# Short Position and Short Activity Reporting by Institutional Investment Managers > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2023-23050 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 1, 2023 - **Citation:** 88 FR 75100 ## Text 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 sale-related 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, DC 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 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 I. Overview A. Background B. The Proposals C. Overview of Proposed Rule 13f-2, Proposed Form SHO, Proposed Rule 205 and Proposed CAT Amendments 1. Overview of Comments Received 2. Final Rule 13f-2, Form SHO and CAT Amendment 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 2. Scope of Reported Securities 3. Reporting Thresholds 4. Form SHO B. Data Aggregation and Publication of Information by the Commission 1. Proposal 2. Comments 3. Final Rule III. Proposed Amendment to Regulation SHO To Aid Short Sale Data Collection A. Proposed Rule 205 B. Comments IV. Amendments to CAT A. Proposal To Require “Buy to Cover” Order Marking B. Proposal To Require Reporting of Reliance on Bona Fide Market Maker Exception V. Other Comments VI. Compliance Date VII. Paperwork Reduction Act Analysis A. Background B. Burdens for Managers Under Rule 13f-2 and Form SHO 1. Applicable Respondents 2. Burdens and Cost C. Burdens and Costs Associated With the Amendment to CAT 1. Summary of Collections of Information 2. Use of Information 3. Respondents 4. Total Initial and Annual Reporting and Record Keeping Burdens D. Collection of Information Is Mandatory E. Retention Period of Recordkeeping Requirement F. Confidentiality VIII. Economic Analysis A. Introduction B. Baseline 1. Institutional Investment Managers 2. Short Selling 3. Current Short Selling Regulations 4. Existing Short Selling Data 5. Competition C. Economic Effects 1. Investor Protection and Market Manipulation 2. Effects on Stock Price Efficiency 3. Effect on Market Liquidity 4. Effect on Corporate Decision Making 5. Effect on the Securities Lending Market 6. Compliance Cost 7. Effect of Certain Electronic Filing and Dissemination Requirements 8. Potential Increased Use of Derivatives D. Efficiency, Competition and Capital Formation 1. Efficiency 2. Competition 3. Capital Formation E. Reasonable Alternatives 1. Alternative Approaches 2. Data Modifications 3. Threshold Modifications 4. Other Alternatives IX. Regulatory Flexibility Act Certification X. Other Matters Statutory Authority I. 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. 2 See 17 CFR 242.200(a). 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 used to drive down the price of a security, to accelerate a declining market in a security, or to manipulate stock prices. 6 3 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”). 4 See, Short Sales, Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (Aug. 6, 2004) (“Regulation SHO Adopting Release”). 5 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. 6 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-and-transaction-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. 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 broker-dealer 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 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 7 15 U.S.C. 78j(a). 8 See Regulation SHO Adopting Release. 9 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/2015/34-75445.pdf. 10 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”). 11 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. 12 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. 13 See 17 CFR 242.201. 14 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.). 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 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 15 Public Law 111-203, sec. 929X, 124 Stat. 1376, 1870 (July 21, 2010). 16 15 U.S.C. 78m(f)(2). 17 See, e.g., Letter from Elizabeth King, Corporate Secretary, NYSE Group, et al. (Oct. 7, 2015, Petition 4-689) (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-80a4-4b63-90dd-05f27f21ceb2 ; 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). 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 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. 18 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”). 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 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 19 Proposing Release, at 14951. 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 20 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 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 21 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”). 22 See, e.g., Comment from Samuel Hudock (Mar. 2, 2022), available at https://www.sec.gov/comments/s7-08-22/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/s7-08-22/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/s7-08-22/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/s7-08-22/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; Comment from David P. Miller Jr. (Oct. 19, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-312038.htm. 23 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/s70822-316701.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/s7-08-22/s70822-316599.htm; Comment from Nicky (Oct. 29, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-316638.htm. 24 See, e.g., Comment from Eric Mills (April 27, 2022), available at https://www.sec.gov/comments/s7-08-22/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/s7-08-22/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.”). 25 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/s7-08-22/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, 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/s70822-317266.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. 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 26 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/s70822-20126856-287588.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”). 27 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/s7-08-22/s70822-20126815-287523.pdf (“MFA Letter”) (“[T]he SEC's economic analysis and, specifically, the 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/s70822-20155771-324031.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.”). 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 28 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 Government-Business 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. 29 See infra Part II.A.4. See also Proposing Release, at 14964-65. 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. 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 30 See infra nn. 36 & 218. • 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: • 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”). 31 15 U.S.C. 78 l. 32 15 U.S.C. 78 o (d). • 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. • 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 33 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. • 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 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 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. 34 Specifically, we made a non-substantive revision to change the word “including” to “such as” and removed the amphibological comma. 35 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. 36 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.” 37 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. • 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 38 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). 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 control) has investment discretion 40 that meet or exceed a quantitative reporting threshold (“Reporting Threshold”). 39 15 U.S.C. 78m(f). 40 See Proposed Rule 13f-2(b)(3). 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 41 See Proposed Rule 13f-2(b)(1). 42 See also Instructions to Form 13F. 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 43 See 17 CFR 240.13f-1(b). 44 See infra discussion in Part II.A.3.a. 45 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. 46 See Comment Letter from the Alternative Investment Management Association Ltd (Apr. 26, 2022), at 10-11, 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. 47 AIMA Letter, at 11. 48 Id. 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 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 proposed daily calculation, 50 is designed in part to alleviate concerns for Managers who only occasionally meet or exceed the prescribed reporting thresholds. 49 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”). 50 See infra Part II.A.3 for more discussion of the reporting thresholds in Proposed Rule 13f-2 and Rule 13f-2 as adopted. 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 51 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. 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 52 15 U.S.C. 78 l. 53 15 U.S.C. 78 o (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 acquiring or selling the equity in connection with derivative activity, such as exercising an option. 58 54 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). 55 See Proposing Release, at 14956 n.59. 56 See Regulation SHO Adopting Release, at 48012. 57 Proposing Release, at 14958. 58 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. 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 59 Comment from Samuel Meadows (Mar. 26, 2022), at 1, available at https://www.sec.gov/comments/s7-08-22/s70822-273456.htm (“Samuel Meadows Comment”). 60 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 61 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/s7-08-22/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.”). 62 MFA Letter, at 12. 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 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 63 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-are-fueling-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 from active ETFs.”). Active ETFs can include inverse and short ETFs that seek to use short strategies or leverage. 64 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 Short-Selling 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-Failures-to-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). 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 65 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. 66 Anonymously submitted Comment (Mar. 21, 2022), at 1, available at https://www.sec.gov/comments/s7-08-22/s70822-20120739-272894.pdf. 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 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. 67 See Proposing Release, at 14956 n.59. 68 See id. at 14956. 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 69 SIFMA Letter, at 20. 70 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 security-based 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”). 71 See supra nn. 54 & 55 and accompanying text; see generally Part II.A.2.a. 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 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 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. 72 Id. 73 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/s7-08-22/s70822-20119368-272254.htm (positing that excluding derivative positions can create opportunities to avoid triggering the reporting thresholds through other economically equivalent instruments). 74 See infra Part VIII.C.8; see also Proposing Release, at 15001. 75 See infra n. 285. 76 See infra Part II.A.4. 77 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). 78 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. 79 See Regulation SBSR, 17 CFR 242.900 through 242.909. 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 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 80 15 U.S.C. 78m(f)(4). 81 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/s7-08-22/s70822-20126820-287527.pdf (“ICI Letter”) at 9 n.28; s ee 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). 82 Rule 10a-3T and Form SH focused on certain section 13(f) securities and excluded options that are reportable on Form 13F. 83 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). 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 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. 84 See Proposing Release, at 14956. 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. 85 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. 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 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 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 following the reporting calendar month will alleviate concerns regarding potential retaliation against reporting Managers. 86 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”). 87 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). 88 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). 89 Ropes & Gray Letter, at 8-9. 90 MFA Letter, at 11-12. 91 See Proposing Release, at 14956. 92 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.”). 93 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.”). 94 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. 95 See, e.g., Adopting Release for Amendments to Rule 15c2-11, 85 FR 68124, at 68185. 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 96 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). 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 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. 97 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). 98 561 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”). 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 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, 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. 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 non-reporting 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). 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://wrds-www.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.”). 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 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. 109 107 Id. at 14962. 108 Id. 109 Id. 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, 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. 112 110 Id. at 14962-63. 111 Proposing Release, at 14962-63. 112 Id. at 14962. 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. 114 113 Id. at 14957. 114 Id. 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 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. 115 115 Id. 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 reporting). 116 Some commenters expressed general support for the Proposed Reporting Thresholds, or expressed support for certain aspects of those thresholds. 117 116 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”). 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 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. 122 118 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 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.”). 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). 124 123 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. 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 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 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. 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. 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/short-interest-in-decline. 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 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. 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 . 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 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. 132 See, e.g., Comment from Peter Stauduhar (Mar. 6, 2022), available at https://www.sec.gov/comments/s7-08-22/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/s7-08-22/s70822-272287.htm ; Comment from Steve B. (Mar. 14, 2022), available at https://www.sec.gov/comments/s7-08-22/s70822-20119335-272221.htm (“SteveB.Comment”); Anonymously Submitted Letter (Apr. 2, 2022), available at https://www.sec.gov/comments/s7-08-22/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. 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 value-based 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. 139 138 Proposing Release, at 14962. 139 Id. Comments Recommending the Use of the Same Threshold for Reporting Company and Non-Reporting 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 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. 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. 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. 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 non-reporting 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 non-reporting 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 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. 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. 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, 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. 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, percentage-based 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.”). 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. “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 positions in more than one issuer. 149 One commenter proposed that, if a gross short position calculation is used, ma [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2023-23050. Public record. Not legal advice.