subject to the Commission’s short sale

Rule 10a-3T and Form SH focused on certain section 13(f) securities and excluded options that are

reportable on Form 13F.

HSBC Letter, at 13-14 (recommending that Commission align the reporting requirements of Proposed Rule

13f-2 to a narrower set of securities—e.g., the securities prescribed in Rule 13f-1—rather than with

securities that are “in-scope” with Regulation SHO).

See Proposing Release, at 14956.

rules). Such an outcome is inconsistent with the Commission’s objective of enhancing

transparency, while balancing the interests of gathering and disclosing data that provides

additional context to market participants regarding securities that are subject to the requirements

of Regulation SHO against the potential costs to reporting Managers.

Additionally, with respect to long position reporting, section 13(f)(1) expressly provides

that the Commission shall make available to the public a list of all equity securities that are

subject to such reporting. 85 However, section 13(f)(2) does not require publication of such a list.

Further, existing short sale-related reporting to exchanges and RNSAs does not rely on a

published list of securities. For these reasons, it is not necessary to compile and periodically

provide a list of securities covered by Rule 13f-2.

Comments to Limit Scope to Equity Securities of U.S. Reporting Company Issuers

Some commenters recommended tailoring the scope of securities subject to Rule 13f-2

reporting to the equity securities of U.S. reporting company issuers. 86 Many of these commenters

raised concerns about the costs to Managers of developing new systems to capture trading of

equity securities of non-reporting company issuers. Certain commenters focused on how a

requirement to report short sales of equity securities of non-reporting company issuers would

represent an expansion of reporting requirements beyond what is currently required under

Section 13(f)(1) of the Exchange Act (15 U.S.C. 78m(f)(1)) requires any institutional investment manager

exercising investment discretion over accounts holding at least $100 million in fair market value of certain

equity securities to file reports on Form 13F with the Commission at the times set forth in 17 CFR

240.13f-1 (“Rule 13f-1”). The statute directs the Commission to make available to the public, for a

reasonable fee, a list of all equity securities described in section 13(d)(1) of the Exchange Act and to

disseminate to the public the information contained in the reports.

See, e.g., MFA Letter, at 11-12; Letter from Leigh R. Fraser, Partner, Ropes & Gray LLP (Apr. 26, 2022),

at 9, available at https://www.sec.gov/comments/s7-08-22/s70822-20126853-287579.pdf (“Ropes & Gray

Letter”). Cf. SIFMA Letter, at 5 (recommending, rather than separate reporting thresholds for reporting

company issuers and non-reporting company issuers, a single threshold apply to U.S. equity securities

included in a “Form SHO List” akin to the 13F List that “would include securities that are included on the

13F List, while also excluding certain extraneous securities, such as options, warrants, convertibles, and

ETFs that should not be covered by Proposed Form SHO reporting”).

existing reporting regimes under Exchange Act sections 13(d), 13(f)(1), 13(g), and 16. 87 Other

commenters believed that requiring Managers to report short position information in equity

securities of non-reporting company issuers would be extremely costly and provide little public

benefit. 88 Another such commenter stated that because securities of non-reporting company

issuers can be held by only a small number of U.S. investors, cannot be traded on U.S. securities

exchanges, and can often be subject to contractual restrictions on transfer, short sales in such

securities are rare due to the limitations on the number of shares available to borrow. 89 Another

commenter stated that trading (including short selling) in securities of non-reporting company

issuers is limited, which potentially makes Managers that file Form SHO reports with respect to

such securities more susceptible to retaliatory and manipulative trading strategies. 90 As stated

above, the Commission is adopting Rule 13f-2 and Form SHO to help enhance transparency

regarding short selling in equity securities—including both exchange-listed and over-the-counter

securities, and ETFs—that are already subject to Regulation SHO. Consistent with the discussion

in the Proposing Release, through the publication of short sale-related data to investors and other

market participants, the information published under Rule 13f-2 will provide additional context

to market participants regarding equity securities that are subject to the requirements of

See, e.g., Ropes & Gray Letter, at 9 (stating that a requirement to report short sale-related data regarding

equity securities of U.S. private companies would represent a “significant expansion” of reporting

requirements imposed in investors beyond what currently is required under existing reporting regimes

under Exchange Act sections 13(d), 13(f)(1), 13(g), 13(h), and 16).

See, e.g., MFA Letter, at 11-12 (stating that because non-reporting company issuer securities are not

publicly traded, information about transactions in such securities would not likely have an effect on price

efficiency or market liquidity, but could have negative consequences for Managers—e.g., increasing the

risk of exposing Managers, their short positions, and trading strategies, which could facilitate retaliatory

and manipulative trading strategies).

Ropes & Gray Letter, at 8-9.

MFA Letter, at 11-12.

Regulation SHO. 91 To that end, the Commission continues to believe that transparency regarding

short selling in over-the-counter (“OTC”) equity securities, many of which are non-reporting

company issuers, 92 is important to investors generally, including many retail investors. The

Commission has previously stated that securities “that trade in the OTC market are primarily

owned by retail investors.” 93 Consistent with this view, it is important from a transparency

perspective to include, as proposed, non-reporting issuers for purposes of reporting under Rule

13f-2. While the Commission is cognizant that information on non-reporting company issuers

will be more difficult to obtain and more costly to report than information on reporting company

issuers, the Commission disagrees there would be little benefit to the public from such

information, particularly given the extent of trading in OTC market securities by retail

investors. 94 Furthermore, OTC securities typically have lower prices, lower trading volume, and

are by definition not traded on exchanges, making them potentially more prone to fraud. 95 In

addition, as discussed further below, publication of aggregated data approximately one month

See Proposing Release, at 14956.

See, e.g., Publication or Submission of Quotations Without Specified Information, Exchange Act Release

No. 89891 (Sept. 16, 2020) (“Adopting Release for Amendments to Rule 15c2-11”), 85 FR 68124, 68125

(Oct. 27, 2020) (“However, in other cases, there is no or limited current public information available about

certain issuers of quoted OTC securities to allow investors or other market participants to make informed

investment decisions.”).

See, e.g., Publication or Submission of Quotations Without Specified Information, Exchange Act Release

No. 89891 (Sept. 16, 2020), 85 FR 68124, 68125 (Oct. 27, 2020) (citing to Andrew Ang, et al., Asset

Pricing in the Dark: The Cross-Section of OTC Stocks, 26 REV. FIN. STUDS. 2985–3028 (2013) (“Securities

that trade in the OTC market are primarily owned by retail investors[,]”); see also Unraveling the Mystery

of Over-the-Counter Trading, FINRA INV’R INSIGHTS (Jan. 4, 2016), available at

https://www.finra.org/investors/insights/unraveling-mystery-over-counter-trading (“OTC equities are

largely owned by retail investors, according to a 2013 study from Columbia University, who may be

attracted to the low price of many OTC equities, including so-called "penny stocks" that trade at under $5 a

share. That activity is typically very speculative.”).

See id. See also infra Part VIII.C.6 for a discussion of costs related to tracking non-reporting companies,

and infra Part II.A.3 for discussion of possible benefit.

See, e.g., Adopting Release for Amendments to Rule 15c2-11, 85 FR 68124, at 68185.

following the reporting calendar month will alleviate concerns regarding potential retaliation

against reporting Managers.

Other commenters raised questions as to whether the Commission’s jurisdiction extended

to equity securities not traded in the U.S. One such commenter, highlighting the disparity

between Proposed Rule 13f-2 reporting and reporting of long positions in the same securities,

questioned why it would be in the public interest to require more expansive disclosure with

respect to short positions than long positions, and stated that the “proposed scope of the rule

would provide U.S. investors with information that is of limited value, particularly with respect

to non-U.S. securities.” 96

Exchange Act section 13(f)(2)’s cross-border reach is based on the territorial approach

that the Commission has applied when crafting rules to implement other provisions of the

Exchange Act. 97 Consistent with that territorial approach (which is based on Supreme Court

precedent, including Morrison v. National Australia Bank, Ltd. and its progeny) the Commission

examines the relevant statutory provision to determine the domestic conduct that is covered by

the provision. 98 The Commission understands section 13(f)(2), by its terms, to apply to any

institutional investment manager already subject to U.S. reporting requirements. This indicates

that the relevant domestic conduct under section 13(f)(2) is being an institutional investment

HSBC Letter, at 13-14 (recommending that the reporting requirements of Proposed Rule 13f-2 be limited to

equity securities of reporting company issuers that are traded on a Commission-registered trading

platform).

See, e.g., Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, Exchange

Act Release No. 74244 (Feb. 11, 2015), 80 FR 14563, 14649 (Mar. 19, 2015) (“2015 Regulation SBSR

Adopting Release”) (discussing the territorial approach to the cross-border application of Title VII

requirements for regulatory reporting and public dissemination of security-based swap transactions).

561 U.S. 247. See, e.g., Abitron Austria GmbH v. Hetronix Int’l, Inc, 600 U.S. **, **, 2023 WL 4239255,

at *4 (June 29, 2023) (stating that “[the Supreme Court has] repeatedly and explicitly held that courts must

“identif[y] ‘the statute’s “focus”’ and as[k] whether the conduct relevant to that focus occurred in United

States territory”).

manager operating in the U.S. securities markets such that the investment manager is subject to

filing reports with the Commission. Thus, when that relevant domestic conduct is present here in

the United States, section 13(f)(2)’s regulatory reporting obligation will generally apply.

The Commission is adopting Rule 13f-2 and Form SHO to help enhance transparency

regarding short selling in equity securities—including both exchange-listed and over-the-counter

securities, and ETFs. The Commission continues to believe that, through the publication of short

sale-related data to investors and other market participants, the information reported by

Managers will provide important additional context to market participants regarding short sale

activity in these equity securities by Managers. The Commission disagrees that the reported

information would be of “limited value” as was suggested by a commenter. Transparency

regarding short selling by Managers of securities of U.S. and non-U.S. issuers is important

regardless of where those sales occur.

Final Rule

For the reasons discussed above, the Commission is adopting the scope of securities as

originally proposed. Specifically, the final rule will cover equity securities as defined in section

3(a)(11) of the Exchange Act and Rule 3a11–1 thereunder. This scope of securities includes both

exchange-listed and OTC equity securities, including, inter alia, ETFs, certain derivatives, and

options, warrants and other convertibles, which is consistent with the equity securities to which

Rules 200, 203, and 204 of Regulation SHO apply. 99

See Regulation SHO Adopting Release, at 48012.

3. Reporting Thresholds

a. Proposal

To balance the interests of gathering and disclosing data and the potential costs to

reporting Managers, the Commission proposed separate thresholds for short positions in

reporting company issuers, or Threshold A, and non-reporting company issuers, or Threshold

B. 100 Threshold A, in Proposed Rule 13f-2(a)(1), involved a two-pronged approach that would

have required reporting by Managers that have, with regard to each equity security of a reporting

company issuer, either (i) a gross short position with a U.S. dollar value of $10 million or more

at the close of regular trading hours on any settlement date during the calendar month, or (ii) a

2.5 percent or higher monthly average gross short position as a percentage of shares

outstanding. 101 Threshold B, in Proposed Rule 13f-2(a)(2), involved a single-pronged approach

that would have required reporting by Managers that have, with regard to each equity security of

a non-reporting company issuer, a U.S. dollar value of $500,000 or more at the close of regular

trading hours on any settlement date during the calendar month. 102 The Proposed Reporting

Thresholds were based on comment letters and analysis of Form SH data collected under Rule

10a-3T, an interim temporary rule adopted by the Commission in October 2008, which required

certain institutional investment managers to file weekly nonpublic reports with the Commission

on Form SH regarding their short sales and short positions in certain section 13(f) securities,

100

As discussed above, an issuer of a class of securities that is registered pursuant to Exchange Act section 12

or for which the issuer is required to file reports pursuant to Exchange Act section 15(d) is referred to

herein as a reporting company issuer; issuers not meeting those criteria are referred to herein as nonreporting company issuers.

101

Proposed Rule 13f-2(a)(1). See Proposing Release, at 14962 (describing in detail the design of Threshold

A).

102

Proposed Rule 13f-2(a)(2). See Proposing Release, at 14962 (describing in detail the design of Threshold

B).

other than options. 103 Rule 10a-3T required reporting of short positions that were either greater

than 0.25 percent of shares outstanding or $10 million in fair market value. 104 This temporary

rule was adopted in the wake of the 2008 financial crisis in response to concerns about high

levels of volatility associated with short selling. 105 Proposed Threshold B was developed based

on an analysis of OTC Markets data. 106 The Proposed Reporting Thresholds were structured to

make it more difficult for Managers with substantial gross short positions to avoid disclosure by

trading below a Proposed Reporting Threshold, particularly with lower market capitalization

securities.

The approach to Threshold A, as described in the Proposing Release, was designed to

ensure that a substantial short position in either a small capitalization security or a large

103

Disclosure of Short Sales and Short Positions by Institutional Investment Managers, Exchange Act Release

No. 58785 (Oct. 15, 2008), 73 FR 61678 (Oct. 17, 2008). The rule extended the reporting requirements

established by the Commission’s Emergency Orders dated Sept. 18, 2008, Sept. 21, 2008, and Oct. 2, 2008,

with some modifications. See Emergency Order Pursuant to Section 12(k)(2) of the Securities and

Exchange Act of 1934 Taking Temporary Action to Respond to Market Developments, Exchange Act

Release No. 58591 (Sept. 18, 2008), 73 FR 55175 (Sept. 24, 2008); Amendment to Emergency Order

Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary Action to Respond

to Market Developments, Exchange Act Release No. 58591A (Sept. 21, 2008), 73 FR 55557 (Sept. 25,

2008) (amending the Sept. 18, 2008 Emergency Order (“Order”) to clarify certain technical issues and

when the information filed by the institutional investment managers on a nonpublic basis would be made

public by the Commission on a delayed basis); Amendment to Order and Order Extending Emergency

Order Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary Action to

Respond to Market Developments, Exchange Act Release No. 58724 (Oct. 2, 2008), 73 FR 58987 (Oct. 8,

2008) (extending effectiveness of the Order through Oct. 17, 2008, and stating that the Forms SH filed

under the Order would remain nonpublic to the extent permitted by law).

104

See Proposing Release, at 14963-65 (discussing the analysis of Form SH data).

105

Rule 10a-3T remained in effect through July 2009, at which time the Commission stated that it and its staff

would be working with several SROs to make certain short sale volume and transaction data publicly

available through SRO websites. See Proposing Release, at 14954 (providing background on Rule 10a-3T

and related Form SH).

106

See Proposing Release, at 14964 n.82 (“This analysis was performed using data from OTC Markets Group

Inc. available through Wharton Research Data Services, https://wrdswww.wharton.upenn.edu/pages/about/data-vendors/otc-markets-group/. The data were filtered to only

include equities that had a closing price and short interest on September 30, 2020. Approximately 13% of

the data did not have total shares outstanding available, representing approximately 14% of the dollar value

of short interest. We use these data without shares outstanding as a proxy for non-reporting issuers. The

Commission used September 2020 because that is the most recent date in which a dataset containing total

shares outstanding for a broad set of OTC equities was available.”).

capitalization security could potentially trigger a reporting obligation under Threshold A. 107 For

example, it would be difficult for a Manager to trigger only a dollar threshold in a given security

if the market capitalization of the reporting company issuer is small; likewise, it would be

difficult for a Manager to trigger only a percentage threshold in a given security if the market

capitalization of the reporting company issuer is large. The Commission believed that this would

help to ensure transparency into short sale-related activity that would be beneficial to both

market participants and regulators. As stated above, the Proposed Reporting Thresholds were

structured to make it more difficult for Managers with substantial gross short positions to avoid

disclosure by trading below a Reporting Threshold, particularly with lower market capitalization

securities. The proposed U.S. dollar value-based prong was designed to capture Managers with a

substantial short position, even if the position was relatively small compared to the market

capitalization of the issuer. 108 The prong based on percentage of shares outstanding was designed

to capture Managers with gross short positions that are large relative to the size of the issuer and,

therefore, could have a significant impact on the issuer. 109

Regarding Threshold B, as discussed in the Proposing Release, a $500,000 or more

threshold for non-reporting company issuer securities is similar to the median dollar value of a

position of 2.5 percent of the market capitalization of OTC stocks for which the Commission was

able to obtain information on total shares outstanding. 110 The Commission believed that this

approach with regard to non-reporting company issuers would help to ensure added transparency

into short sale-related activity that would be beneficial to both market participants and regulators,

107

Id. at 14962.

108

Id.

109

Id.

110

Id. at 14962-63.

because, as discussed in the Proposing Release, it would capture Managers with substantial short

positions in an equity security of a non-reporting company issuer, even if such positions are

relatively small compared to the market capitalization of the issuer. 111 Rather than a two-pronged

reporting threshold for equity securities of non-reporting company issuers, however, the

Commission proposed a single-pronged, dollar value-based, reporting threshold for

non-reporting company issuer securities given its understanding that the number of total shares

outstanding for non-reporting company issuers may not be readily and consistently accessible to

Managers. 112

As discussed in the Proposing Release, to determine whether the proposed dollar value

prong of Threshold A (Proposed Rule 13f-2(a)(1)(i)) or Threshold B (Proposed Rule 13f-2(a)(2))

is met, a Manager would be required to determine its end of day gross short position on each

settlement date during the calendar month and multiply that figure by the closing price at the

close of regular trading hours on the relevant settlement date. 113 In circumstances where such

closing price was not available in calculating Threshold B, a Manager would be required to use

the price at which it last purchased or sold any share of that security, which would be readily

available to the Manager. 114

As discussed in the Proposing Release, to determine whether the second prong of

Threshold A (Proposed Rule 13f-2(a)(1)(ii))—2.5 percent or higher monthly average gross short

position as a percentage of shares outstanding in the equity security—is met, the Manager would

be required to (a) identify its gross short position in the equity security at the close of each

111

Proposing Release, at 14962-63.

112

Id. at 14962.

113

Id. at 14957.

114

Id.

settlement date during the calendar month of the reporting period, and divide that figure by the

number of shares outstanding in such security at the close of that settlement date, then (b) add

together the daily percentages during the calendar month as determined in (a) and divide the

resulting total by the number of settlement dates during the calendar month reporting period. The

number of shares outstanding of the security for which information was being reported would

have been determined by reference to an issuer’s most recent annual or quarterly report, and any

subsequent update thereto, filed with the Commission. 115

b. Comments and Final Rule

As discussed below, the Commission received numerous comments regarding various

aspects related to the Proposed Reporting Thresholds. Generally, these comments varied, with

some commenters recommending, for example, that the Commission raise the thresholds (which

would trigger less gross short position reporting) and others recommending the Commission

lower or eliminate the thresholds (which would trigger additional gross short position

115

Id.

reporting). 116 Some commenters expressed general support for the Proposed Reporting

Thresholds, or expressed support for certain aspects of those thresholds. 117

Comments to Raise Threshold A

Some commenters recommended increasing the proposed Reporting Threshold A by, for

example, doubling the percent of shares outstanding threshold from 2.5 percent to 5 percent so as

to be consistent with the existing reporting requirements of 17 CFR 240.13d-1 (“Exchange Act

Rule 13d-1”) 118 and the proposed reporting requirements of 17 CFR 240.10B-1 (“Exchange Act

Rule 10B-1”) 119 related to large positions in security-based swaps. 120 Other commenters also

116

See, e.g., ICI Letter, at 9-10 (supporting a higher threshold, stating that “a higher threshold would still

provide the Commission with information on such large positions, while reducing the burdens on managers

of reporting smaller positions that likely would have a lesser market impact”); K&L Gates Letter, at 4-5

(supporting a higher threshold, and stating that “[u]nless the Reporting Thresholds are modified, we

anticipate that the Commission will be inundated with reports providing significant detail about positions

that, in many cases, are not sufficiently sizable to impact the larger markets or raise the type of concerns

that the Proposal was intended to address”); but see WTI Letter (stating that “it is important to set the

threshold as low as possible to mitigate any effects and impacts from firms attempting to game the

threshold”).

117

See, e.g., SIFMA Letter, at 20 (stating that “while certain SIFMA members believe that the threshold

should be higher, other SIFMA members did not object to the proposed threshold of 2.5 percent of the

issuer’s TSO or $10 million fair market value”); Schulte Roth & Zabel LLP Letter (Apr. 26, 2022), at 3,

available at https://www.sec.gov/comments/s7-08-22/s70822-20126845-287561.pdf (“Schulte Roth &

Zabel Letter”) (stating that “[w]e believe that the 2.5 percent threshold identifies those situations where a

short position could lead to market manipulation”).

118

Rule 13d-1 (requiring long-side equity securities holders to file a Schedule 13D or Schedule 13G if the

security holder owns over 5% of an issuer’s equity securities).

119

See Prohibition Against Fraud, Manipulation, or Deception in Connection With Security-Based Swaps;

Prohibition Against Undue Influence Over Chief Compliance Officers; Position Reporting of Large

Security-Based Swap Positions, Exchange Act Release No. 93784 (Dec. 15, 2021), 87 FR 6652, 6678 (Feb.

4, 2022) (“Rule 10B-1 Proposal”). See also Reopening of Comment Period for Position Reporting of Large

Security-Based Swap Positions, Exchange Act Release No. 97762 (June 20, 2023), 88 FR 41338 (June 26,

2023) (proposing to require any person holding security-based swap positions to file a proposed Schedule

10B if they hold in excess of $300 million in equity security-based swap positions or if the notional value

of those security-based swap positions is 5% of the outstanding number of shares of a class of equity

securities, whichever is less).

120

See, e.g., Ropes & Gray Letter, at 6 (recommending increasing the threshold to 5% in order to “mitigate

costs to investors and provide consistency with other reporting regimes”); K&L Gates Letter, at 5 (stating

that 2.5% does not “represent a significant portion of an issuer’s outstanding equity securities,” and

recommending increasing the threshold to more than 5% of an issuer’s voting equity securities in order to

be consistent with the existing reporting requirements of Rule 13d-1); Perkins Coie Letter, at 6

(recommending alignment with requirements of Rule 13d-1(a) that require filing of Schedule 13D or 13G

recommended doubling that same percentage of shares outstanding threshold from 2.5 percent to

5 percent, because the commenters believed that the proposed 2.5 percent threshold was not

sufficiently sizable to have a market impact. 121 Additionally, one commenter believed that the

lack of any reported instances of “short-side” manipulation did not justify a lower percentage

threshold compared to Rule 13d-1 and proposed Rule 10B-1. 122

Other commenters proposed that the U.S. dollar value-based threshold of Threshold A be

raised. 123 One commenter suggested that it be increased from the proposed $10 million to $100

million because a $100 million threshold would capture more substantial short positions and be

consistent with the adjustment to the proposed percentage of shares outstanding threshold as

compared to former Form SH (i.e., a tenfold increase from 0.25 percent under Form SH to 2.5

percent under Proposed Form SHO). 124

For reasons set forth below and discussed more fully in Part VIII, increasing the proposed

Threshold A percentage-based threshold from 2.5 percent or more of total shares outstanding to

upon crossing a 5% threshold of ownership of any class of an equity security); ICI Letter, at 10 (stating that

Commission identified 5% as a threshold over which a position could have a meaningful market impact in

“recent” Rule 10B-1 proposal).

121

K&L Gates Letter, at 5; see also ICI Letter, at 9-10 (“However, we believe that a higher threshold would

still provide the Commission with information on such large positions, while reducing the burdens on

managers of reporting smaller positions that likely would have a lesser market impact.”).

122

One commenter believed that the proposed Rule 13f-2 reporting regime was overly expansive and

“asymmetric” to existing or other proposed reporting regimes in multiples ways, such as the proposed

percentage reporting threshold of 2.5% being lower than the 5% threshold in Rules 13d-1 and 10B-1. See

SIFMA Letter, at 3-4 (stating that there is “no empirical evidence” that short selling requires an

“asymmetric” reporting regime and that “[t]his conclusion is consistent with the SEC’s own reported

enforcement actions, i.e., any reported instances of ‘short-side’ manipulation (e.g., ‘short and distort’

campaigns) are dwarfed by the instances of ‘long-side’ manipulation (e.g., ‘pump and dumps’). There thus

is simply no basis for such asymmetric regulation.”).

123

See, e.g., Virtu Letter, at 2 (positing that dollar value thresholds “are significantly lower than is

necessary”); Perkins Coie Letter, at 2 (finding the $10 million (USD) gross short position threshold of

Threshold A too low); XR Securities Letter, at 2 (citing circumstance illustrating that $10M prong of

Threshold A may be too low).

124

Schulte Roth & Zabel Letter, at 3.

5 percent (e.g., to be consistent with the existing 5 percent reporting threshold of Exchange Act

Rule 13d-1 and the proposed reporting requirements of Exchange Act Rule 10B-1), as suggested

by some commenters, 125 is not warranted or appropriate. In this regard, because the rules are

designed for different purposes and utilize different reporting thresholds to meet their respective

objectives, the Commission does not believe, as one commenter states, that comparing Rule

13f-2 with long-side Rule 13d-1, as well as comparing perceived instances of “short-side” and

“long-side” manipulation, is an accurate assessment by which to determine Rule 13f-2’s

Reporting Thresholds. Reporting under Exchange Act section 13(d) is intended to provide

information to the public and the affected issuer about rapid accumulations of its equity

securities in the hands of persons who have the potential to change or influence control of the

issuer. 126 Reporting under Rule 13f-2, in contrast, is intended to capture Managers with gross

short positions that are large relative to the size of the issuer and could therefore have a

significant impact on the issuer, especially for issuers with a small market capitalization where

the dollar-based threshold is less likely to be breached. 127 An increase in the percentage-based

prong of Threshold A, from 2.5 percent to 5 percent, would reduce transparency into short

positions in smaller stocks. Specifically, increasing the percentage from 2.5 percent to 5 percent

would reduce transparency into stocks with less than a $400 million market capitalization. This

reduction could be meaningful given that, short and distort campaigns and other market

manipulations are more likely to occur in stocks with lower market capitalizations and less

125

See supra nn. 121 & 122.

126

See, e.g., Filing and Disclosure Requirements Relating to Beneficial Ownership, Release No. 34-14693

(Apr. 21, 1978), 43 FR 18501, 18484 (Apr. 28, 1978) (stating that the “legislative history [of Exchange Act

section 13(d)] reveals that it was intended to provide information to the public and the affected issuer about

rapid accumulations of its equity securities in the hands of persons who would then have the potential to

change or influence control of the issuer”).

127

See Proposing Release, at 14961-64.

public information. 128 As a result, the appropriate threshold for Rule 13d-1 is not necessarily the

appropriate threshold for Rule 13f-2. Instead, the Commission continues to believe that a broader

coverage of short position reporting (i.e., using a 2.5 percent reporting threshold) is more

appropriate for Rule 13f-2, especially given that the reported data are aggregated and

anonymized before public dissemination with a delay. Here, the Commission is designing a

reporting threshold that is appropriate for the purposes of section 13(f)(2). Based on analysis of

Form SH, a 2.5 percent or higher monthly average gross short position is an appropriate

threshold. 129 For example, one exchange estimates that median short interest for small-cap

issuers is only about 3 percent, 130 indicating that a single Manager breaching the 2.5 percent

threshold would be significant for many issuers. Thus, a percentage-based Threshold A is

appropriate to adopt as proposed.

Nor does the Commission believe that raising the dollar-based threshold of Threshold A

from $10 million to $100 million to be consistent with the tenfold increase in percentage

threshold is warranted or appropriate. Based on its analysis of Form SH data as discussed in the

Proposing Release, 131 as well as the need to balance costs with the rule’s ultimate goal of

transparency, $10 million strikes an appropriate balance of limiting costs of reporting to

128

See infra Part VIII.C.1 (discussing market manipulations) and Part VIII.E.3 (discussing how thresholds are

triggered at various dollar amounts).

129

See infra Part VIII.E for discussion of different threshold options.

130

See Short Interest in Decline, NASDAQ (Mar. 3, 2022), available at https://www.nasdaq.com/articles/shortinterest-in-decline.

131

As discussed in the Proposing Release, the Proposed Reporting Thresholds were based on comment letters

and analysis of Form SH data collected under Rule 10a-3T. Proposing Release, at 14963-64. Rule 10a-3T

required reporting of short positions that were either greater than 0.25% of shares outstanding or $10

million in fair market value. Comment letters to Rule 10a-3T itself generally concurred with the dollar

reporting obligation but expressed concerns that the percentage obligation was too low. Suggestions for a

percentage reporting obligation ranged from 1% to 5% of shares outstanding. See, e.g., Seward Kissel LLP,

available at https://www.sec.gov/comments/s7-31-08/s73108-43.pdf; Investment Adviser Association,

available at https://www.sec.gov/comments/s7-31-08/s73108-38.pdf; and Securities Industry and Financial

Markets Association, available at https://www.sec.gov/comments/s7-31-08/s73108-52.pdf.

Managers, while increasing transparency into short positions, especially for equity securities of

issuers with mid or large market capitalizations that may not be captured under the percentage

threshold. While issuers with small market capitalizations may have only one or a few large short

sellers, issuers with mid or large market capitalizations may have tens or even hundreds of large

short sellers, which diffuses the percentage of short interest for each short seller. The

Commission considered this when setting a dollar-based threshold of Threshold A such that large

short sellers are captured for all equity issuers.

Comments to Lower or Eliminate Reporting Thresholds

Other commenters recommended that the Proposed Reporting Thresholds be reduced or

eliminated. Some of these commenters were concerned that the Proposed Reporting Thresholds

could be too lenient and under-inclusive, 132 and some of those commenters supported removing

the thresholds entirely because of the possibility of Managers intentionally maintaining short

positions just below the thresholds to avoid reporting. 133 One commenter stated that the final rule

should “eliminate the proposed thresholds so as to reduce or eliminate the risk that unknown,

hidden short positions could pose to investors and the markets.” 134 However, eliminating

thresholds to capture all short sale data may result in the inclusion of “transient” short sales, 135

such as short sales due to market making or customer facilitation activity rather than directional

132

See, e.g., Comment from Peter Stauduhar (Mar. 6, 2022), available at https://www.sec.gov/comments/s708-22/s70822-20118728-271591.htm (stating that “[t]he thresholds are a critical part of the success of this

rule, and I urge the Commission to worry less about the burden the reporting will have on short sellers”).

133

See, e.g., Comment from Travis Donovan (Mar. 14, 2022), available at https://www.sec.gov/comments/s708-22/s70822-272287.htm; Comment from Steve B. (Mar. 14, 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20119335-272221.htm (“Steve B. Comment”);

Anonymously Submitted Letter (Apr. 2, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-20122297-278355.htm (“I believe that all short sales should be recorded and reported. The

minimum threshold should be a single short sale.”).

134

Better Markets Letter, at 12.

135

See Virtu Letter, at 2-3.

short sales. By providing a properly calibrated threshold this type of “noise” should be reduced

and allow market participants to instead focus on substantial short sales that are more likely to be

directional. The reduction of “noisy” short position information also sets Rule 13f-2 apart from

existing short sale data regimes, such as those provided by FINRA and the exchanges, which do

not have thresholds. On the other hand, the threshold cannot be set so high that substantial short

sales by Managers are out of scope. The Reporting Thresholds, as adopted, will help ensure

added transparency into short sale-related activity that would be beneficial to both market

participants and regulators, and will result in reporting by Managers with a substantial gross

short position in both reporting and non-reporting company issuers.

Recommendations to Base Reporting Thresholds on a Single Metric

Some commenters, often in conjunction with recommendations to increase the Proposed

Reporting Thresholds, suggested applying a single threshold metric. One commenter proposed

the Commission adopt a single U.S. dollar value-based threshold for all issuers in order to limit

the impact of any potential ambiguity around identifying the number of shares outstanding for

non-reporting company issuers. 136 Another commenter, however, recommended that the

Commission adopt a single threshold based on percentage of shares outstanding, stating that it

would “mitigate unnecessary operational and cost burdens on Managers,” as the commenter

believed that a U.S. dollar value-based threshold would require more difficult system

buildouts. 137

136

See MFA Letter, at 4 (stating that “[a] dollar-based approach would be more simple and less costly for

managers to employ”).

137

See, e.g., ICI Letter, at 8-9 (stating “we recommend that the Commission adopt a single reporting threshold

level that is an average short position in an equity security based on a percentage of shares outstanding

rather than on a dollar value”); see also K&L Gates Letter, at 5 (recommending a threshold triggered only

by “a position representing more than 5 percent of an issuer’s voting equity”).

The Reporting Thresholds are designed to require the filing of Form SHO by Managers

with substantial gross short positions. The two-pronged approach of Threshold A measures the

size of a Manager’s short position relative to both dollar amount and number of shares. The

dollar value-based prong (Rule 13f-2(a)(1)(i)) captures Managers with substantial short

positions, even if such positions are relatively small compared to the market cap of the issuer.

The percentage of total shares outstanding-based prong (Rule 13f-2(a)(1)(ii)) captures Managers

with gross short positions that are large relative to the size of the issuer and, therefore, could

have a significant impact on the issuer. With respect to securities of non-reporting company

issuers, however, the Commission understands that the number of total shares outstanding may

not be readily and consistently accessible. 138 For this reason, a single-pronged, dollar valuebased Reporting Threshold is an efficient way for Managers to determine whether they trigger

Threshold B (Rule 13f-2(a)(2)) that avoids the additional cost and complexity of locating the

number of total shares outstanding for the securities of a non-reporting company issuer that may

be difficult or impossible to locate. 139

Comments Recommending the Use of the Same Threshold for Reporting Company and NonReporting Company Issuers

Another commenter recommended not having differing thresholds for reporting company

issuers and non-reporting company issuers. 140 This commenter believed having two different

reporting thresholds “would be unnecessarily complicated and burdensome.” 141 Furthermore, the

138

Proposing Release, at 14962.

139

Id.

140

See SIFMA Letter, at 19-20 (stating that “the proposed distinction between the thresholds that would apply

to Reporting Company securities and Non-Reporting Company securities would be unnecessarily

complicated and burdensome”).

141

Id.

commenter stated as an alternative the creation of a “Form SHO List” akin to the 13F List that

would include total shares outstanding of each security to assist in threshold calculations. 142 As a

result of the potential difficulties in accessing the total shares outstanding for non-reporting

company issuers discussed above, using a percent of total shares outstanding-based approach

would not be appropriate for non-reporting company issuers. Requiring total shares outstanding

for both thresholds would be operationally difficult, potentially inaccurate and therefore costly

for Managers to determine for some non-reporting companies. Requiring a dollar-based metric

for both thresholds could be both under-inclusive and over-inclusive, as the markets for reporting

and non-reporting companies differ. For example, a high dollar threshold (e.g., $10 million) for

both thresholds would under-include many non-reporting companies while a low dollar threshold

(e.g., $500,000) would over-include reporting companies. For these reasons, the Commission is

adopting Threshold B as proposed.

For similar reasons, and as discussed in the “Scope of Reported Securities” section

above, the Commission will not be publishing a “Form SHO List” with total shares outstanding

to assist in Manager calculations, as one commenter suggested. The thresholds as adopted are

designed to reduce operational burdens while capturing substantial short positions in both

reporting and non-reporting company issuers. Adopting a much lower dollar threshold for nonreporting company issuers than that for reporting company issuers results in Managers not being

required to determine percentages of total shares outstanding and, due to sparse data in nonreporting company issuer markets, Managers would avoid the difficulty of having to do so. A

“Form SHO List” with total shares outstanding would not be necessary for Managers reporting

142

SIFMA suggested that the “Form SHO List” include securities that are included on the 13F List, while

excluding securities that should not be covered by Form SHO. Id. at 20. SIFMA further suggested that the

“Form SHO List” include, for each security, the total shares outstanding.

positions in reporting company issuers because, unlike Rule 13f-1 securities, Rule 13f-2 covers

equity securities as discussed above, 143 rendering additional guidance on what securities qualify

unnecessary. Additionally, as discussed above in the Scope of Reported Securities section,

section 13(f)(1) expressly provides that the Commission shall make available to the public a list

of all equity securities that are subject to such reporting, 144 while section 13(f)(2) does not

require publication of such a list.

Comments regarding Other Concerns Related to Thresholds

Implementation and Compliance Costs

Some commenters stated that the Proposing Release did not adequately account for the

burdens associated with monitoring for whether a Reporting Threshold is met, i.e., whether a

Manager has a Form SHO reporting obligation. 145 Specifically, these commenters stated that the

Proposing Release did not address the costs of those Managers who would need to develop and

implement reporting systems to monitor for whether a Reporting Threshold is met or exceeded,

143

See supra Part II.A.2.

144

Section 13(f)(1) of the Exchange Act (15 U.S.C. 78m(f)(1)) requires any institutional investment manager

exercising investment discretion over accounts holding at least $100 million in fair market value of certain

equity securities to file reports on Form 13F with the Commission at the times set forth in Rule 13f-1. The

statute directs the Commission to make available to the public, for a reasonable fee, a list of all equity

securities described in section 13(d)(1) of the Exchange Act and to disseminate to the public the

information contained in the reports.

145

See, e.g., Virtu Letter, at 2 (“the dollar value thresholds referenced in the Proposal are significantly lower

than is necessary”); MFA Letter, at 4 (recommending a single, dollar-based threshold only); SIFMA Letter,

at 5 (recommending elimination of different thresholds for reporting and non-reporting companies in favor

of one uniform threshold for U.S. equity securities); ICI Letter, at 9 (recommending a single, percentagebased threshold for both reporting and non-reporting company issuers); Ropes & Gray Letter, at 2

(recommending that all thresholds “be determined using average positions over a month rather than daily

positions.”).

that may or may not ultimately result in a reportable gross short position. 146 The comments are

addressed in the Economic Analysis, in Part VIII below.

“Gross” Short Position versus “Net” Short Position

Some commenters requested that the Reporting Thresholds be calculated based on “net”

short position rather than “gross” short position as proposed. Multiple commenters expressed

concern that using a gross short position calculation would not accurately reflect risk in the

markets. 147 However, other commenters supported the use of the proposed gross short position

data either instead of or in conjunction with net short position data. 148 One commenter proposed

requiring net short position reporting by Managers that are solely reporting on Form SHO with

regard to one issuer while requiring gross short position reporting for Managers with short

146

See, e.g., MFA Letter, at 10-11; see also ICI Letter, at 5 (stating that Proposed Rule 13f-2 would require a

Manager to continuously monitor and record any activity that could potentially be subject to future

reporting on Form SHO). While the costs would likely be higher if Managers choose to monitor daily, Rule

13f-2 does not require daily monitoring, either for reporting or non-reporting company issuers. Managers

may choose to do this threshold calculation on a rolling basis, or to do the calculation after the month has

ended. While some Managers may choose to incur the higher costs of daily tracking and calculation for

purposes of compliance with Rule 13f-2, the final rule’s Reporting Threshold for reporting company issuers

is not based on a Manager’s gross short position on a single trading date, reducing the need for daily

tracking. See infra Part VIII.C.6.b.

147

See, e.g., Virtu Letter, at 3 (stating that “the requirement to report such positions on a gross rather than net

basis would likely distort the actual degree of short positions as it will capture circumstances where a firm

is net long but may have short positions among its accounts.”); Perkins Coie Letter, at 3-4, 6.

(recommending that “[r]ather than set a low threshold and over capture short position information, the SEC

should revise the requirement to $10 million net short position as opposed to gross.”); Schulte Roth &

Zabel Letter, at 2 (stating that “net short position data would more accurately reflect actual positions taken

by institutional investment managers and provide useful transparency to the Commission and to the

marketplace.”); ICI Letter, at 10 (recommending that “the Commission streamline and simplify how

managers account reflect hedging positions by adopting a net short position threshold and eliminating the

required indication of whether a position is hedged or not in Form SHO.”); Comment Letter from

Anonymous Fund Manager at 1-2, available at https://www.sec.gov/comments/s7-08-22/s7082220126773-287490.pdf (“Anonymous Fund Manager Letter”) (recommending that the Commission “modify

the proposed threshold requirements to reference short positions on a net ‘delta-adjusted’ basis as opposed

to a gross basis or, in the alternative, exclude from the reporting obligations under the Proposed Rules

‘bona fide hedging activity’ as such term would be defined in the final rules.”).

148

See, e.g., Comment from Josh Allen (Mar. 14, 2022), available at https://www.sec.gov/comments/s7-0822/s70822-272295.htm; Comment from An Investor (Apr. 4., 2022), available at

https://www.sec.gov/comments/s7-08-22/s70822-20122297-278355.htm (supported including both net and

gross short positions in reporting).

positions in more than one issuer. 149 One commenter proposed that, if a gross short position

calculation is used, market makers should not be subject to adopted Rule 13f-2’s reporting

requirements. 150 However, another commenter supported applying the rule’s requirements to

market makers. 151 One commenter stated that, even though market makers do not typically carry

overnight positions and would likely not trigger the Proposed Reporting Thresholds, market

makers would still incur the costs of end-of-day calculations to determine whether they meet or

exceed the Proposed Reporting Thresholds. 152

As discussed in the Proposing Release, under the proposal, a Manager would report its

“gross” short position in an equity security without offsetting such gross short position with

“long” shares of the equity security or economically equivalent long positions obtained through

derivatives of the equity security. 153 For example, if a Manager has investment discretion over

multiple accounts, some of which have long positions in an equity security and some have short

positions in the same equity security, only the total gross short position in the “short accounts” is

149

Perkins Coie Letter, at 4 (stating that “the SEC should consider amending its proposal to require net

position reporting by certain types of managers that do not regularly utilize short positions. For instance,

the SEC could require net short position reporting by filers that are solely reporting on Form SHO with

regards to one issuer. For any filer reporting more than one issuer, the SEC could require gross short

position reporting.”).

150

HSBC Letter, at 16 (stating that “[b]ecause Proposed Rule 13f-2 requires disclosure of gross positions,

market makers could be required to report large positions, even if a market makers’ [sic] net position is

close to zero (i.e., because such short positions are typically hedged via options or swaps). Subjecting

market makers to Proposed Rule 13f-2 may, therefore, result in market participants receiving unhelpful and

misleading information about the short sale market.”).

151

See Samuel Meadows Comment, at 2 (stating that “Market Makers should NOT be except [sic] from

reporting for any reason. Market Makers should report short sales the same as everyone else should they

pass the Reporting Threshold.”).

152

See SIFMA Letter, at 11-12 (stating that “[h]owever, as the Proposing Release notes, requiring Institutional

Investment Managers to consider intraday short sale activity, which would not be captured in the ‘gross

short position’ as reflected on their trade date stock records, in determining whether the threshold has been

exceeded, would be incredibly onerous—particularly, for example, for market makers that generally may

not carry large overnight short positions.”).

153

Proposing Release, at 14956.

reported, without being offset by the long positions in the “long accounts.” Requiring a Manager

to report its daily gross short position in a security will provide a more complete view of short

positions held by Managers in a security, particularly once the data is aggregated for

publication. 154 Permitting Managers to “net” positions would dilute the usefulness of the data in

providing market participants with a sense of substantial short positions. For example, requiring

net short position reporting by Managers that are solely reporting on Form SHO with regard to

one issuer, or for other types of Managers infrequently using short positions, as one commenter

suggested, would provide minimal cost savings and create misleading data that could be difficult

to aggregate and confusing to market participants. Further, the data collected and provided by

FINRA 155 and the exchanges is not netted. 156 By providing aggregate gross positions reported by

Manager in a security, the final rule will supplement such existing short sale information with

additional context on substantial gross short sale positions.

In addition, the Commission is making additional modifications, discussed further below,

that should alleviate burdens on market makers that may otherwise need to undertake the

154

In addition, commenters stated they would be uncertain how to “offset” positions when discussing the

hedging indicator. See infra Part II.A.4.d.iii.(B). Netting would raise similar concerns.

155

See, e.g., Short Interest – What It Is, What It Is Not, FINRA INV’R INSIGHTS (Jan. 25, 2023), available at

https://www.finra.org/investors/insights/short-interest (“The short interest data is just a snapshot that

reflects short positions held by brokerage firms at a specific moment in time on two discrete days each

month. The Short Sale Volume Daily File reflects the aggregate volume of trades within certain parameters

executed as short sales on individual trade dates.”).

156

See, e.g., Frequently Asked Questions (FAQ) about Short Interest Reporting, FINRA, available at

https://www.finra.org/filing-reporting/regulatory-filing-systems/short-interest/faq (“Q1: Rule 4560 applies

to short interest positions resulting from: (1) a “short sale,” as defined by Regulation SHO Rule 200(a); or

(2) where the transaction that caused the short position was marked “long,” consistent with Regulation

SHO Rule 200(g), due to the firm’s or the customer’s net long position at the time of the transaction. For

example, a sale may be marked as “long” because the overall net position in the security within an

aggregation unit is long at the time of the sale. If the execution results in a short position in a specific

account (or subaccount) held within the aggregation unit, this position is reportable pursuant to Rule

4560.”; Q11: “Where, as part of a strategy, an account holds both a short and long position in the same

security simultaneously, the short position is reportable as short interest pursuant to Rule 4560 and must be

reported in full, i.e., not netted against the long position.”).

obligation of calculating reporting thresholds despite generally holding positions below such

thresholds. Specifically, the Commission is modifying the threshold calculations to a monthly

average of daily gross short positions rather than a single daily position, as discussed under the

subheading “When the Reporting Obligation is Triggered” below. Further, as discussed in Part

III below, the Commission is not adopting the proposed requirement to report “buy to cover”

activity, which a commenter 157 stated would be more difficult if gross positions are required to

be reported. The Commission, in adopting Rule 13f-2, will require a Manager to report its

“gross” monthly short position as proposed under Proposed Rule 13f-2(b)(4).

When the Reporting Obligation is Triggered

To ease reporting burdens and reduce costs, some commenters proposed decreasing the

frequency of certain aspects of the U.S. dollar value-based aspects of the Reporting Thresholds

by instead using monthly average positions, instead of the proposed “close of regular trading

hours on any settlement date” frequency. 158 Alternatively, one commenter suggested that the

proposed monthly reporting requirement should only be triggered if a Manager holds a short

position in excess of the Proposed Reporting Thresholds as of the last settlement day of the

month. 159 Commenters stated that by using average monthly positions rather than the proposed

rule’s use of any settlement date within the reporting period, the reporting burden required of

Managers would be substantially lessened, since Managers may transiently cross the reporting

157

SIFMA Letter, at 24.

158

See, e.g., Virtu Letter, at 3 (stating that “[w]e also object to the reporting requirement being triggered by the

existence of a short position on any settlement date within a reporting period.”); Ropes & Gray Letter, at 2

(stating that “[a]ll filing thresholds should be determined using average positions over a month rather than

daily positions.”).

159

SIFMA Letter, at 15 (advocating “that the proposed monthly reporting under Information Table 1 of

Proposed Form SHO should be triggered only if the Institutional Investment Manager holds a gross short

position in an equity security, as of the last day of such month, in excess of the threshold(s) for reporting.”).

thresholds through activities such as market making, hedging, and customer facilitation

activity. 160 Requiring reporting for Managers who temporarily cross these thresholds on an

intraday basis through such activity, one commenter stated, would not adhere to the legislative

intent of DFA section 929X. 161 Commenters stated that transiently crossing these thresholds

would not produce reported data that would be valuable to the Commission; for example, shortterm market disruptions may trigger reporting under the proposed frequency for Managers that

do not hold substantial short positions. 162 For reasons discussed below, the Commission is

modifying Proposed Rule 13f-2(a)(1)(i) (the U.S. dollar value-based prong of Threshold A) to

trigger reporting requirements when a Manager has a monthly average of daily gross short

positions (“monthly average”) with a U.S. dollar value of $10 million or more at the end of the

calendar month, rather than, as proposed, a $10 million or more gross short position at the close

of regular trading hours on any settlement date during the calendar month. 163

Threshold A, as adopted, will require reporting by Managers that have, for each equity

security of a reporting company issuer, either (1) a monthly average gross short position at the

close of regular trading hours in the equity security with a U.S. dollar value of $10 million or

more, 164 or (2) a monthly average gross short position at the close of regular trading hours as a

160

See Virtu Letter, at 2.

161

See SIFMA Letter, at 4.

162

See Ropes & Gray Letter, at 6-7.

163

This change to “monthly average” is responsive, in part, to commenters’ concerns about certain aspects of

the U.S. dollar value-based Reporting Thresholds. For reasons discussed below, however, the Commission

is adopting Threshold B as proposed (Proposed Rule 13f-2(a)(2)), which employs an “at the close of

regular trading hours on any settlement during the calendar month” approach. The Form SHO "Instructions

For Calculating Reporting Threshold,” discussed below, explain in detail the method for determining

whether the modified threshold is met.

164

To determine whether this Reporting Threshold has been met, a Manager shall determine its gross short

position at the close of regular trading hours in the equity security (as defined in Rule 13f-2) on each

settlement date during the calendar month and multiply that figure by the closing price at the close of

regular trading hours on the settlement date (“end of day dollar value”). The Manager shall then add all end

percentage of shares outstanding in the equity security of 2.5 percent or more. 165 Using a

“monthly average” dollar value for reporting company issuers will result in Form SHO reporting

by Managers that consistently carry large gross short positions during the reporting month. This

approach should reduce the reporting of non-directional, “transient” short sales activity 166 and

provide market participants with more focused information on substantial short positions held by

Managers. The modification should also reduce the burdens of certain Managers, specifically

those Managers, including market makers, that periodically meet or exceed the $10 million or

more threshold on a given settlement date during a calendar month, but that do not typically

carry a large gross short position throughout the month that will meet or exceed the monthly

average reporting threshold, by eliminating the need to calculate (and potentially trigger) the

threshold on a daily basis. This will help the Commission to distinguish directional short selling

of Managers from short sale activity effected by market makers and liquidity providers. 167

of day dollar values during the calendar month and divide that sum by the number of settlement dates in the

month to arrive at a “monthly average” for each equity security the Manager traded during that calendar

month reporting period.

165

The methods of calculation of the Reporting Thresholds are prescribed in “Instructions for Calculating

Reporting Threshold” in Form SHO. Rule 13f-2 and the instructions in Form SHO, require that for

purposes of determining whether a Manager meets or exceeds a Reporting Threshold, a Manager shall

determine its gross short position “at the close of regular trading hours” in the equity security, rather than at

the “end of day” as was provided for in the instructions to Proposed Form SHO. Accordingly, the

Commission is making a modification to the instructions for calculating Threshold A and replacing “end of

day gross short position” with “gross short position at the close of regular trading hours.” Addressing any

potential ambiguity in terminology should facilitate more consistency in reporting by Managers and more

comparability of the data reported on Form SHO. With this change, the calculation instructions for

Threshold A provide that to determine whether the percentage threshold of Threshold A has been met, a

Manager shall (a) determine its gross short position at the close of regular trading hours in the equity

security (as defined in Rule 13f-2) on each settlement date during the calendar month, and divide that

figure by the number of shares outstanding in such security at the close of regular trading hours on the

settlement date, and (b) add up the daily percentages during the calendar month as determined in (a) and

divide that sum by the number of settlement dates in the month to arrive at a “monthly average” for each

equity security the Manager traded during that calendar month reporting period. The number of shares

outstanding of the security for which information is being reported shall be determined by reference to an

issuer’s most recent annual or quarterly report, and any subsequent update thereto, filed with the

Commission.

166

See supra n. 135 and accompanying text.

167

See Proposing Release, at 14953.

In addition, similar to the discussion in the Proposing Release regarding the use of a

monthly average gross short position of 2.5 percent or more of total shares outstanding, 168 the

Commission continues to believe that using a monthly average gross short position at the close

of regular trading hours of $10 million or more, rather than an end of each settlement date

calculation as was originally proposed, will reduce the risk that a Manager may time its short

sales to avoid triggering the adopted reporting threshold. 169

Threshold B, as proposed, and as adopted, will require reporting by Managers that have,

for each equity security of a non-reporting company issuer, 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 the calendar month. 170 A single, dollar-based prong approach (using the

$500,000 or more on any settlement date metric) for securities of non-reporting company issuers

(Rule 13f-2(a)(2)) will capture Managers with large gross short positions, even if such positions

are relatively small compared to the market capitalization of the issuer. As discussed above, the

markets for non-reporting company issuers are more opaque and could benefit more from

168

Proposing Release, at 14962 (“In addition, the Commission believes that requiring the reporting of short

positions with a 2.5% or higher monthly average gross short position would capture Managers with gross

short positions that are large relative to the size of the issuer, and could therefore have a significant impact

on the issuer. Using a monthly average gross short position, rather than an end of month gross short

position, is also designed to prevent the scenario where a Manager engages in trading activity on the last

day of the month in order to avoid reporting.”).

169

In addition, the Commission is making a modification to specify in Rule 13f-2 and in the instructions in

Form SHO that, for purposes of determining whether a Manager meets or exceeds Threshold A, a Manager

shall determine its gross short position “at the close of regular trading hours” in the equity security, rather

than at the “end of day” as was provided for in the instructions to Proposed Form SHO. Reducing any

potential ambiguity in terminology should facilitate more consistency in reporting by Managers and more

comparability of the data reported on Form SHO.

170

The methods of calculation of the Reporting Thresholds are prescribed in “Instructions for Calculating

Reporting Threshold” in Form SHO. To determine the dollar value-based Reporting Threshold described in

Threshold B has been met, a Manager shall determine its gross short position at the close of regular trading

hours in the equity security (as defined in Rule 13f-2) on each settlement date during the calendar month

and multiply that figure by the closing price at the close of regular trading hours on the settlement date. If

such closing price is not available, a Manager shall use the price at which it last purchased or sold any share

of that security.

transparency. Additionally, due to their lower liquidity, equity securities of non-reporting

companies can be more sensitive to strategic trading than those of reporting companies. 171 As a

result, for those securities, a single dollar threshold that can be triggered on any day of a month is

more appropriate than the two-prong threshold calculated as monthly averages for equity

securities issued by reporting companies.

Basing Reporting Thresholds on Form SH Data

Some commenters maintained that the Commission should not have based the Proposed

Reporting Thresholds on Form SH data, as the Form SH data was collected during “a period of

abnormal market conditions that does not reflect recent changes in the markets,” and urged the

Commission to more robustly support its rationale for selecting the Reporting Thresholds. 172

These commenters essentially suggested that the use of Form SH data was unrealistic, and

suggested that the Commission consider whether the Reporting Thresholds are appropriate based

on more recent data and analysis. 173 In the Proposing Release, the Commission stated that to

perform the underlying Reporting Thresholds analysis, Form SH data on daily short positions for

November 2008 through February 2009 were filtered and matched to Center for Research in

Security Prices, LLC for daily closing prices and Compustat for daily shares outstanding. The

171

See infra Part VIII.E.3 (discussing difficulty in obtaining information on non-reporting company issuers,

and that data is often stale and inaccurate).

172

Comment Letter from Barbara Bliss, Associate Professor of Finance, et al. (Apr. 25, 2022), at 3, available

at https://www.sec.gov/comments/s7-08-22/s70822-20126591-287247.pdf (“Law and Finance Professors

Letter”) (“we believe the Commission could and should more robustly support its rationale for these

thresholds before adopting any final rule.”); see also AIMA Letter, at 11-12 (commenter was critical of

Reporting Thresholds based on “stale and limited” data). For a discussion of Form SH applicability to the

current period, see infra Part VIII.C.6.a.

173

See, e.g., AIMA Letter, at 12 (stating that the Commission should “review and analyze current short

interest market data for reporting issuers to ensure that any final threshold based on a gross position’s dollar

value accounts for the latest and most complete data”); Law and Finance Professors Letter, at 3 (stating that

the Commission should “consider more carefully whether the stated disclosure thresholds are appropriate,

based on more recent data and analysis, and whether there should be a mechanism that would permit these

thresholds to change over time”); Two Sigma Letter, at 7 (stating that Form SH burden estimates are an

“unrealistic benchmark”).

Commission recognized that the results of an analysis of Form SH data may not fully reflect the

status quo but that the analysis used appropriate data because it involved the same type of entities

(Managers) and the same activity (short positions). 174 As discussed in the Proposing Release, the

Commission believed that it struck a reasonable balance in proposing the Reporting Thresholds

with regard to the fundamental economic tradeoff of the value of the data versus the cost of

collecting the data. 175

The Commission disagrees with one commenter that stated that Form SH data was “stale

and limited.” 176 The Commission continues to believe that Form SH data is highly relevant for

determining the Reporting Thresholds. Form SH is the only existing data source of individual

Manager-level short sale positions.177 Form SH data was collected from October 17, 2008, until

August 1, 2009, and the Commission analyzed daily data submitted from November 2008 until

February 2009 as representative of short positions held by Managers. By the time Form SH was

in effect, the global financial crisis was winding down, and is considered by some to have

calmed by approximately June 2009. 178 Thus, data was analyzed for several months during

which the economy was returning to normalcy. Although the commenter suggested such data

does not address “recent changes in the financial markets,” the commenter did not elaborate on

what “recent changes” would have impacted an analysis of the Form SH data or the time period

174

Proposing Release, at 14963 n.80.

175

Proposing Release, at 14963-64, 15007.

176

See AIMA Letter, at 11-12.

177

While there are various limitations to be considered when using Form SH data, Form SH data are the most

relevant and applicable source of data available for the purposes of estimating the costs of the design and

analysis of Rule 13f-2. There are no other data sources, public or regulatory, which specifically track

Managers’ short position activities in the U.S. See infra Part VIII.C.6.a.

178

The National Bureau of Economic Research considers the global financial crisis as having officially started

Dec. 2007 and ended June 2009. See, e.g., NAT’L BUREAU OF ECON. RESEARCH, BUSINESS CYCLE DATING,

available at https://www.nber.org/research/business-cycle-dating.

in which the data was analyzed. Markets undergo periods of volatility and stability and are

constantly evolving over time. The data from Form SH involves the same type of entities

(Managers) and the same activity (short positions) as Form SHO. The time period for which the

Form SH data was studied is sufficiently informative to provide a reasonable assessment of

appropriate reporting thresholds for purposes of Form SHO. 179

Form SHO

a. Reporting via EDGAR

i. Proposal

To enhance transparency of short sale-related data reported and published pursuant to

Proposed Rule 13f-2, Proposed Rule 13f-2(a)(3) provided that Managers would file Form SHO

(and any amendments thereto) with the Commission on EDGAR. 180 The Commission believed

that most Managers should be familiar with filing forms on EDGAR—for example, Form

13F 181—and relying on EDGAR to access registration statements, periodic reports, and other

filings with the Commission that are made publicly available. 182 The Commission believed that

requiring Proposed Form SHO to be reported via EDGAR would enhance the accessibility,

179

See discussion of Form SH in Part VIII.C.6.a.

180

See Proposed Rule 13f-2(a)(3) (providing that “Form SHO and any amendments thereto must be filed with

the Commission via the Commission’s Electronic Data Gathering, Analysis, and Retrieval System

(“EDGAR”), in accordance with Regulation S-T. Certain information regarding each such equity security

reported by institutional investment managers on Form SHO and filed with the Commission via EDGAR

will be published by the Commission on an aggregated basis.”).

181

EDGAR filing is mandatory for all public Form 13F submissions. See Rulemaking for EDGAR System,

Exchange Act Release No. 34-40934 (Jan. 12, 1999), 64 FR 2843 (Jan. 19, 1999); see also Electronic

Submission of Applications for Orders under the Advisers Act and the Investment Company Act,

Confidential Treatment Requests for Filings on Form 13F, and Form ADV-NR; Amendments to Form 13F,

Exchange Act Release No. 34-95148 (June 23, 2022), 87 FR 38943 (June 30, 2022).

182

See, e.g., About EDGAR, available at https://www.sec.gov/edgar/about; see also Important Information

about EDGAR, available at

https://www.sec.gov/edgar/searchedgar/aboutedgar.htm#:~:text=EDGAR%2C%20the%20Electronic%20D

ata%20Gathering,and%20Exchange%20Commission%20(SEC) (“The [EDGAR] system processes about

3,000 filings per day, serves up 3,000 terabytes of data to the public annually, and accommodates 40,000

new filers per year on average.”).

usability, and quality of the Proposed Form SHO disclosures for the Commission, and would

allow the Commission to download disclosures from Form SHO directly, facilitating efficient

access, organization, and evaluation of the reported information. 183 The Commission further

believed that the improved quality and scope of information available for the Commission’s use

in examining market behavior and recreating market events would bolster the Commission’s

oversight of short selling activity and enhance investor protections. 184

ii. Comments and Final Rule

Several commenters raised concerns about how the confidentiality of the data reported on

Form SHO via EDGAR would be preserved. 185 Most of these commenters spoke of a need to

establish robust data security protocols for the “valuable and proprietary” information that would

be reported on Proposed Form SHO via EDGAR. Several such commenters expressed concerns

about cyberattacks or other breaches of account information. 186

While no technology system or infrastructure is impervious to cyberattack, the

Commission employs an array of actions to safeguard and protect the confidentiality and security

183

Proposing Release, at 14957.

184

Id.

185

See, e.g., K&L Gates Letter, at 5-6 (any final rule or final Form SHO should ensure “indefinitely” the

confidentiality of information that could reveal the identity of the reporting Manager).

186

See, e.g., AIMA Letter, at 14 (stating that the Commission has not explained how it will protect the

commercially sensitive data that will be reported on Proposed Form SHO or acknowledged that its systems

are susceptible to data breaches); MFA Letter, at 8 (positing that “the risk of increased cyberattacks or

other breaches of confidential account information far outweigh any incremental benefit associated with

requiring [Managers] to individually report short position information”); Two Sigma Letter, at 3-5

(cautioning that information on Proposed Form SHO reports “will be private only so long as the

Commission does not have its systems breached, its personnel do not misappropriate the information, the

information is not unintentionally released, or policies do not change retroactively”); SIFMA Letter, at 22

n.60 (citing cyber security, theft, and inadvertent data breach concerns as chief among the risks of

providing sensitive and confidential information regarding short positions and short activity).

of all information reported to EDGAR, which will include data reported on Form SHO. 187 The

Commission has stated that it has “engaged in a multi-year, multi-phase effort to modernize the

EDGAR system, including both internal and public-facing components. Security and

modernization enhancements were deployed in June 2020, focusing on technology upgrades

internal to the system.” 188 Moreover, as discussed in Part I.A.4.f.ii below, the Commission is

adopting an approach to the confidential treatment of information provided on Form SHO reports

that all such information will be deemed subject to a confidential treatment request under 17

CFR 200.83 (“Rule 83”). Accordingly, the Commission is adopting Rule 13f-2(a)(3) as

proposed.

b. Filing Form SHO Reports

i. Proposal

As described in the Proposing Release, Managers would use Proposed Form SHO for

reports to the Commission required by Proposed Rule 13f–2. The Commission proposed that

Managers would file a report on Proposed Form SHO with the Commission within 14 calendar

days after the end of each calendar month with regard to each equity security in which the

Manager meets or exceeds a Reporting Threshold. 189 The Commission proposed that Managers

would file the Form SHO with the Commission via the Commission’s EDGAR system in an

eXtensible Markup Language (“XML”) specific to Form SHO (“custom XML” or “Form

SHO-specific XML”), 190 a structured machine-readable data language. The Commission also

187

See Annual Report on SEC Website Modernization Pursuant to Section 3(d) of the 21st Century Integrated

Digital Experience Act (Dec. 2022), available at https://www.sec.gov/files/21st-century-idea-act-report2022-12.pdf.

188

Id.

189

Proposing Release, at 14956.

190

Id. at 14955.

proposed that Managers would either be able to file Form SHO using a fillable web form the

Commission would provide on EDGAR to input Form SHO disclosures, or a Manager could use

its own software tool to file Form SHO to EDGAR directly in Form SHO-specific XML. 191

Reporting via EDGAR, as described in the Proposing Release, would facilitate efficient access,

organization, and evaluation of reported information by the Commission.

The Commission stated in the Proposing Release that requiring Form SHO to be filed in

custom XML format, since it is a structured, machine-readable data language, would facilitate

more thorough review and analysis of the reported short sale disclosures by the Commission,

which would increase the efficiency and effectiveness with which the Commission could identify

manipulative short selling strategies. 192 Furthermore, the Commission stated most Managers

have experience filing EDGAR forms that use similar EDGAR Form-specific XML-based data

languages, such as Form 13F and Form ATS-N. 193

As proposed, if a Manager uses the web-fillable Proposed Form SHO on EDGAR and

encounters a technical error when filling out the form, such Manager would be required to

correct the identified technical error before being permitted to file the Proposed Form SHO

through EDGAR. If a Manager uses its own software tool to file a Proposed Form SHO filing to

191

See id. at 14955. The filing options described for Proposed Form SHO are consistent with other EDGAR

filings that are filed in form-specific XML-based languages. See, e.g., Regulation of NMS Stock Alternative

Trading Systems, Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38768 (Dec. 9, 2021) (requiring

new EDGAR Form ATS-N to be filed in an XML-based language specific to that Form).

192

See Proposing Release, at 14997 (“By requiring a structured machine-readable data language and a

centralized filing location (EDGAR) for the disclosures on Proposed Form SHO, the Commission would be

able to access and download large volumes of Proposed Form SHO disclosures in an efficient manner.”).

193

See, e.g., Proposing Release at 14960, 14999 (first citing Form 13F, available at

https://www.sec.gov/pdf/form13f.pdf) (then citing Regulation of NMS Stock Alternative Trading Systems,

Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38768 (Aug. 7, 2018)) (requiring new EDGAR

Form ATS-N to be filed in an XML-based language specific to that Form); see also Money Market Fund

Reforms, Investment Company Act Release No. 34441 (Dec. 15, 2021), 87 FR 7248 (Feb. 8, 2022) (Form

N-CR); Securities Offering Reform for Closed-End Investment Companies, Exchange Act Release No.

88606 (Apr. 8, 2020), 85 FR 33290 (June 1, 2020) (Form 24F-2).

EDGAR directly in Proposed Form SHO-specific XML, and a technical error is identified by

EDGAR after the filing is sent, such Manager would receive an error message that the filing has

been suspended, and would be required to correct the identified technical error and re-file the

Proposed Form SHO through EDGAR. 194

As an alternative, the Commission also discussed whether Proposed Form SHO should be

required to be filed in Inline eXtensible Business Reporting Language (“Inline XBRL”). 195 The

Commission stated that, compared to the proposal, the Inline XBRL alternative, which is both

machine-readable and human-readable, would provide more sophisticated validation,

presentation, and reference features for filers and data users. 196 However, the Commission stated

that given the fixed and constrained nature of the disclosures to be reported on Proposed Form

SHO, the benefits of the Inline XBRL alternative would be muted, and therefore Managers

would not be able to take advantage of customization and presentation features. 197 Furthermore,

the Commission stated in the Proposing Release that the alternative Inline XBRL approach

would create greater initial implementation costs, such as licensing XBRL filing preparation

software, because many Managers may not have prior experience structuring data in Inline

XBRL. 198

194

The Commission stated in the proposing release that the XML schema (i.e., the set of technical rules

associated with Proposed Form SHO-specific XML) for Proposed Form SHO would incorporate

validations of each data field on Proposed Form SHO to help ensure consistent formatting and

completeness. For example, letters instead of numbers in a field requiring only numbers, would be flagged

by EDGAR as a “technical” error that would require correction by the reporting Manager in order to

complete its Proposed Form SHO filing. Field validations act as an automated form completeness check

when a Manager files Proposed Form SHO through EDGAR; they do not verify the accuracy of the

information filed in Proposed Form SHO filings. Proposing Release, at 14960 n.72.

195

See Proposing Release, at 15010-11.

196

See id.

197

See id.

198

See id.

ii. Comments and Final Rule

The Commission received some comments about the use of Form SHO-specific XML in

filing Form SHO. In response to Q39 in the Proposing Release, 199 which asked whether the use

of Form SHO-specific XML would make the reported data more useful to users, one commenter

stated that data prepared in consistent, structured format would be “significantly more functional

and useful.” 200 Regarding the costs and benefits of an Inline XBRL requirement as compared to

Proposed Form SHO-specific XML, this commenter supported using XBRL in a commaseparated value (“CSV”) format, which is a text file that uses delimiters such as commas to

separate data fields. 201 The commenter stated that this would be the most appropriate standard

“for capturing high volume, granular data in a compact format,” and urged the Commission to

adopt XBRL rather than custom XML. 202 The commenter stated that XBRL-CSV has several

advantages over the Commission’s proposed use of a custom XML format, such as reducing

preparation costs and processing costs, as well as improving validation. 203 In addition, the

commenter disagreed with the Commission’s view in the Proposing Release that the benefits of

the additional features of XBRL would be muted if used for Form SHO due to the fixed and

constrained nature of the disclosures to be reported. The commenter stated that several other

agencies, such as the FDIC and FERC, have recently adopted XBRL format over custom XML

format. However, the commenter acknowledges that initial implementation costs will be higher

and familiarization with the format will take longer for reporting entities. Alternatively, another

199

Proposing Release, at 15012.

200

Comment Letter from Campbell Pryde, President and CEO, XBRL US (Apr. 26, 2022), at 1 (“XBRL

Letter”), available at https://www.sec.gov/comments/s7-08-22/s70822-20126860-287597.pdf.

201

See id. at 2.

202

See id. at 2-5.

203

See id.

commenter supported the use of Form SHO-specific XML, stating that “XML is a widely used

language and therefore implementation and maintenance would keep costs low and efficiency

high,” and thought it would allow for efficient review of the reported data. 204

The Commission is adopting the custom XML data reporting requirement as proposed.

As explained in the Proposing Release, the filing options for Form SHO are consistent with other

EDGAR filings that are filed in Form-specific XML-based languages. 205 The Commission also

continues to believe that because many Managers have been using custom XML-based languages

through other releases, they are more familiar with this language than other languages, such as

XBRL, so the use of XML will promote efficiency in filing and review of Form SHO reports.

Familiarity with custom XML formats will reduce implementation and ongoing compliance costs

when compared to introducing XBRL-based formats that may be unfamiliar to Managers.

Managers’ greater familiarity with custom XML formats should also reduce the possibility of

data input errors when compared to XBRL formats. The above noted commenter likewise stated

that XBRL formats would entail higher initial implementation costs and that familiarization with

the XBRL formats would take longer for reporting entities. The costs of using XBRL formats in

implementation and user retraining, along with the inconsistencies relative to other filings that

use Form-specific XML-based languages, do not justify the potential data formatting benefits of

XBRL. Further, the commenter stated a preference for using XBRL specifically in CSV format.

In addition to the above concerns about XBRL-based languages generally, the Commission

believes that custom XML format is more appropriate than an XBRL-CSV format for the

204

Comment from An Investor (Apr. 4, 2022), available at https://www.sec.gov/comments/s7-08-22/s7082220122297-278355.htm.

205

See, e.g., Regulation of NMS Stock Alternative Trading Systems, Exchange Act Release No. 83663 (July

18, 2018), 83 FR 38768 (Dec. 9, 2021) (requiring EDGAR Form ATS-N to be filed in an XML-based

language specific to that Form).

purposes of Form SHO because XML format is more human-readable than CSV format, and

XML is more flexible when using more

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